Ashmore examines whether emerging market sovereigns can sustain external debt payments amid the COVID shock, arguing solvency concerns are overstated despite sharp spread widening. The paper highlights how external balances, reserves, and IMF support reduce default risk, while markets priced in distress levels closer to past crises, creating a disconnect worth watching.
Rebuttal To Carmen Reinhart And Kenneth Rogoff’s Proposal That Emerging Markets Suspend Debt Payments
Ashmore
Jan Dehn
Research
4 Pages
Key Takeaways
Default Risk Overstated: Only ~5% of EM sovereigns were at high risk of default, despite spreads implying distress levels closer to historical crises affecting over 20% of issuers.
Strong External Buffers: EM countries held reserves covering ~7–10 months of imports, significantly above crisis thresholds, supporting near-term debt servicing capacity.
Debt Service Manageable: Annual external debt payments averaged ~2–4% of GDP, suggesting most sovereigns could meet obligations even under reduced growth scenarios.
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