Countries with the Highest Default Risk in 2022
In May 2022, the South Asian nation of Sri Lanka defaulted on its debt for the first time. The country’s government was given a 30-day grace period to cover $78 million in unpaid interest, but ultimately failed to pay.
Not only does this impact Sri Lanka’s economic future, but it also raises an important question: which other countries are at risk of default?
To find out, we’ve used data from Bloomberg to rank the countries with the highest default risk.
The Sovereign Debt Vulnerability Ranking
Bloomberg’s Sovereign Debt Vulnerability Ranking is a composite measure of a country’s default risk. It’s based on four underlying metrics:
- Government bond yields (the weighted-average yield of the country’s dollar bonds)
- 5-year credit default swap (CDS) spread
- Interest expense as a percentage of GDP
- Government debt as a percentage of GDP
To better understand this ranking, let’s focus on Ukraine and El Salvador as examples.
| Country | Rank | Government Bond Yield (%) | 5Y CDS Spread | Interest Expense (% of GDP) | Government Debt (% of GDP) |
|---|---|---|---|---|---|
 El Salvador | 1 | 31.8% | 3,376 bps (33.76%) | 4.9% | 82.6% |
 Ukraine | 8 | 60.4% | 10,856 bps (100.85%) | 2.9% | 49% |
1 basis point (bps) = 0.01%
Why are Ukraine’s Bond Yields so High?
Ukraine has high default risk due to its ongoing conflict with Russia. To understand why, consider a scenario where Russia was to assume control of the country. If this happened, it’s possible that Ukraine’s existing debt obligations will never be repaid.
That (Read more...)