Default, Transition, and Recovery: 2023 Annual Global Sovereign Default And Rating Transition Study

Sovereign credit quality displayed a mixed picture in 2023: Foreign currency (FC) defaults decreased to three from five in 2022 while local currency (LC) defaults rose to six (three of them from Argentina) from one (see chart 1). All defaults were in emerging and frontier markets, where macroeconomic vulnerabilities and limited financing alternatives contributed to distressed exchanges (totaling six in the year) and missed payments (totaling three). 2023 was the first year LC defaults outnumbered FC defaults. Sri Lanka, El Salvador, Mozambique, and Argentina were downgraded to 'SD'. Over the last few decades, domestic debt grew exponentially for these sovereigns, representing a heavy burden that led to debt restructuring. We could see the same in the future, especially for emerging

...- Six sovereigns defaulted in 2023, up slightly from five in 2022. All defaults came from emerging and frontier markets. - Local currency defaults outnumbered foreign currency defaults for the first time since 1999, with Argentina defaulting three times last year on peso-debt exchanges. - Sovereign credit quality showed resilience in 2023, with upgrades rising by three to 16 and downgrades falling by one to 10. - However, the number of sovereigns rated '###+' and below remained at eight by the end of 2023, suggesting credit pressure will persist in 2024, as we estimate sovereigns' long-term borrowing will increase and debt service costs will remain high....

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