Global Macro-Environment Backdrop

The global economy has is facing unprecedented structural shocks emanating from the Covid 19 pandemic, massive geopolitical shifts, and the normalisation of monetary policy in developed nations. The need to address rampant inflation has led to a rapid rise in global interest rates and the value of the US dollar. These developments are having significant implications on the evolution of debt sustainability across sovereigns:

» Sovereign debt is at unprecedented high levels and the global stock of public debt is set to increase further placing huge risk management pressures on sovereign debt portfolios

• The IIF estimates that EM debt alone totalled US$98 trillion in 2022, 31% increase vs 2021

» Payment capacity has deteriorated at a rapid place in a number of DC and LICs; the prospects for financial stress and a potential SDRs is increasing

• 7 sovereigns are restructuring their debts, and a number of others are set to follow suit

» Restructuring these liabilities is proving a challenge not least because creditor bases have evolved dramatically over the past decade

• The share of debt owed to China and commercial creditors have grown in importance