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List of countries with highest default risk 2022

List of countries with highest default risk 2022

List of countries with highest default risk 2022

List of countries with highest default risk 2022(credits:google)

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Sri Lanka, a country in South Asia, made its first financial default in May 2022. Its government was given a deadline of 30 days to pay the unpaid interest of $78 million, but it failed to do so.

Which other nations are at risk of default in 2022, which poses an essential question?

Here are the nations that are more likely to default this year, according Visual Capitalist via Bloomberg. The list also includes Pakistan.

list of nations facing the greatest default risk in 2022
Bloomberg’s Sovereign Debt Vulnerability Ranking, a composite indicator of a nation’s default risk, is based on four metrics: interest expense as a percentage of gross domestic product (GDP), government debt as a percentage of GDP, five-year CDS spread, and government bond yields (the weighted-average yield of the nation’s dollar bonds).

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Let’s look at El Salvador and Ukraine to gain a better understanding.

list of nations facing the greatest default risk in 2022
Yields on Ukraine’s Bonds
Russia is more likely to default than Ukraine because of their ongoing conflict. Ukraine could not be able to pay back its debts if Russia seizes control of the nation.

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The value of Ukrainian government bonds has dropped to 30 cents on the dollar as a result of this sell-off in the market. This indicates that a bond with a face value of $100 might be purchased for $30.

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As it goes in the opposite direction of the price, the average yield on these bonds has risen to 60.4 percent. According to Visual Capitalist, “as a point of comparison, the yield on a US 10-year government bond is currently 2.9 percent.”

Spread CDS
With the use of credit default swaps (CDS), a sort of financial contract, a lender can obtain insurance in the event of a default.

A CDS seller acts as a middleman between the borrower and the lender (investors) (in this case, governments).

In exchange, the buyer pays a fee, also referred to as a spread. Basis points are used to express it (bps). If a CDS has a spread of 300 bps (3%) to cover $100 in debt, the investor must pay $3 annually.

Applying this to Ukraine’s five-year CDS spread of 10,856 bps (108.56%) would require the investor to pay $108.56 a year to insure $100 in debt, indicating that the market has less confidence in Ukraine’s ability to avoid defaulting.

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El Salvador is ranked higher
El Salvador is ranked higher than Ukraine because of its “greater interest expenditure and overall government debt.”

According to the data, El Salvador pays a higher yearly interest rate of 4.9 percent of its GDP. In contrast, the US will spend 1.6% of GDP on government interest in 2020.

When totaled, El Salvador’s outstanding debts amount to approximately 82.6 percent of GDP, which is high by historical standards.

According to the Visual Capitalist, “the next date to watch will be January 2023, as this is when the country’s $800 million sovereign bond matures.”

According to research, El Salvador’s default would have a considerable but short-term negative impact.

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