Frontier debt risks are crystallising

The tightening of global financial conditions since the onset of the Fed’s hiking cycle and the war in Ukraine has caused sovereign dollar bond spreads to widen significantly in several frontier markets, with default risks in Sri Lanka and Tunisia becoming particularly acute. Both countries are attempting to secure loan deals with the IMF but there are reasons to doubt that programmes can be completed. Meanwhile, Ghana’s FX debt repayments are not especially onerous for now, but a failure to tighten fiscal policy means authorities there may also need to return to the IMF before long.