BIS:   EM dollar debt tops $4 trillion for first time

Dollar-denominated debt in emerging markets has risen past $4 trillion for the first time following a surge in issuance during the COVID-19 crisis, data from the Bank for International Settlements (BIS) has shown.  Turkey is one of the few countries where the private sector reduced its net foreign liabilities. But….total leverage?


The central bank umbrella group said a 14% jump in debt issuance during the April to June second quarter had driven a 7% year-on-year increase in broader dollar-denominated credit.


Dollar borrowing costs have fallen since the Federal Reserve slashed its interest rates to almost zero this year, but emerging markets are often warned of the “original sin” of being unable to repay dollar debt when their own currencies fall.

Consistent with the past few quarters, credit to Africa and the Middle East registered the highest growth rate at 14%, the BIS said, driven by countries in the Middle East.

Emerging Asia-Pacific and Latin America saw 9% and 5% respective year-on-year increases. In contrast, emerging Europe saw a 5% fall, extending the decline seen over the past six years as euro-denominated credit has become more important for the region.

Outstanding euro-denominated credit in emerging Europe, which includes countries such as Poland, Czech Republic, Hungary and Romania, surpassed dollar credit in terms of the overall amount earlier this year.

Turkey’s central govt debt up 50% y/y at end-Sept

Turkey’s one of the EMS, where private sector is deleveraging its FX liabilities. Within a year over $30 bn of foreign debt had been paid back. Yet, FX deleveraging was largely compensated by TL borrowing and the alarming rise in Central Government debt stock.  Loans to Turkish corporates expended by 37% and 34% YoY and YTD.

Turkey’s central government debt totaled 1.86 trillion lira ($238 billion/200 billion euro) at the end of September, up 50% year-on-year, the finance ministry said. Some 817.9 billion lira of the debt stock is denominated in the local currency while the remaining 1.05 trillion lira is in foreign currency, the ministry said in a statement on Tuesday.  Turkey’s central government debt totaled 1.24 trillion lira as of the end of September 2019.

Turkey’s Treasury is one of those institutions which habitually commits the Original Sin, borrowing at home in FX and gold.


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.