Which Countries Have External Debt "Issues"

Executive Summary

Russia is not the only country to have experienced a significant depreciation in the value of its currency over the past few months. Many other developing economies have also suffered erosion in their ability to service their foreign currency-denominated debt recently via the depreciations of their currencies. Are there other countries that could potentially encounter difficulties servicing their external debt in the coming year?

We deploy a simple rank ordering methodology in an attempt to determine which countries, among a sample of 30 of the world’s largest developing economies, may have difficulties servicing their external debt in the next year or so. Although our methodology does not allow us to specify absolute probabilities, we find that countries like Ukraine and Serbia are more likely to encounter debt servicing difficulties than are countries like China and the Philippines. What sets off the former economies is their elevated external debt relative to their gross national income and their stock of foreign exchange reserves, their high debt servicing ratios, their current account deficits, and the drubbing that their currencies have already experienced. Although we do not believe a wave of financial crises sweeping through the developing world à la 1997-1998 is imminent, there are some individual countries that bear watching.