While the reasons for this rise in indebtedness vary from country to country and are often multiple, the main reason is often The economic impact of successive international crises : the risk of a sharp drop in Chinese growth and lower energy commodity prices in 2015-2016, Covid-19 in 2020 and finally the war in Ukraine in 2022. As in mature economies, these crises cause additional spending and lower revenues for the state. They also lead to more difficult financing terms. In times of high volatility, international investors are generally quicker to withdraw from emerging markets. Not to mention that, unlike the Fed or the European Central Bank, local central banks have not engaged in large-scale asset purchase programs allowing the country to easily fund part of its debt. The depreciation of most emerging currencies against the dollar last year also contributed to a rise in debt partially denominated in foreign currency.
Seventeen countries defaulted between 2020 and 2022compared to just 11 in the past seven years. But these debt crises are not easy to solve. However, the Common Framework was created with this in mind at a time of piling up “Covid debt”. This common framework, by combining both International Monetary Fund, bilateral creditors already in the Paris Club (i.e. mainly developed countries) and emerging countries that have extended more loans to developing countries in recent years (including China but to a lesser extent India or Saudi Arabia), should allow for a quick resolution of this type of problem. But the larger number of people around the negotiating table (to which must be added the private investors who now play a major role) is making the negotiations longer and more difficult than initially expected. The various parties are aware of this and are actively working on improvements to this framework, particularly in the process aspects.
This difficulty in restructuring quickly and efficiently (both from the point of view of the borrowing country and from that of the major creditors) is problematic. debt disincentives Today other countries that have an excessive level of debt to register preemptively in this process. In the face of this stagnation and to face the rise in debt repayment spending, these countries in difficulty often have no other choice but to limit their investments and cut their expenditures, which hinders their growth potential in the medium term. in EgyptFor example, higher interest rates on government bonds issued in international markets, along with large amounts of debt due this year and next, should increase the cost of financing that is 3 to 4% of the state budget. This corresponds to about a quarter of the annual allocated budget education.