The economic shock of the coronavirus pandemic and the plunge in oil prices could push a record number of sovereign borrowers to default on their debt this year, Fitch Ratings said.
Fitch, one of the three big credit rating agencies, said it had downgraded a record 29 sovereigns in the first four months of 2020. Three countries — Lebanon, Ecuador and Argentina — have defaulted this year, already matching a record set in 2017.
The most vulnerable sovereigns were those with weak credit fundamentals — highly indebted economies or those with weak policy credibility — or those reliant on commodity exports, tourism or external financing, Fitch said.
It currently rates Gabon, Mozambique, Republic of Congo and Suriname at CCC, where default is a real possibility, while Zambia is rated even lower at CC, where default is probable.
The average annual default rate for sovereigns rated at that level is 26.5%, including those who receive this rating post-default, Fitch said, citing its past downgrade actions.
Also at risk are El Salvador, Iraq and Sri Lanka, it said — all currently rated B- but under threat of a downgrade to CCC, where defaults become more probable.
Fitch said few sovereigns which are downgraded to or assigned an original rating below CCC+ avoid a default, with only five having ever avoided that outcome.
It takes a median of seven months to default after entering the ratings bracket of CCC and below, it added.
Source: Reuters via Club of Mozambique
