Sri Lanka, Armenia and Pakistan top the list of smaller emerging economies most vulnerable to refinancing risks, because they face a combination of large upcoming repayments and low foreign currency reserves, ratings agency Moody's said on Wednesday, October 10, according to Reuters.
Across frontier markets - a subset of riskier and often smaller emerging economies - some $4 billion of hard-currency sovereign bonds will mature each year from 2019 to 2021, with Asia most affected, Moody's found.
The refinancing burden will soar to $7 billion to $9 billion a year from 2022 to 2030 as large repayments come due in sub-Saharan Africa.
"As international sovereign bonds mature in 2019 and 2020, governments in Sri Lanka, Armenia and Pakistan, and to a lesser extent Honduras and Kenya will be most exposed to more costly debt financing," Moody's analyst Matthew Circosta wrote in a note.
"If pronounced and sustained, this would weaken debt affordability and raise their debt burdens, especially if local currencies depreciate," he said.
While the sovereign credit ratings of Sri Lanka, Armenia and Pakistan reflected how vulnerable they are, a further hit to their foreign currency reserves could raise the risk of lower capital inflows and higher refinancing costs. That in turn could spell a cloud over credit ratings, said Moody's.
Sri Lanka has $1.5 billion of hard-currency bonds maturing in the first four months of 2019 and another $1 billion in 2020, translating to 2.7 percent of its gross domestic product, Moody's calculated. Armenia has $500 million coming up for repayment in 2020, which translates to 3.9 percent of GDP.