 "Fitch Ratings")
Fitch Ratings on Wednesday said a rapid rise in foreign currency debt of the private sector in emerging markets (EMs), including India, is threatening sovereign ratings.
In its special report on foreign currency debt and its impact on sovereign rating, Fitch examined Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey. However, India could be still better off than its peers in this respect as countries like Turkey and Russia’s debt profile is enormous.
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Five of the eight countries had a rating of ‘BBB-‘, or close to non-investment grade. China’s rating is A+, Brazil’s was BB+ and Mexico’s rating is BBB+. Foreign-currency debt accounted for 22 per cent of total debt of the eight countries that Fitch examined.
“Foreign currency debt was highest as a share of GDP in Turkey at 41 per cent (including indexed debt) and Russia at 37 per cent. It was lowest in China at 10 per cent of gross domestic product, and India at 17 per cent,” Fitch said, adding the foreign currency debt was highest as a share of total private debt in Turkey, at 46 per cent, and Russia, at 41 per cent.
Not only the corporate sector but governments have also engaged in raising foreign debt and the share of EM government debt denominated in foreign currency (median for 76 Fitch-rated EMs) rose to 58 per cent at end-2015, from 50 per cent at end-2013, after falling from 64 per cent at end-2001, the rating agency said. But, the foreign exchange reserves in US dollars in these countries have fallen since 2013. India here is well placed as its government debt is less than 10 per cent of total general government debt in calendar 2015, whereas the emerging markets median is close to 60 per cent.
According to Fitch, what makes the debt profile worrying was the sharp depreciation in the emerging market currencies, which pushes up the value of the liability.
