This report does not constitute a rating action
Primary Credit Analyst
Frank Gill Madrid +34-91-788-7213
The commercial borrowing of emerging market sovereigns in Europe, Middle East, and Africa (EMEA) will likely stay well above pre-pandemic levels in 2022. Such debt should rise $253 billion in 2022, hitting $3.4 trillion-equivalent by year-end. S&P Global Ratings expects these markets to maintain high borrowing levels in 2022 to manage external risks, including rising inflation, rate hikes, and lingering COVID effects.
Our estimates pre-date the conflict in Ukraine, which is likely to increase gross commercial borrowing for most of the 54 emerging EMEA sovereigns included in this survey. This excludes the larger hydrocarbon exporters, which are benefiting from Brent oil prices of over $100.
The commercial debt of emerging markets (EMs) in EMEA should end 2022 at 37% of combined GDP, up considerably from 31% in 2016. The spike reflects an accumulation of shocks over the past six years, but most importantly:
Of the 55 EMEA EM sovereigns included in this survey, the commercial debt levels of nine have more than doubled in dollar terms since 2016: The Emirate of Sharjah, Abu Dhabi, Botswana, Burkina Faso, Uganda, Oman, Saudi Arabia, Egypt, and Romania. Sub-Saharan sovereign commercial debt levels (excluding South Africa), while very much on the rise, only make up 8.4% of total sovereign commercial debt in dollar terms in the EM EMEA region. This reflects a reliance in many cases on concessional sources of financing. Commercial debt outstanding only $40 billion in exceeds four sub-Saharan African sovereigns, namely the region's largest economies: Ghana, Angola, Nigeria, and South Africa. At the other end of the scale, we project the largest five EMEA EM issuers together account for just under one-third of gross commercial borrowing for 2022 in dollar terms, including: Egypt, Russia, Poland, Turkey, and Israel.
The commercial debt of EMEA emerging markets should end 2022 at 37% of combined GDP
For Ghana, the government of Georgia, and Montenegro, we project the dollar value of the stock of outstanding commercial debt will decline during 2022, given a fairly high share of local-currency debt and considerable exchange-rate depreciation. The dollar value of gross commercial debt is also projected to fall somewhat in the case of GCC (Gulf Cooperation Council) sovereigns and Angola, given these oil exporters are projected to operate budgetary surpluses this year. Finally, debt forgiveness and restructuring should reduce commercial debt for Zambia.
Our projections were finalized before the escalation of the conflict in Ukraine, and do not reflect rising costs for defense, the intake of refugees, and spending on food and energy subsidies. Taken together these factors could push up net borrowing by as much as 1.6% of the GDP in Poland and Hungary; and by as much as half that in Egypt and Turkey.
Table 1 | Sovereign Commercial Issuance And Debt
e--Estimate. f--Forecast. Source: S&P Global Ratings.
Chart 1 | Gross Long-Term Commercial Borrowing By Sovereign
We forecast that just over 40% of commercial sovereign debt in 2022 will be issued by sovereigns with an investment-grade ('BBB-' or higher) foreign-currency rating (see the lower part of table 2). This is a significant drop from the roughly 50% level in 2021, and reflects:
By ratings, sovereigns within the 'B' category will remain the most active issuers, issuing about 38% of commercial sovereign debt. Within this category, Egypt and Turkey will together likely accounting for 58% of such issuance. That said, Turkey's commercial borrowing in 2022 in dollar terms will fall materially in 2022, largely on exchange-rate effects, in our opinion.
For 2022, Egypt will replace Turkey as the largest EMEA EM sovereign issuer in the sample. We project issuance of $73 billion-equivalent for the sovereign, referencing early-March exchange rates. This is sharply up from $63 billion in issuance last year. Including short-term debt, Egypt also faces the highest rollover rate of all 54 EMEA EM sovereigns at 33.5% of GDP, we estimate, followed by Bahrain (24.9% of GDP), and Kenya (24.7% of GDP). This would imply these governments will be particularly sensitive to the rising cost of external refinancing via monetary tightening by the U.S. Federal Reserve (though less so for Kenya given that most of its commercial sovereign debt is denominated in shillings, and primarily held by domestic residents).
Chart 2 | Sovereigns' Total Commercial Debt In 2022 By Foreign-Currency Rating Category
SD--Selective default. Source: S&P Global Ratings.
Chart 3 | Sovereign Debt Rollover Ratios As a percentage of GDP
Table 2 | Gross Commercial Long-Term Borrowing
e--Estimate. f--Forecast. N.A.--Not available. SD--Selective default. Source: S&P Global Ratings.
Table 3 | Total Commercial Debt At Year-End (Long- And Short-Term)
Chart 4 | Sovereign Commercial Debt To Stay Stubbornly Above Pre-COVID Levels
e--Estimate. CG--Central government. f--Forecast. Source: S&P Global Ratings.
Table 4 | Central Government Rollover Ratios And Debt Structure (% Of Total Debt, Including Bi-/Multilateral)
f--Forecast. N/A.--Not applicable. SD--Selective default. Source: S&P Global Ratings.
Our estimates focus on debt issued by a central government in its own name. We exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds with tenors of more than one year, issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.
In addition to commercial debt, some of the estimates we use in this study encompass bilateral and multilateral debt. We do not include government debt that may be issued by some central banks for monetary-policy purposes. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. We factor in our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities. Assumptions that we express in dollars are subject to exchange-rate variations. Note that these projections were made prior to the escalation of the conflict in Ukraine, and therefore do not reflect upside pressures on budgetary spending for food and energy importers.
Chart 5 | EMEA Emerging-Market Sovereign Borrowing To Edge Higher In 2022
EMEA--Europe, Middle East, and Africa. e--Estimate. f--Forecast. Source: S&P Global Ratings.
Secondary Contact
Michelle Keferstein Frankfurt +49-693-399-9104
Research Contributor
Hari Krishan CRISIL Global Analytical Center, an S&P affiliate
Editor
Jasper Moiseiwitsch
