Egypt is among the emerging markets “most vulnerable” to debt default as covid borrowing pressures state finances, the FT suggests: Egypt, Zambia, and Ghana are the three emerging economies with the greatest risk of defaulting on sovereign external debt in the next year, Absolute Strategy Research’s Adam Wolfe says, according to the Financial Times. Wolfe also sees “elevated levels of risk” for default with South Africa, India, Nigeria, and Brazil. Out of the 20 EM economies with the largest financing requirements in 2020, Egypt leads the pack with the ratio of its maturing debt and fiscal deficit to GDP nearing 40%, according to Oxford Economics and IMF figures cited by the FT.

These countries will be forced to choose between cutting back state spending in the next few years and asking for debt restructuring, analysts say, as their budget deficits have soared on the back of massive public spending increases since the onset of the pandemic. For now, a pickup in capital inflows to EM bond markets has helped address immediate financing needs but is essentially pressing the “snooze” button on fiscal pressure, and is expected to result in “exacerbating their future budget problems by increasing debt interest costs and repayments.”