Frontier Market Borrowing Binge

IMF Blog, November 18, 2019

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Hard-currency bond sales by frontier issuers are poised to rise to $38 billion in 2019, close to the record set in 2017.
Over the five years to mid-2019, the total stock of frontier hard-currency debt tripled to $200 billion.
For the median frontier borrower:
- Stock of hard-currency bonds has grown to 7 percent of GDP.
- Stock of hard-currency bonds has grown to almost half of gross reserves.
- These figures rose from 3 percent of GDP and 20 percent of reserves in 2014.
A broader group of low-income developing countries that are having trouble servicing their debt, or are at high risk of debt distress, has doubled since 2013 to 43 percent.

Rock bottom global interest rates have enabled frontier-market countries to borrow cheaply.
Excessive or poorly used borrowing increases the risk that countries will have trouble servicing loans and face default.
A rise in global interest rates would make it even harder for these countries to service overseas obligations.
The IMF’s latest Global Financial Stability Report highlights the vulnerability of these countries to higher interest rates.

Make containing debt-related vulnerabilities a top priority.
Countries at high risk of distress should avoid borrowing from private lenders (as opposed to advanced-economy governments that lend to low-income countries at a discount).
Focus financing on projects that are likely to generate high returns.
Improve capacity to borrow from domestic lenders.
Strengthen management of public investments.

With appropriate safeguards, frontier economies can use low-cost, hard-currency loans to improve long-term growth prospects and raise living standards.
Without reforms and prudent borrowing, escalating hard-currency debt stocks increase the risk of debt distress, particularly if global interest rates rise.

The Editors, November 18, 2019 — Frontier Market Borrowing Binge.