The threat of a looming crisis is not solely down to the absolute volume of debts. At least three things make the situation especially precarious.
First, debt — particularly dollar denominated — is becoming more expensive as market expectations are pricing at least three rate hikes by the US Fed this year, and a relatively strong dollar is putting pressure on borrowers to service foreign currency obligations. The recent downgrades of South Africa to junk status follow a year in which credit rating agencies cut EM borrowers’ grades in record numbers.
Moody’s downgraded 24 sovereigns (including Brazil, Nigeria and Saudi Arabia) in the first half of 2016, adding to concerns as to whether borrowers will be able to service their obligations.
Second, the ability to repay debt is under strain in countries whose revenues stem disproportionately from commodities, whose prices have suffered. Furthermore, nations exposed to significant Chinese trade and investment face fiscal stress as China itself has a relatively soft economic outlook.
Finally, the prevailing mixed global economic growth picture — underscored by the forecasts in the recent IMF World Economic Outlook — prompts questions as to how (and indeed whether) outstanding debts will be paid or brought under control.
http://www.zerohedge.com/news/2017-05-30/precarious-debt-crisis-could-reverberate-around-world
