Sovereign debt challenges in Asia

Global Outlook: sovereign debt challenges in Asia

In EIU’s latest global outlook video, global forecasting director Agathe Demarais, and senior analyst John Marrett, discuss the possibility of a sovereign debt crisis in Asia, taking a look at those countries that EIU believes will be most at-risk.

Monetary policy tightening in the US and other major Western economies has brought the sustainability of emerging-market sovereign debt in Asia back into focus. Rising global interest rates and a strong US dollar have pushed up borrowing costs, while higher inflation is putting pressure on governments to provide additional fiscal relief.

Sri Lanka already defaulted on all its foreign debt in April of this year, having been structurally vulnerable at the start of the pandemic. Pakistan followed a similar path into the pandemic and looks the most likely candidate to default next, while other emerging markets in Asia, notably Mongolia and Laos, are at risk in 2022-26.

“Fiscal consolidation, resulting from the debt restructuring process, would weaken public spending and in turn constrain economic growth, slow the reduction in poverty and stall the expansion of the middle class within each country for a number of years.”

JOhn marrett, senior analyst, EIU.

Learn more about the outlook for Asia’s emerging markets with EIU Viewpoint, our new analysis service. EIU Viewpoint provides unmatched global insights for nearly 200 countries, six industries and 25 critical commodities, helping organisations identify prospective opportunities and potential risks.