Subnational Debt 2024: Chinese Governments Reach Their Limits; Other Emerging Markets Taper Borrowing

S&P Global Ratings projects the gross borrowing of subnational governments in EMs will drift down over the next two years by roughly $250 million to $300 million by 2025, after borrowing more in 2023 than the previous peak at the height of the pandemic. In 2024, gross EM borrowing will start to decline but remain above pre-pandemic levels in nominal and real terms (see chart 1). Despite the expected slowdown, still-large fiscal deficits in China and India will likely keep annual gross EM subnational borrowing at just below US$1.4 trillion in 2024. That's still higher than in both 2021 and 2022, although the real value will reach a level nearly on par with 2016. The peak in gross borrowing in

...- Driven by China, we project emerging market (EM) subnational borrowing will reach nearly $1.4 trillion in 2024, from the peak in 2023 of $1.5 trillion. - Chinese local and regional governments' (LRGs) net borrowing has probably peaked but will remain high as it faces mounting macroeconomic pressure, and potential pressure from key state-owned enterprises (SOEs). - EMs will account for roughly half of total subnational debt stock in 2024, of which 94% is from China and India. We expect this will continue to propel global borrowing volume. - Outside of China and India, EM borrowers continue to face persistent institutional, market, and macroeconomic barriers to financing growth. S&P Global Ratings projects the gross borrowing of subnational governments in EMs will drift down over the next two years by roughly $250 million to $300 million by 2025, after borrowing more in 2023 than the previous peak at the height of the pandemic. In 2024, gross EM borrowing will start to decline but remain...

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