A Trio of Downgrades Spell Default Danger for Emerging Markets

The Covid-19 pandemic pushed Moody’s Investors Service to downgrade Argentina, Ecuador and Zambia deeper into junk territory on Friday.

People line up a block away from Banco de la Nacion in Buenos Aires, Argentina, on April 3.  Photographer: Sarah Pabst/Bloomberg

People line up a block away from Banco de la Nacion in Buenos Aires, Argentina, on April 3. Photographer: Sarah Pabst/Bloomberg

Moody’s warned of escalating default risks in the three developing nations as global coronavirus cases topped 1 million. The combination of stalled trade, low commodity prices and deteriorating growth has sent emerging-market risk premiums soaring. Bonds from Argentina, Ecuador and Zambia have tumbled amid concern the nations may follow Lebanon’s lead in defaulting.

“Lack of market access and liquidity stress aggravated by the coronavirus shock points to a restructuring that will result in substantial losses to private investors,” Gabriel Torres, a senior credit officer for the rating firm’s sovereign risk group, wrote in a statement about Argentina.

The pandemic is exacerbating Argentina’s pre-existing financial problems as it works to renegotiate $69 billion in foreign debt. Moody’s expects the final deal to include maturity extensions, lower interest rates and reductions on bond principals that may result in investor losses between 35% and 65%.

Moody’s updated its outlook on Argentina’s credit to negative from under review. It also cut its foreign-currency and local-currency long-term issuer and senior unsecured ratings to Ca from Caa2.


A sharp decline in oil prices and a global sell-off linked to Covid-19 added pressure to Ecuador’s already shaky debt dynamics, resulting in a “very high probability of a restructuring, distressed exchange or default on Ecuador’s market debt,” according to Jaime Reusche and Yves Lemay.

Moody’s downgraded Ecuador’s rating to Caa3 from Caa1 and changed its outlook to negative.


Zambia, Africa’s second-biggest copper producer, asked banks earlier this week for proposals on reorganizing some $11 billion worth of foreign debt. “The weaknesses in Zambia’s credit profile have left it extremely vulnerable to acute risk aversion,” Moody’s analysts Daniela Re Fraschini and Marie Diron wrote in a statement.

Zambia’s long-term foreign debt rating was downgraded by Moody’s to Ca from Caa2, while its outlook was revised to stable from negative.


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