As if political angst, commodity-price meltdowns and growth hiccups are not enough, emerging markets face a threat to their creditworthiness from an entirely different area — the burgeoning debt of households and companies.
Private-sector borrowing as a proportion of GDP is to reach 77 percent by the end of this year in seven large developing nations, Fitch Ratings said in a report on Wednesday.
Such liabilities have exceeded government debt levels, exposing their economies and financial systems to “downside risks,” London-based analysts Ed Parker and James McCormack said.
The countries — Brazil, Russia, India, Indonesia, South Africa, Turkey and Mexico — are seeing an increase in their private-debt burden this year because of currency depreciation, according to the report.
That might weigh on their governments’ credit ratings through weaker GDP growth, worsening budget deficits, pressure on foreign-currency reserves or further exchange-rate fluctuations, Fitch said.
“Private-sector debt has often migrated to sovereign balance sheets in past financial crises,” the analysts wrote. “A stress situation could feed through to pressure on sovereign creditworthiness.”
Among the nations studied by Fitch, Brazil had the highest proportion of private borrowings relative to GDP, at 93 percent, and Mexico had the lowest, at 47 percent. The increase between 2005 and last year was also the greatest in Brazil. The nation was downgraded to “junk” by Standard & Poor’s in September.
“The challenges facing Brazil partly reflect a rapid rise and level of private sector debt, and highlight downside risks to other countries,” Fitch analysts said.
China was excluded from the group because its data would skew overall figures for emerging markets, it said.
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