Experts warn of “original sin” in the public debt markets of developing countries

A number of large developing economies faced the risk of the so-called “original sin” – the loss of the ability to raise funds in foreign markets in national currencies. Experts from the Bank for International Settlements (BIS) warn about this. The weakness of their own financial systems is forcing them to issue debt to foreign investors in reserve currencies, predominantly in dollars, according to the report “A Recurrence of Original Sin”. The key reasons for this situation are a sharp increase in currency risk and duration risk. Funds are not ready to invest in securities in national currencies, as they depreciate, and the terms for which countries want to raise funds also increase. In the report, analysts cite 16 states as an example: Brazil, Chile, Indonesia, South Korea, Malaysia, Poland, Singapore, South Africa, Thailand, Turkey, etc.

Emerging-country currencies have been depreciating against the dollar on average since the mid-2010s, and this trend has accelerated in recent years, BIS experts write. And the maturities of developing country bonds in their currencies have grown from an average of nine years at the beginning of the 2000s to 14 years in recent years, which also threatens investor returns amid general financial instability in the world and the tightening of monetary policy in developed countries.