• Main Home
  • About
    • Founder & CEO
    • Contact
    • Testimonials
    • In the Media
  • Services
    • Speaking
    • Executive Masterclass – Risk Management
    • Speech Topics
    • The Challenge
    • Strategic Advisory
    • Workshop and Interactive Training Topics
  • THE GRAY RHINO
    • Corporate Book Clubs
    • International Editions
      • 灰犀牛 (Chinese Traditional Characters)
      • 灰犀牛 (Chinese Simplified Characters)
    • Readers Guide
      • Media
  • YOU ARE WHAT YOU RISK
  • Gray Rhino Blog
    • The Horn
    • My Gray Rhino
    • Audio
    • Video
    • Quiz: How Rhino Ready Are You?
Facebook Twitter Instagram
Trending
  • Can Humans Adapt to Climate Change?
  • Applying Gray Rhino Theory for Reinvention
  • GUEST POST: Could “Gun Control” Activists Use Better Marketing?
  • Climbing Gold Podcast Explores Risk Fingerprints in Elite Alpinism
  • Exploring Cli-Fi Part II: Books by Theme
  • Exploring the Future via Cli-Fi
  • NextUp Podcast: Debunking Stereotypes on Women and Risk
  • Be That Lawyer Podcast on The Risks We Take
Twitter Facebook LinkedIn Pinterest RSS
The Gray Rhino
Leaderboard Ad
  • Main Home
  • About
    • Founder & CEO
    • Contact
    • Testimonials
    • In the Media
  • Services
    • Speaking
    • Executive Masterclass – Risk Management
    • Speech Topics
    • The Challenge
    • Strategic Advisory
    • Workshop and Interactive Training Topics
  • THE GRAY RHINO
    • Corporate Book Clubs
    • International Editions
      • 灰犀牛 (Chinese Traditional Characters)
      • 灰犀牛 (Chinese Simplified Characters)
    • Readers Guide
      • Media
  • YOU ARE WHAT YOU RISK
  • Gray Rhino Blog
    • The Horn
    • My Gray Rhino
    • Audio
    • Video
    • Quiz: How Rhino Ready Are You?
The Gray Rhino
You are at:Home»Blog»The Horn»The Coming Sovereign Debt Crisis
Brick wall under underpass with graffiti "Until Debt Tear Us Apart"
Photo by Daniel Thiele via Unsplash

The Coming Sovereign Debt Crisis

0
By Michele Wucker on June 22, 2020 The Horn

The COVID-19 pandemic has created a double challenge: First, an increased sense of urgency to deal with the ravages of the novel coronavirus and the systemic risks that left the world vulnerable to the disease. Second, as economies have faltered and jobs disappeared, and as debt crisis looms, there are fewer resources to meet those challenges.

The pandemic-induced global recession will only hurt the ability of households, companies, and countries to service their debt, especially if a new wave of the pandemic lies ahead this fall. In turn, that debt hangover will reduce the ability of the economy to heal, much less to invest in a future that makes crises like the current one less likely.

Bad as it is, the economic impact so far is only the tip of the horn of a gray rhino charging at us: think of the dangerous debt overhang as the bulk of the beast’s weight.

The International Monetary Fund has been warning for quite some time of the dangers of high sovereign and corporate debt, which have been fueled by low interest rates since the Great Financial Crisis. By the end of this year, global gross government debt is expected to be $66 trillion, or 122 percent of GDP. Some countries can more easily bear that than others.

Fitch Ratings Agency notes in a recent report that combined, rating agencies have downgraded 25 countries so far this year, many by more than one notch. In turn, that has lowered the ratings of companies in those countries since companies cannot be rated higher than their home country. It predicts a record number of sovereign defaults this year following in the wake of Argentina, Ecuador and Lebanon.

In May, the United Nations Department of Economic and Social Affairs warned that emerging market countries had suffered close to $100 billion in non-resident portfolio outflows this year, and more than 100 countries had asked the IMF for emergency financing. Borrowing costs have gone up even as global interest rates hover near zero, it noted.

In April, a report from United Nations Secretary General warned that low-and middle-income countries are highly vulnerable to debt crisis and along with it the domino effect of capital outflows while losing access to market financing. The report urged a standstill in debt payments for countries that can no longer access capital markets, followed by targeted debt relief, and finally changes in the global sovereign debt architecture.

This month, I joined with others addressing the Global Investors for Sustainable Development Alliance and then the United Nations Global Compact Leaders Summit to talk about the looming global debt crisis and what we can do about it.

COVID-19 has left the world with far fewer financial means to invest in the change we need. But it also may leave us with something even more important, which in turn can open new paths to solutions : a clear vision of the future if we fail to do so and a renewed sense of purpose and urgency in addressing the systemic risks that stand in the way of creating the world as it could be.

I have written extensively, both in THE GRAY RHINO and early on in my career when I covered emerging markets debt restructuring, about how the longer creditors and sovereign borrowers take to resolve debt crises the bigger the damage is. Since Argentina’s 2001 default debacle, many nations and creditors have taken to heart the lessons of the failure to address the crisis before it became a catastrophe.

Economic policy makers and private creditors need to keep that top of mind in swiftly seeking ways to avert the looming debt crisis. As we saw in the 1980s, sovereign debt crises can spread around the world, not so unlike a virus, damaging the portfolios of lenders as well as markets for companies selling in struggling countries. The problem doesn’t stay within the borders of the countries that cannot pay their debts.

The world’s most vulnerable countries need nothing less than debt restructuring on a large scale, with the public and private sector working together closely to swap out unsustainable debt and to replace it with creative financing that supports quality economic growth and the sustainable development goals.

