The effects of the global financial crisis, which shook the world in 2008, is far from over as economies across emerging and developing countries continue to experience volatility. Europe for instance, is still battling with troubled economies, therefore making it harder to spur growth.
In mid 2015, Greece officially became the first developed nation to default on its loan to the International Monetary Fund. Puerto Rico was next to follow as the first US commonwealth to default on its $58 million debt repayment.
The crippling debt levels only get worse when credit rating agencies, re-assess the “creditworthiness” of a struggling economy.
Credit rating agencies play a large role in the performance of the global financial market as they determine the investment grade of a country, company or currency. Their main goal is to give investors an insight on which investments carry less risk, and are likely to provide higher returns.
Currently there are three main credit rating agencies which investors follow closely, Moody’s, Standard & Poor’s and Fitch.
After examining several fiscal responsibilities and likeness of debt burdened countries approaching or mere missing a significant credit risk, Moody’s listed top 7 countries who are on course to officially declaring bankruptcy.
Belarus, being a Commonwealth of Independent State (CIS), has an economy which is highly dependant on Russia. When Russia annexed Crimea, the European Union and the US issued several sanctions on Kremlin. This as well as falling oil prices played a major role in weighing down Belarus’s economy.
High level of uncertainties including strains on external financial support and debt commitments led Moody’s to downgrade Belarus's credit rating to Caa1 from B3 and set a negative outlook.
The South American country stepped into a financial chaos on January 1, 2002, as it defaulted on its sovereign debt of $93 billion. In order to step up measures, Argentina devalued its currency, the peso, which is pegged to the US dollar. Argentina was also facing trouble with its bondholders as not all agreed to settle a debt restructuring deal. In 2014, it failed to meet commitments and once again, defaulted on it its debt obligations.
Moody's considers a non-payment of debt obligations to creditors after a grace period has expired, a default. Therefore, Argentina was assigned with a Caa1 rating and negative outlook as its direction remains uncertain.
Jamaica floats on high debt and high interest rates. Although the government debt lowered to roughly 133 percent of its GDP this year, it still remains high.
Despite a poor credit rating of Caa2, Jamaica has managed to become the first country to attain a positive outlook. Moody’s decision was driven by an “increased fiscal consolidation and strong commitment to structural reforms” and “improving balance of payments position and reduced external vulnerabilities.”
Belize, a tiny country in Central America, is considered to be one of the smallest economies in the world with a GDP of $1.8 billion. Despite this, it has a total debt of over $540 million. In mid 2012, the central bank of Belize announced that it will not be able to meet a bond payment of $23 million. Upon this, Moody’s lowered its credit rating to Caa1 from B3 but upgraded back to Caa2 in 2013 after observing slight improvements. Since then the credit rating has remained put.
The fall in oil prices have affected Venezuela’s economy the most as majority of its earnings are from exports, which are highly dependant on oil. Moody’s, who saw this a key driver for a default, downgraded Venezuela's credit rating to Caa3 from Caa1 and changed the outlook to stable from negative. According to Moody’s, Venezuela’s current account balance may shift to a deficit of approximately 2 percent of its GDP in 2015, from an estimated surplus of over two percent of GDP in 2014.
In 2009 Greece officially announced its budget deficit exceeded 12 percent of its gross domestic product. A looming default hovered over Greece. In order to prevent such a crisis the International Monetary Fund and the European Union stepped in and agreed to lend Greece 110 billion euros in loans over three years. In exchange for tough austerity measures including budget cuts and tax hikes. A second package worth 130 billion euros was also released but has been frozen after the Greek government refused to implement austerity measures. When Prime Minister Alexis Tsipras came to power he pushed for changes to the conditions of the existing bailout package and by Aug. 11, a third bailout package was agreed on.
Weak economy and political uncertainty led Moody’s to downgrade it rating to Caa3 and its outlook is on review for further downgrade
Ukraine, torn apart by the insurgency caused by Russia, has debt which has exploded to almost 100 percent of its gross domestic product. The economy shrank 17.6 percent in the first quarter from a year ago. Although the International Monetary Fund issued a statement in May approving its debt restructuring plan, it has the lowest credit rating assigned by Moody’s. "The likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100%," wrote Moody’s as it lowered Ukraine's credit rating from Caa3 to Ca, the second lowest possible credit rating.