The amount of sovereign debt in default rose by 35 per cent in 2022 as interest rates climbed, reaching US$558 billion and representing 0.6 per cent of public debt worldwide, according to data gathered by the Bank of Canada and Bank of England.

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Tighter financing conditions hit hardest in emerging markets and heavily indebted poor countries, as defined by the central banks.

The amount of debt in default grew even though the number of sovereigns in default shrunk to 84 from 99.

“Debt in default jumped 52 per cent for HIPCs (heavily-indebted poor countries) and 49 per cent for emerging/frontier market sovereigns, but by just two per cent for advanced-economy sovereigns,” the Bank of Canada said in a July 31 report.

The latest figures were released in an environment where government debt remains elevated as interest rates rise globally, the report’s authors noted.

“The IMF (International Monetary Fund) estimates that the global stock of general government debt, measured in U.S. dollars, reached a record US$92.3 trillion in 2022, or 92 per cent of global gross domestic product,” the report said, adding that the IMF, which monitors the international monetary system and lends to member countries, projects the global public debt burden will continue to grow over the medium-term.

“Against a backdrop of historically high inflation and rising nominal and real interest rates, debt service payments remain challenging for many emerging-market and developing economies,” the report said.

In 2022, the World Bank estimated that the poorest countries were already spending more than one-tenth of their export revenues to service their long-term external public debt.

The Bank of Canada database dates back to 1960 and tracks government obligations in default — including bonds and other marketable securities, bank loans and official loans — using public and private sources of information. It is updated annually in co-operation with the Bank of England.

According to the latest data, for 2022, defaults to private external creditors jumped by 43 per cent from a year earlier. The Bank of Canada noted “big variations” across categories within this group. For example, defaults on foreign currency bonds, which made up the largest share of the defaults, reflected first-time defaults by Belarus, Ghana and Sri Lanka. Ukraine, meanwhile, defaulted on its foreign currency bonds for the first time since 2016.

“By contrast, defaults on bank loans and to other foreign creditors (mainly suppliers) dropped by US$1 billion and US$22.2 billion, respectively,” the report said.

Defaults to those termed “official” external creditors also rose overall, climbing 18 per cent, or $35.1 billion, in 2022 from a year earlier. But in this sub-group, defaults to identified multilateral creditors such as the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank declined by US$1.9 billion.

Among bilateral creditors, defaults to what the Bank of Canada terms the Paris Club of lenders — an informal group of mostly advanced-economy countries including the United States, Canada, the United Kingdom, Australia, several countries in Europe, Israel, Russia, Japan and South Korea — rose by nearly US$21 billion, while identified defaults to China rose by US$3.1 billion.

Defaults to official creditors including bilateral and multilateral creditors that are not identified separately by the central bank rose by US$12.9 billion.

Local currency debt defaults also rose, but from a small base. The increase to US$13.7 billion from US$275 million in 2021 largely reflected a US$13.5 billion default by Ghana, its first since 1982. Argentina, Barbados and Peru registered smaller defaults, according to the Bank of Canada report.

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