Historically low interest rates and crisis recognition have created an opportunity to buy back existing debt from the most vulnerable countries and re-issue it at lower interest rates under creative new financing structures and triple-bottom-line accounting.

“Social bonds” including “green bonds” can provide funds for needed health, climate change, and other investments supporting the sustainable development goals at a below-market cost, in exchange for commitments that would reduce the likelihood and impact of future crises.

Creditors –including governments, multilateral financial institutions, and the private sector—must switch to a shareholder mindset in which they provide support to get through the crisis and, in return, share in the benefits when growth resumes. After Argentina’s 2001 crisis, there was a lot of talk about GDP linked bonds that would pay higher interest rates during boom times and lower rates during recessions. It’s time to revisit that idea, which can help to prevent defaults during crisis as well as keep economies from overheating and extending a dangerous boom-bust cycle.

We need a long-term fund of patient capital to help countries to grow –which in turn will benefit not just creditors’ lending portfolios but also their other investments that depend on strong, healthy economic growth. This is not charity, as some might say, but rather an investment in the global economy that will create jobs and support markets for goods and services.

This article is part of my LinkedIn newsletter series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections. 

To subscribe to “Around My Mind” and get notifications of new posts, click the blue button on the top right hand on this page. Please don’t be shy about sharing, leaving comments or dropping me a private note with your own reactions.

For more content, including guest posts, please visit www.thegrayrhino.com.

  • Author
  • Recent Posts
Michele Wucker
Follow
Michele Wucker
Founder & CEO at Gray Rhino & Company
Michele Wucker is a policy and business strategist and author of four books including YOU ARE WHAT YOU RISK: The New Art and Science of Navigating an Uncertain World and the global bestseller THE GRAY RHINO: How to Recognize and Act on the Obvious Dangers We Ignore. Read more about her at https://www.thegrayrhino.com/about/michelewucker
Michele Wucker
Follow
Latest posts by Michele Wucker (see all)
  • Exploring Cli-Fi Part II: Books by Theme - June 8, 2022
  • Exploring the Future via Cli-Fi - June 1, 2022
  • A Crash of Recombinant Viral Strains - April 7, 2022
Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
Michele Wucker
  • Website
  • Facebook
  • Twitter
  • LinkedIn

Michele Wucker is a policy and business strategist and author of four books including YOU ARE WHAT YOU RISK: The New Art and Science of Navigating an Uncertain World and the global bestseller THE GRAY RHINO: How to Recognize and Act on the Obvious Dangers We Ignore. Read more about her at https://www.thegrayrhino.com/about/michelewucker

Related Posts

GUEST POST: Could “Gun Control” Activists Use Better Marketing?

Exploring the Future via Cli-Fi

A Crash of Recombinant Viral Strains

Comments are closed.

YOU ARE WHAT YOU RISK
YOU ARE WHAT YOU RISK Book Cover Click to order YOU ARE WHAT YOU RISK: The New Art and Science of Navigating an Uncertain World (Pegasus Books, April 6, 2021)
Book A Keynote or Workshop
Speakers Connect Sidebar Ad Book Gray Rhino & Company Founder & CEO Michele Wucker to speak at your next event. For more information  click on the logo  to contact Speakersconnect.

Connect on Twitter
Twitter
Gray Rhino & Company
Gray Rhino & Company
@GrayRhinoCo

AUDIO: Learn about #YouAreWhatYouRisk on the @HumanRiskLtd #podcast with @ChristianJHunt : ecs.page.link/xERxk pic.twitter.com/aQEx…

reply retweet favorite
12:04 pm · June 30, 2022
Twitter
Gray Rhino & Company
Gray Rhino & Company
@GrayRhinoCo

What to look for in a top risks list (Part II): How to evaluate the annual deluge of #toprisks, #forecast, #outlook, and #predictions lists ecs.page.link/NWp14 pic.twitter.com/aUJi…

reply retweet favorite
4:41 pm · June 29, 2022
Twitter
Gray Rhino & Company
Gray Rhino & Company
@GrayRhinoCo

AUDIO: The insightful Paul Lucas interviewed me on the Insurance Business #IBTalk podcast about why you are what you risk: ecs.page.link/FZ9zQ

reply retweet favorite
12:04 pm · June 23, 2022
Twitter
Gray Rhino & Company
Gray Rhino & Company
@GrayRhinoCo

What to look for in a top risks list (Part I) ecs.page.link/so6XQ

reply retweet favorite
4:41 pm · June 22, 2022
Twitter
Gray Rhino & Company
Gray Rhino & Company
@GrayRhinoCo

AUDIO: @kimanncurtin interviews me about #YouAreWhatYouRisk on the The Wall Street Coach #podcast  ecs.page.link/8sBDW

reply retweet favorite
12:04 pm · June 16, 2022
Follow @grayrhinoco
DCROI COURSES
DCROI logo DCROI works with boards on the positive governance of risk-taking, aligned with achieving corporate goals and most effectively fulfilling corporate purpose.
BOOKSHOP.ORG STORE
Bookshop.org logo Shop at Bookshop.org and support independent booksellers. Browse our lists on business, decision making, current affairs, and more.
About
About

Gray Rhino® & Company provides a simple yet powerful framework, training and tools to help individuals, organizations, and communities to better counter and overcome obvious but too often neglected challenges in business, life, and the world.

Twitter LinkedIn
GRAY RHINO TRACKER Sign Up
Subscribe below for exclusive insights and updates in our monthly newsletter, The Gray Rhino® Tracker.
©2016-2021 Gray Rhino & Company 5940 North Sheridan Road, Chicago, IL 60660
  • About
  • Privacy Policy
  • Contact

Type above and press Enter to search. Press Esc to cancel.

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie SettingsAccept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT