aslund59_GREG BAKERAFP via Getty Images_china Greg Baker/AFP via Getty Images

China Should Join the Paris Club

Even with rock-bottom interest rates, the COVID-19 pandemic has forced one vulnerable country after another to default on its external debt, or to signal that it may do so soon. Worse, the main foreign creditor to debt-distressed emerging economies, China, has little experience managing cascading sovereign defaults.

BISHKEK – Global indebtedness has never been greater than it is today. With interest rates so low for so long, anyone who could borrow has done so. But, even with rock-bottom borrowing costs, the economic fallout from the pandemic has forced one vulnerable country after another to declare sovereign default, or to signal that it may do so soon. Worse, the main creditor to debt-distressed emerging economies, China, has little experience managing cascading sovereign defaults.

On November 13, Zambia became the sixth country to default on its sovereign bonds this year (following Argentina, Belize, Ecuador, Lebanon, and Suriname). Others are likely to follow. Fitch Ratings now gives 38 sovereign bonds a B+ or worse, where B denotes a “material” risk of default.

Meanwhile, other countries are seeking debt restructuring to avert a default. For example, Kyrgyzstan’s total public debt at the end of June was $4.7 billion, $4.1 billion of which was owed to foreign creditors, including $1.775 billion to China.

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