Sovereigns to increase borrowing in 2014 to $7.1 trillion -S&P

NEW YORK Thu Feb 27, 2014 6:40pm EST

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NEW YORK Feb 27 (Reuters) - Sovereign debt borrowing is expected to rise by 2.7 percent to $7.1 trillion this year, with the biggest relative increase coming in sub-Saharan Africa, a new study by Standard & Poor's showed on Thursday.

The increase in long-term debt borrowing, equivalent to $185 billion, will be led mainly by the United States and Japan, which will account for 57 percent of the total in 2014. The next biggest sovereign borrowers this year are projected to be Italy, China and Brazil.

Overall debt levels of long-term commercial debt by sovereigns that hold a credit rating will reach an equivalent of $44.7 trillion by the end of 2014, S&P said. Short-term commercial debt levels, those that have maturities of a year or less, are expected to hold steady at $5.3 trillion.

"Approximately 61 percent, or $4.4 trillion of the sovereigns' gross borrowing will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of $2.8 trillion," S&P said.

SUB-SAHARAN AFRICA

By far, the region with the biggest increase in net long-term borrowing is sub-Saharan Africa (SSA). Sovereigns in the region are expected to boost borrowing for the year by 49 percent to $61 billion over the prior year.

However S&P believes the vast majority of that borrowing, $48 billion, will be done in local currency-denominated bonds.

A little more than a quarter of the total amount borrowed in SSA will be put toward refinancing maturing debt, with the total commercial debt stock reaching $315 billion by year-end.

S&P highlighted an increasing number SSA nations coming to the market, but also gave a warning.

"We nevertheless expect that conditions for issuance in 2014 will become less favorable this year because U.S. Federal Reserve tapering may make emerging market issuance less attractive. However, frontier markets have fared better than major emerging markets and this trend is likely to continue in 2014," S&P said.

EMERGING MARKETS

Emerging market sovereign debt issuance is expected to increase by just $2 billion to $614 billion. That is a rise of 0.3 percent over 2013 for the 17 nations included in the benchmark JPMorgan EMBI+ index.

Total debt stock from the sector will then reach $2.8 trillion by the end of 2014, S&P projects.

The biggest roll-over ratios are in Hungary and Croatia, which includes short-term debt, at 20 percent and 16 percent of gross domestic product, respectively.

Brazil, the largest EM borrower, making up 44 percent of the total, is expected to show a modest decline year-over-year to $272.9 billion from $280.8 billion in 2013.

The Middle East and North Africa region is expected to increase its borrowing by 27 percent to $56 billion this year.

The Asia-Pacific region, due to Japan's dominance, is forecast to increase issuance by 4.9 percent to $2.5 trillion. Japan accounts for over $1.8 trillion of that borrowing.

Borrowing by the Commonwealth of Independent States is forecast to decline by 10 percent to $51 billion. Out of that debt, $41 billion is expected to issued in local currency.

Russia, the largest economy in the region, is expected to issue the most debt, $38.7 billion. Of that amount, 80 percent is expected to be issued in rubles.

Even with borrowing down in 2014, absolute debt levels in the CIS are seen rising by $28 billion to $281 billion.

Ukraine, before its pro-Russian President Viktor Yanukovich was ousted last weekend, faced a precarious fiscal position.

Moscow offered $15 billion in financing to help Kiev pay its debts. The offer was seen as a prize for turning away from forming stronger trade ties with the European Union in November.

S&P said the decline in annual borrowing in the CIS "owes largely to our expectations that the majority of Ukraine's borrowing needs (over 70 percent, compared with 16 percent in 2013) will have to be covered by official debt."

"In our view, without official financial assistance, Ukraine will not be able to meet its debt service in a timely manner in 2014," S&P said.

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