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List of countries with highest default risk 2022

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The South Asian nation Sri Lanka defaulted in May 2022 for the first time on its debt. Its government was given an ultimatum of 30 days to cover $78 million in unpaid interest, however, it failed to do so. 

This raises an important question: Which other countries are at risk of default in 2022?

According to Visual Capitalist via Bloomberg, here are countries with a higher risk of default this year. Pakistan is also included in the list.

List of countries with highest default risk 2022

The Sovereign Debt Vulnerability Ranking — a composite measure of a country’s default risk — by Bloomberg is based on four metrics; government bond yields (the weighted-average yield of the country’s dollar bonds), five-year credit default swap (CDS) spread, interest expense as a percentage of gross domestic product (GDP), and government debt as a percentage of GDP.

In order to have a better understanding, let’s take a look at Ukraine and El Salvador. 

List of countries with highest default risk 2022

Ukraine’s Bond Yields

Due to the ongoing conflict between Ukraine and Russia, the former has a higher risk of default. If Russia takes control of the country, Ukraine might not be able to repay its existing debt obligations.

This has caused a sell-off of Ukrainian government bonds, resulting in a decrease in their value to 30 cents on the dollar. This means that a bond could be purchased for $30, having a face value of $100.

The average yield on these bonds has increased to 60.4% as it moves in the opposite direction of the price. “As a point of comparison, the yield on a US 10-year government bond is currently 2.9%,” according to Visual Capitalist.

CDS Spread

In the case of a default, a lender can get insurance with the help of credit default swaps (CDS), which are a type of financial contract. 

A CDS seller represents a third party between the lender (investors) and borrower (in this case, governments).

The buyer pays a fee, which is also known as spread in return. It is expressed in basis points (bps). The investor has to pay $3 per year if a CDS has a spread of 300 bps (3%) to insure $100 in debt.

If this is applied to Ukraine’s five-year CDS spread of 10,856 bps (108.56%), the investor would have to pay $108.56 yearly to insure $100 in debt, suggesting the market’s less faith in Ukraine to prevent itself from being defaulted. 

El Salvador’s higher ranking

As compared to Ukraine, El Salvador has a higher ranking due to its “larger interest expense and total government debt.”

The data shows that El Salvador’s annual interest payments are equal to 4.9% of its GDP, making it higher. Meanwhile, the US has a federal interest cost of about 1.6% of GDP in 2020.

El Salvador has outstanding debts of about 82.6% of GDP when totalled which is high by historical standards.

“The next date to watch will be January 2023, as this is when the country’s $800 million sovereign bond reaches maturity,” per the Visual Capitalist

Research says that El Salvador would face significant but temporary negative effects if it defaults. 

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In a first for history, PSX crosses the 77,000 milestone.

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At 77,213.31, the benchmark KSE-100 hit an all-time high, up 1,005.15, or 1.32%, from the previous close of 76,208.16.

The government’s readiness to seal an agreement with the International Monetary Fund (IMF) following the budget was cited by analysts as the reason for the upward trend.

Experts anticipate that in an attempt to bolster its position for a fresh bailout agreement with the International Monetary Fund (IMF), the budget for the fiscal year ending in June 2025 would set aggressive fiscal goals.

Budget for Pakistan, 2024–2025
Pakistan’s budget for the fiscal year 2024–25, with a total expenditure of Rs18.877 trillion, was presented on Wednesday by Minister of Finance and Revenue Muhammad Aurangzeb.

The Finance Minister, Muhammad Aurangzeb, outlined the budget highlights. He stated that the GDP growth target for the fiscal year 2024–25 is set at 3.6 percent, while the inflation rate is anticipated to stay at 12 percent.

He stated that while the primary surplus is anticipated to be 1.0 percent of GDP during the review period, the budget deficit to GDP is forecast to be 6.9 percent over the period under review.

According to the minister, tax income collection increased by 38% in the current fiscal year, and the province will receive Rs7,438 billion. The Federal Board of income expects to earn Rs12,970 billion in revenue for the upcoming fiscal year.

In contrast to the federal government’s projected net income of Rs9,119 billion, he stated that the federation’s non-tax revenue projections are set at Rs3,587 billion.

The federal government’s total outlays are projected to be Rs18,877 billion, with interest payments accounting for the remaining Rs9,775 billion.

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Pakistan currently has $14.38 billion in foreign exchange reserves.

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Pakistan’s commercial banks’ reserves, which stood at $5.28 billion at the conclusion of the week ending on June 7, rose by US$174 million, according to a central bank statement.

Reserving US$6.2 million less, the SBP now has US$9.10 billion in reserves. The causes for the decline in the reserves it had were not disclosed by the central bank.

The SBP released a statement that stated, “SBP reserves decreased by US$ 6 million to US$ 9,103.3 million during the week ended on 07-June-2024.”

The State Bank of Pakistan’s (SBP) foreign exchange reserves were reduced by US$ 63 million as a result of repaying external debt, with the reserves standing at US$ 9.093 billion as of earlier on June 6.

The central bank spokesperson said in a statement that as of the week that concluded on May 31, the nation’s total liquid foreign reserves were $14.31 billion.

In terms of net foreign reserves, commercial banks have US$ 5.22 billion of the overall foreign reserves, according to the SBP.

SBP reserves dropped by US$ 63 million to US$ 9,093.7 million during the week that ended on May 24, 2024, according to the announcement.

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In the local market, the price of gold plummets to Rs240,700/tola.

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Gold with a 24-karat purity level has dropped by Rs1200/tola on the local market.

Each tola of 24-karat gold is now selling for Rs240,700, with a further drop of Rs1029 bringing the price of 10 kilos of gold to Rs206,361. These figures are courtesy of the All Sarafa and Jewelers Association.

Meanwhile, after a $2 decline on the global market, one ounce of gold will be valued $2315.

A tola of gold was worth Rs 600 more on Wednesday.

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