Sovereign governments set to borrow $12.6tr this year – S&P Global Ratings

3rd March 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

Sovereign governments worldwide are set to borrow $12.6-trillion from commercial debt sources this year, a report by ratings agency Standard & Poor’s (S&Ps) Global Ratings shows.

S&P Global Ratings’ yearly survey of global sovereign debt and borrowing compiles data pertaining to all 135 rated sovereigns.

While not indicative of a credit ratings action, S&P Global Ratings credit analyst Karen Vartapetov says the borrowings performance is one-fifth lower than in 2020, but still 50% higher than the pre-Covid-19 multiyear average.

Although the sovereign borrowing that took place in 2020 was unprecedented, the fiscal fallout has harmed ratings mainly on sovereigns with limited space to cushion the impact of the crisis, states S&P Global Ratings.

In addition, as the pandemic keeps economies under tight lockdowns, delaying the recovery, the additional effort by governments to sustain the world economy will continue to erode fiscal buffers, the agency suggests.

This could put downward pressure on a wider group of sovereign ratings this year and beyond.

Vartapetov says the adverse effects of the Covid-19 pandemic and the corresponding fiscal policy responses prompted an unprecedented rise in government financing needs in 2020. “As a result, in gross terms, rated sovereigns borrowed a historically high $16.3-trillion in 2020.”

This was almost twice the amount they had planned to issue before the crisis.

Further,  S&P Global Ratings’ report finds that the additional financial cost to governments globally in 2020 and 2021 to support their economies through the pandemic will likely reach $10.9-trillion. This will bring the total stock of commercial debt to a record of $67.5-trillion, or 75.1% of gross domestic product, by year-end.

Countries part of inter-governmental organisation Group of Seven sovereigns and China are the biggest issuers of debt. In 2020, S&P Global Ratings found that this group issued 85% of additional debt, on top of their pre-Covid-19 plans, while the US alone accounted for 46.4%.

Further, the report also determines that unprecedented monetary stimulus enabled advanced and several emerging market economies to borrow more in 2020, while still maintaining relatively stable interest burdens.

“Governments will have to overcome political and economic risks to begin stabilising public finances as the world rolls out vaccines and starts recovering from the pandemic,” says Vartapetov.

He adds that failure to do so will put downward pressures on sovereign ratings.