WHAT HAPPENS WHEN COUNTRIES DEFAULT ON DEBT?
Coronavirus could lead to country defaults
A growing number of countries may default on their debts in the next 12-18 months as governments around the world increase their spending to limit the economic damage from the coronavirus pandemic.
«I think we will see some problems there. Perhaps we will see a eurozone crisis with countries like Greece or Italy … most likely at the center of this, says the economist Simon Baptist. – In the structure of the developing world, I will name countries such as South Africa and Brazil that are likely to suffer further crisis as a result. And, of course, Argentina has actually returned to sovereign default.».
The coronavirus, which infects more than 1.9 million people worldwide, has forced governments to take unprecedented action to isolate entire countries or cities, causing much of the world's economic activity to stall..
The International Monetary Fund on Tuesday lowered its economic forecasts. The IMF expects the global economy to contract 3% this year – up from its previous forecast of 3.3% growth.
What happens if Zambia defaults on its debt? – BBC Africa
Many world governments have announced significant incentives to support their economies, and some have taken on more debt to finance these spending. The US has increased its issuance of Treasuries, while conservative Germany has said it plans to increase borrowing by as much as 150 billion euros ($ 164.4 billion).
Baptist said that not all governments can get funding. Specifically, he said that emerging economies will face «big problems», to convince international investors to lend them more money at a time when investors are looking for a safe haven to place their funds.
«Many emerging markets depend on international investors and international financial flows to obtain financing to meet the budget deficit. It is more difficult for them to take loans in local currency, although there are a few exceptions», – the economist thinks.
«At the moment, with such a large reversal of risk aversion in international markets, even if some emerging governments around the world want to spend more, they will not be able to get funding.», – he added.