Sovereign Debt: A Heavy Burden for Poor Nations

In an opinion piece, “We must tackle the looming debt crisis before it’s too late”, the Financial Times called for an urgent solution to the debt challenges of low and lower-middle income countries. The IMF (not that IMF, but the International Monetary Fund) released a report into international debt, both private and public. The week before that, the World Bank had also released a debt report. Both reports highlight the size of the debt burden for many poor countries and emerging economies. Today, therefore, I shall be looking at sovereign debt. So, what is Sovereign Debt? Sovereign debt is debt that is incurred by countries or governments. It is the debt of nations because, even though the government may be the one borrowing, it ostensibly does so on behalf of the whole nation.

[mikeseconomicaffairs]

For a fuller picture of sovereign debt, I should mention that the debt of the United States, as a percentage of GDP, is one of, if not the highest in the world. Of course, the US is in a completely different position compared to other countries because all its debt is denominated in dollars, and probably the largest portion is domestically held. Even the debt that is externally held, for instance by China, is unlikely to be a threat to the US government solvency because it suits those governments to continue holding US debt instruments.