LAHORE: As ousted Pakistani premier Imran Khan insists the country is on the brink of a default, his political adversaries in the echelons of power are continuously negating his claims and asserting the country is quite capable of paying its outstanding debt obligations.
However, research shows that even economic giants like China, Russia and United Kingdom (UK) have found it uphill at times to cope up with their repayment burden. They consequently defaulted, yet no skies had fallen to seal their honour amongst the comity of nations!
A New York City-based financial media website “Investopedia,” which provides investment dictionaries, advice, reviews, ratings, and comparisons of financial products such as securities accounts etc, accounts has viewed: “Sovereign default is a terrifying thought to many investors, especially given the recent roller-coaster ride the stock markets have experienced in late 2018 and early 2019.
But those who examine the issue more rationally, and in the context of the history of such events, will realize that the global financial system has seen this before and survived.” In one of its reports on July 15, 2022, the “Times of India” had written: “Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse.”
The Indian media house had predicted Egypt, Argentine and Ecuador might well be on the list with high levels of accumulated debt. According to globally-acclaimed American magazine “Forbes,” even the American the government could not make timely payments in 1979 on portions of three maturing issues of treasury bills due to operational problems in the back office of the Treasury Department. These payments were later made to holders with back interest.
According to some reputed US media houses like the “Wall Street Journal and “CNBC,” China had defaulted twice during times of external and internal conflict. And in August 2018, Beijing had missed a deadline to make a $73 million bond payment, which it did two days later.
Though sovereign debt defaults are relatively infrequent, nations with adverse economic conditions can and periodically do default on their loan payments when their governments are either unable or unwilling to repay creditors.
However, according to the Theodore Roosevelt Centre in the United States, there were instances in history when the Western Powers reacted with military force when a country decided not to pay back money that was borrowed.
For example, in 1902, Venezuela had refused to pay on its foreign obligations. After negotiations failed to resolve the issue, Britain, Germany, and Italy imposed a blockade on Venezuela.
The conflict escalated quickly and a number of Venezuelan ships were sunk or captured, ports were blocked and coastal areas were bombarded by the Europeans. According to Moody’s, a globally-respected American credit rating agency and provider of financial analysis software and services, chronic stagnation was the primary cause of sovereign debt defaults by Russia in 1998, Venezuela in 2017, Greece in 2012, Lebanon in 2020, Argentina in 2001, 2014 and 2019, Ukraine in 1998 and 2015, and Ecuador in 2008 and 2020.
The 113-year old institution has viewed that high debt accumulated amid trade and budget deficits can also make the repayment burden unsustainable. A book “This time is different: Eight centuries of financial folly,” which was authored by Carmen Reinhart and Kenneth Rogoff, states:
“There are a number of countries that have a pristine record of paying on sovereign debt obligations and have never defaulted in modern times. These nations include Canada, Denmark, Belgium, Finland, Malaysia, Mauritius, New Zealand, Norway, Singapore, and England.”
The British National Institute of Economic and Social Research had revealed: “England has suffered at least eight major banking crises since 1800. By other accounts, there have been even more. The point is that sovereign default isn't the only financial turmoil a nation can face.”
A July 1, 2015 report of the “BBC” had divulged that Greece (defaulted five times in history) was the first European Union country to fail to repay a loan to the IMF, adding that Portugal (defaulted four times in History), Italy, Ireland, Greece and Spain) defaulted six times) were on everyone's watch list as being the most in the risk of sovereign default. Venezuela and Ecuador have shared the dubious honour of 10 defaults each in modern times.
According to the “CNBC,” Brazil, which today is one the fastest-growing of the emerging economies, has defaulted nine times, while Costa Rica and Uruguay have disappointed foreign investors nine times as well over the last 200 years.
