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Underfunded governments in Indonesia, India, South Africa and other countries are under pressure to rescue national airlines, energy and utility companies and other state companies affected by virus-imposed travel restrictions, falling demand. and the fall in oil prices. Debt risk increases the vigilance of credit rating agencies and encourages troubled investors to sell assets until the situation worsens.
In emerging markets, state-owned companies, or state-owned companies, are key job creators, closely intertwined in the economic fabric and even in national identities. According to the International Monetary Fund (IMF), they are responsible for 55% of those countries. investment in infrastructure and, according to the International Finance Institute (IIF), represents approximately 60% of the debts of non-financial corporations.
“Governments tend to provide significant support to these pseudo-private entities to achieve policy goals,” said Emre Tiftik, IIF director in Washington. “In times of crisis, they are the most important job creation structures, even if they have an impact on productivity.”
Under such circumstances, the debts of state-owned companies are likely to continue to grow, Tiftikas said. “The effects of such debt growth will be lasting and will affect potential growth in the medium and long term,” he said.
Fiscal deficits are already on the rise as governments increase spending to support growth, but these figures often do not reflect the government’s real debt if it is to help or bail out state-owned companies.
Deficit source
In Indonesia, 3 percent was recently abandoned. deficit ceiling introduced after the Asian financial crisis more than two decades ago, in addition to 6.3 percent. This year’s gross domestic product (GDP) target. India’s deficit will increase to 7 percent. South Africa’s GDP and deficit, according to IMF forecasts, could be twice what the government had anticipated before the outbreak of the virus.
The top three debt rating agencies threaten to downgrade India’s rating to a “spam” level, while Indonesia is in a slightly more secure position. Ratings agencies Moody’s Investor Service, Fitch Ratings Ltd. and S&P Global Ratings have already assigned low credit ratings to countries like South Africa and Turkey.
In many countries, the growing debt of state-owned companies has put pressure on the coronavirus. In some cases, governments have already started bailing out troubled companies, such as South African energy company Eskom Holdings SOC Ltd. and the country’s national airlines, South African Airways. In Indonesia, two state insurers had debts with policyholders earlier this year, and Krakatau Steel, the country’s largest steel producer, is on the verge of bankruptcy.
Indian banks
The pandemic only increased these risks.
In India, state banks are causing the country’s government a major headache. The banking industry stress index is the worst in the world, 9.3 percent. The government has already poured 2.6 trillion in the three years to March 2020. Rupees ($ 34 billion) to its public sector banks and may be forced to allocate even more funds.
Banking industry analyst Ashish Gupta of Credit Suisse Group Ag (Mumbai) estimates that Indian banks will need to raise around $ 20 billion this year. USD to maintain capital reserves; Public sector units may need some € 13 billion to recapitalize from the state. Dollars
The Indonesian government, with more than one hundred state-owned companies, has set aside $ 10 billion. Financial support in USD to several state companies, including its national operator PT Garuda Indonesia. Deputy Finance Minister Suahasil Nazara told investors in a recent video conference that PT Hutama Karya, who is building roads in the country, may need support, but cautioned that any direct financial assistance would be “quite limited” and that not all problems will be addressed through capital injections. “
Eskom’s rescue.
The South African government has already dipped its tail deep in an attempt to save Eskom, one of its largest state companies, which generates around 95 percent. electricity of the country. Eskom used financial support before the pandemic to pay interest on its $ 450 billion. scars ($ 27 billion) of debt. About 350 billion. scars of this amount provided by the government guarantee.
As the government plans to limit support in the future, the price of Eskom loans increased. Since the beginning of January this year, the company in 2028. Yields on US dollar-denominated bonds increased 186 basis points to 9.07 percent.
In Latin America, airlines expect government support, as many of them face bankruptcy. Latam Airlines Group SA, the region’s largest airline, followed the lead of Avianca Holdings SA in Colombia this week in an Article 11 bankruptcy court in New York.
Governments are currently being bailed out by relatively low global interest rates, according to Taimur Baig and Ma Tieying, economists at DBS Group Holdings Ltd. in Singapore.
“But it also means that GDP and income growth will be slow,” they wrote in their report. “Prolonged growth in debt, largely unavoidable this year, poses significant risks to future prospects.”
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