We project a slight decline, in dollar terms, of commercial local and foreign currency borrowing by the 54 sovereigns we rate in EMEA's emerging markets during 2024 compared to last year. This is despite the recent return to hard currency bond markets by several governments, including Benin, Cote d'Ivoire, Hungary, Kenya, Romania, and Saudi Arabia, as well as by the Turkiye Wealth Fund.

Increased concessional lending and still-limited market access for large borrowers (notably Egypt) cap our estimates for commercial borrowing, as does the significant amount of pre-financing undertaken by several large investment-grade issuers (particularly Saudi Arabia) during 2023. The projected decline also reflects weaker expected exchange rates in Angola, Egypt, Nigeria, and Turkiye by the end of this year versus 2023.

Fiscal Consolidation Is The Main Reason For Overall Slower Debt Growth

S&P Global Ratings projects that EMEA emerging markets will borrow about 2.8% of GDP on a net basis in 2024, slightly down from 3.1% of GDP in 2023, reflecting fiscal consolidation in aggregate. Nevertheless, the data for all 54 rated sovereigns covered in this report is heterogeneous. Exchange rate effects are significant. In dollar terms, five countries will account for the largest increases in sovereign medium- and long-term borrowing that we forecast for 2024 versus 2023:

• Poland, where a 5.0% of GDP budgetary deficit and an appreciating zloty will push gross issuance to $73.4 billion from $60.0 billion.
• Abu Dhabi, where the decline of oil and gas prices from their 2022-2023 peaks and the attractiveness of current market conditions will see gross issuance rise to $13.0 billion this year after less than $1.0 billion during calendar year 2023.
• Israel, where the budget remains strained by the cost of increased spending on security and plummeting growth due to the conflict with Hamas. We project an $8.7 billion increase in Israel's gross commercial debt issuance this year to $50.2 billion, just short of the record of $51.3 billion in 2020 amid the pandemic.
• Iraq, whose borrowing will result from a 6.5 percentage point of GDP deterioration in the government balance compared with the surplus in calendar year 2023. We expect this will be the result of generous budgeted increases in grants, salaries, and social transfers. Hence, we project gross borrowing will increase by $6.4 billion to $11.9 billion in 2024, mainly through the issuance of treasury bills and bonds in the domestic market.
• Serbia, which has no external debt maturing until 2027, but faces rising domestic foreign currency redemptions and the appreciation of the dinar against the U.S. dollar. These two factors explain our projection of a $2.4 billion increase in gross issuance this year to $5.5 billion, the highest borrowing since 2020.

Three sovereigns account for the largest forecast declines in medium- and long-term borrowing in 2024:

• Egypt, where the domestic market's aversion to long-dated debt implies that short-term outstanding debt will increase by just under Egyptian pound (E£) 500 billion (about $16.2 billion) for this year, pushing rollover rates even higher than current levels (already the highest for all 54 sovereigns covered in this report). Offsetting this, the redemption of long-term domestic debt is set to decline by 20%, and we project a depreciation of the Egyptian pound versus the dollar by 27% or more this year.
• In Saudi Arabia, we anticipate an 81% decline in redemptions this year, albeit we see the possibility of a rise in pre-financing, meaning that our projections could be revised upward.
• Angola's redemptions will likely be lower than last year's. We anticipate the government will draw on liquid assets to finance what we forecast will be a modest 1.0% of GDP deficit this year. This explains the projected decline in the value of Angola's medium- and long-term debt issuance to $2.0 billion in 2024 versus $13.8 billion in 2023. The lower dollar borrowing figure also reflects our forecast of another 7% depreciation of the kwanza against the dollar, after the 39% devaluation in 2023.

Global Financing Conditions Will Continue To Influence Borrowing

As in the past, our projections on sovereign borrowing in EMEA's emerging economies are highly contingent on developments in the U.S. Treasuries market. Despite the strength of the U.S. labor market and the uneven disinflationary process so far, we still expect inflation in the U.S. will cool further in the coming months.

As a consequence, we believe the U.S. Federal Reserve will lower its policy rate by 25 basis points at its June meeting, with cuts totaling 75 basis points by year's end. That suggests more opportunistic issuance from emerging market EMEA sovereigns than our current projections reflect. Perhaps even more important, demand from international investors for high yielding domestic government bond markets is likely to pick up once the U.S. easing cycle kicks in.

More specifically, if central banks in key EMEA emerging market countries, including Egypt, Nigeria, and Turkiye, were to raise policy rates further, we think non-resident inflows could increase, especially after exchange rate adjustments. In Nigeria, we believe post-hike portfolio inflows could be as much as 2.0%-3.5% of GDP ($5 billion-$10 billion). The scale of inflows in EMEA's emerging market nations will also depend upon repatriation policies, since investors will want to avoid getting trapped in local currency trades, as they did in 2022-2023. In the case of Turkiye, non-resident investors will also be watching whether the Treasury reopens the offshore swaps market after the elections in March, a move that would better enable foreign investors to hedge currency risk.

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Related Research

• Sovereign Debt 2024: Borrowing Will Hit New Post-Pandemic Highs, Feb. 27, 2024