Last year we saw a nearly 50% ($120 billion) increase in gross EMEA emerging markets (EM) sovereign commercial issuance, to $672 billion, as governments boosted fiscal support for firms and households affected by the global health emergency. We expect commercial debt issuance to remain elevated during 2021, albeit down by just over $100 billion to $571 billion--as fiscal support is only gradually withdrawn. Slightly over half of the sovereigns' gross borrowing will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of $273 billion, compared to last year's $395 billion historical high.

We project that EMEA EM sovereigns' commercial debt will reach an equivalent of $3.2 trillion by end-2021, a year-on-year increase of $288 billion (see table 1). Their commercial debt is therefore poised to account for 40.7% of combined GDP, up sharply from 30.7% in 2016, as the costs of a contra-cyclical fiscal response to the global health emergency accumulate. Our projections are even more uncertain than in the past because budgetary performance will remain highly sensitive to the evolution of the virus.

Table 1

Chart 1

We forecast that just under half of commercial sovereign debt in 2021 will be issued by sovereigns with an investment-grade ('BBB-' or higher) foreign currency rating (see lower part of table 2). We expect the 'B' category will form the largest share of the total (around 40%, considerably above historical levels reflecting our expectation that Egypt and Turkey will increase issuance materially compared to 2020 ) followed by 'BBB' and 'A'. At year-end 2021, we expect that the share of outstanding commercial EMEA EM sovereign debt rated 'BB' or lower will decline somewhat as a percentage of the total, reflecting above all else still very substantial projected debt increases (albeit slightly down from 2020) by higher income issuers including Israel, Poland, Romania, Russia, and Saudi Arabia (see table 3 and chart 2).

Despite being the second largest economy after Russia in our survey group of 53 EMEA sovereigns, Turkey is once again set to be the largest EM sovereign issuer in the sample (currency equivalent of $78 billion up from $68 billion last year) with long-term gross commercial borrowing in 2019 accounting for an estimated 14% of the sample (see table 2). We forecast Egypt and Russia will borrow equivalent to $63 billion and $52 billion. Taken together, these three sovereigns will borrow over 33% of the total borrowed by the 53 sovereigns this report covers. Of the larger issuers, Egypt has both the highest debt-to-GDP ratio at an estimated 88% and the highest stock of short-term debt at 33% of the total (of all 53 issuers only Kenya has a higher share of short-term debt). As a consequence, Egypt's rollover ratio is by a large margin the highest of all 53 both as a percentage of GDP, and as a percentage of total debt. Given that 78% of Egypt's sovereign debt stock (equivalent to 69% of GDP) is domestic currency debt, and only about three quarters of this is tradeable, the rollover ratios may somewhat exaggerate refinancing risks (given the the willingness of domestic banks, both public and private, to refinance). Nevertheless, despite solid nonresident inflows into Egypt's bond market, the pandemic has been a setback to the authorities' ability to both lower the overall debt burden and manage down the cost of debt.

Chart 2

Table 2

Table 3

After Egypt, the three EMEA sovereign issuers with the highest rollover ratios during 2021 as a percentage of GDP are Kenya (26%; reflecting high short term debt as well as an overall increase in debt levels), Bahrain, and South Africa. All three had seen rising debt to GDP even before the pandemic (we exclude Lebanon, given that is currently in default on its external debt, and its capacity to continue to service its local currency debt is captured by its local currency rating of CC/Negative/C).

Chart 3

Table 4

Chart 4

Factors We Consider In Our Estimates

Our estimates focus on debt issued by a central government in its own name. We exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds with tenors of more than one year, issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.

In addition to commercial debt, some of the estimates we use in this study also report on bilateral and multilateral official debt. We do not include government debt that may be issued by some central banks for monetary policy purposes. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. We factor in our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities in 2020. Estimates that we express in dollars are subject to exchange-rate variations.

Table 5

Related Research

• Sovereign Debt 2021: Global Borrowing Will Stay High To Spur Economic Recovery, March 1, 2021
• Sovereign Debt 2021: Developed EMEA's Commercial Borrowing Could Reach $1.4 Trillion, March 1, 2021