If an emerging country has an extensive amount of foreign currency denominated debt; what are the...

If an emerging country has an extensive amount of foreign currency denominated debt; what are the options to deal with it, especially in the economic turmoil conditions?

Expert Solution

Issuing sovereign debt is the only way to raise funds by emerging economies when the entire country run into debt.The sovereign debt is issued in foreign currency and the loan gets guaranteed by the country of issue.Sovereign debt is the promise that the government makes to the country from which it takes loan to pay back the money.Sovereign debt refers to the value of the bonds that are issued by the country's government.Emerging economies want to repay the debt in order to build a good reputation among the investors for future investment.Default in sovereign debt can be complicated.In order to deal with such debt emerging economies have the accessability to different investors using different debt instruments due to global capital market integration . As a result emerging economies enjoy flexibility but there is uncertainty as their debt gets spread over different parties.If debt restructuring is needed, aim should be preserving the asset value which the creditor holds and in the same time trying to help the issuing country return to economic feasibility.Before going for debt restructuring indebted countries should consider the policies and find out the adjustments that can be made to resume loan repayment. However if the debt is from organizations such as world bank especially in economic turmoil conditions, the debtor countries can seek debt forgiveness if it brings economic and political stability.

Rahul Sunny answered 2 years ago

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