Three countries have already failed their debt this year: Argentina, Ecuador and Lebanon. Others are at risk, according to Fitch Ratings. This corresponds to the record for a single year (this also happened in 2017). And, in case you are like us and you don’t remember what month it is, it is only May.
Other defaults are likely this year, says Fitch.
What is happening: Fitch has downgraded the debt of 29 countries this year, eight of which have a debt in the super speculative “C” range, given to countries at high risk of default. The credit rating agency also claimed that a dozen other countries are at risk of downgrading.
The most precarious sovereign debt comes from four African nations: Gabon, Mozambique, the Republic of the Congo and Zambia. At risk of joining them in the “Cs” are El Salvador, Iraq and Sri Lanka.
On average, the default rate for those C-rated countries has been 26.5% in the past 25 years, says Fitch. And they are generally automatically defaulted quickly: on average, a country takes only seven months to become default after moving to a “C”.
The problem has worsened recently. Over the past five years, the default rate for countries with the worst ratings has risen to 38.5%. Only five nations downgraded to C have avoided default.
Yet many oil producing nations are in good health. The countries at greatest risk of default have various underlying problems and the collapse in oil prices has pushed them beyond the limit: adding high interest rates and low liquidity reserves it starts to look like a toxic mix.
Sovereign defaults remain rare: Fitch says that only 14 countries have failed a total of 23 times since the mid-1990s. But they are becoming more common and the coronavirus economy is making them much more likely.
American retailers are about to report earnings
This week, American retailers will show how coronavirus has changed the way people buy.
The precipitous fall came when people drastically changed their buying behavior. Few people buy clothes or organize holidays. Gas purchases are falling. But the essentials for the home, such as food, toilet paper and cleaning products, have skyrocketed.
Come on next
Monday: Report on the US real estate market index NAHB
Tuesday: Walmart, Kohl’s Earnings and Home Depot, US Housing Report Starts
Wednesday: Earnings of Target, L Brands and Lowe
Correction: An earlier version of this story incorrectly claimed Suriname’s geographic location.
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