Countries’ massive debt piles are turning into a disaster
Three countries have already defaulted on their debt this year: Argentina, Ecuador and Lebanon. More are at risk, according to Fitch Ratings. That matches the record for a single year (this also happened in 2017). And, in case you’re like us and don’t remember what month this is, it’s only May.
More defaults are probable this year, Fitch says.
What’s happening: Fitch downgraded the debt of 29 countries this year, eight of which have debt in the super-speculative “C” range, at given to countries at high risk of default. The credit-ratings agency also said a couple dozen other countries are at risk for downgrades.
The most precarious sovereign debt is from four African nations: Gabon, Mozambique, the Republic of Congo and Zambia. At risk of joining them in the “C’s” are El Salvador, Iraq and Sri Lanka.
On average, the default rate for those C-rated countries has been 26.5% over the past 25 years, Fitch says. And they typically default quickly: It takes an average of just seven months for a country to default after getting downgraded to a “C.”
The problem has gotten worse recently. Over the past five years, the default rate for the worst-rated countries soared to 38.5%. Only five nations downgraded to the C’s have avoided default.
Yet plenty of oil-producing nations are healthy. The countries at highest risk of default have various underlying problems, and plummeting oil prices put them over the edge: Stir in some high interest rates and low cash reserves, and that
Sovereign defaults remain rare: Fitch says only 14 countries have defaulted a total of 23 times since the mid 1990s. But they’re becoming more common, and the coronavirus economy is making them far more likely.
American retailers are about to report earnings
This week, American retailers are going to show how coronavirus has changed the way people shop.
The precipitous drop came as people have drastically altered their purchase behavior. Few people are buying clothes or planning vacations. Gas purchases are way down. But home essentials, such as food, toilet paper and cleaning products, have soared.
Monday: NAHB US housing market index report
Tuesday: Walmart, Kohl’s and Home Depot earnings, US housing starts report
Wednesday: Target, L Brands and Lowe’s earnings
Correction: A previous version of this story incorrectly stated Suriname’s geographic location.