Higher interest rates manageable for most sovereigns – S&P

(Reuters) – The direct costs of higher refinancing rates are manageable for most sovereign borrowers, S&P Global Ratings said in a report released Monday on the tax implications of rising bond yields.

A 100 basis point hike in refinancing rates would be no shock to developed governments, as 15 of the 18 largest sovereign countries roll over their debt to maturity at a marginal rate more than 100 basis points below their average cost of debt, said S&P.

The rating agency said long-term debt profiles were another factor, but said it doesn’t expect Japan and the United States, which have short-term debt maturities. relatively higher term, are no longer faced with a rate shock.

Even in a shock scenario, where refinancing rates rise by 300 basis points, the majority of sovereigns would either pay the same or less interest as a percentage of GDP than in 2018, S&P said, because most markets developed and emerging would see less. an increase of 1 percentage point until 2023.

S&P identified South Africa, Egypt, Ghana and Kenya as the emerging markets most vulnerable to a rate hike, estimating that these sovereigns would see a 0.9 to 1.3 percentage point increase in rates. interest charges in the first year.

The study looked at the gross cost of commercial debt, ignoring the net costs, which are generally lower for sovereigns.