The lingering effects of the COVID-19 pandemic and sharp slowdown in global growth—coupled with higher borrowing costs, inflation, currency depreciation and the rising incidence of droughts and floods related to climate change—has resulted in a very challenging sovereign debt market context for emerging markets in 2022–particularly given high and rising debt levels. As noted in the IIF’s latest Global Debt Monitor, at the end of Q2 2022 emerging market debt (excluding China) rose to a record $37.9 trillion, up from $33.2 trillion at end-2019. The total rise in emerging market debt since the onset of the pandemic now stands at $4.7 trillion, with governments and non-financial corporates accounting for nearly 45% and 35% of the increase, respectively.  These debt-related vulnerabilities have become particularly acute in low- and lower-middle income countries, which have seen a sharp buildup in external liabilities over the past decade, notably to official bilateral and multilateral creditors. At around 52% of GDP, government debt across low and lower-middle income countries are over 20 percentage points higher than in 2011, though it is lower than seen in 1996 when the HIPC initiative was launched (64% of GDP).  

Against this backdrop, the rapid rise in borrowing costs and weak investor appetite have kept many of these countries away from primary markets this year.  Against this backdrop, the 2022 Implementation Note of the Principles Consultative Group (the "PCG Report") offers an overview of key initiatives to improve the international sovereign debt architecture, including an update of the Principles for Stable Capital Flows and Fair Debt Restructuring.  The PCG Report also includes our 2022 Investor Relations Survey.