‘Debt-ridden Emerging Countries’ Interest Only 1,200 Trillion Won... Risk of National Default in Trump Era

Emerging Market Debt Doubled to $29 Trillion
Domestic and Overseas Interest Costs Total $850 Billion
Trump 2.0... Increase in Sovereign Default Cases Expected

Emerging markets burdened with debt are struggling under astronomical interest payments totaling 1,200 trillion won. Next year, the risk of re-election of U.S. President-elect Donald Trump, who advocates American prioritization, adds to the emergency. There are also warnings that more emerging markets will experience sovereign default crises over the next decade than in the past.

According to data from the United Nations Conference on Trade and Development (UNCTAD) cited by Bloomberg on the 15th (local time), emerging market debt has more than doubled over the past 10 years, reaching a total of $29 trillion (41,600 trillion won). Last year, the combined interest costs on domestic and overseas debt of emerging markets amounted to $850 billion (approximately 1,200 trillion won).

A total of 54 countries are spending more than 10% of their national income on interest payments. In some countries such as Pakistan and Nigeria, this exceeds 30%. Bloomberg explained, "To cover these interest costs, emerging markets have to divert funds planned for hospitals, roads, and schools."

To make matters worse, bond maturities are also approaching. According to JP Morgan's tally, about $190 billion in overseas bond maturities will expire within the next two years. In some impoverished countries unable to repay debt, there are movements to issue bonds with annual interest rates exceeding 9%.

Next year, marking the beginning of the Trump 2.0 era, is critical. According to EPFR data compiled by Morgan Stanley, $14 billion flowed out of hard currency-denominated emerging market bonds this year. This was the result of investors rushing to sell emerging market bonds amid geopolitical tensions following Trump’s White House entry and expectations of a strong dollar.

U.S. credit rating agency S&P forecasted in a report last month that sovereign defaults in emerging markets will occur more frequently over the next decade than before. This is due to the rising debt levels and interest costs in emerging markets reaching unsustainable levels.

The World Bank (WB) recently issued a warning that interest costs in poor countries will also hit record highs. The British weekly magazine The Economist reported on the 12th, "The poorest countries in the world have nowhere to turn when they need money," noting that they are either burdened by higher interest rates or excluded from international markets due to default risks.

The role of the International Monetary Fund (IMF) is expected to become more important than ever. Morgan Stanley stated in a recent memo, "About 27% of the emerging market debt index is linked to the IMF, and the number of countries relying on related fund programs will increase. A significant portion of programs ending in the future will be refinanced due to fiscal issues."