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Fitch downgrades most EM debt ever, expects Zambia to be next to default

Credit: REUTERS/Jessica Rinaldi

A record 35 emerging market sovereigns have been downgraded by Fitch so far in 2020, as the world's poorest countries struggle with the economic fallout from the coronavirus pandemic, according to a report by the ratings agency on Thursday.

Updates throughout

LONDON, Oct 15 (Reuters) - A record 35 emerging market sovereigns have been downgraded by Fitch so far in 2020, as the world's poorest countries struggle with the economic fallout from the coronavirus pandemic, according to a report by the ratings agency on Thursday.

Thirty emerging market sovereigns that Fitch rates have a 'negative outlook' - effectively a downgrade warning - up from 13 at the end of 2019.

But Fitch believes the proportion of these which will be converted into a downgrade is below the usual 63% - noting the rate declined to 54% after the global financial crisis.

"Risks remain heavily on the downside, but the range of those downside risks has eased somewhat since the height of the coronavirus crisis in March–May, when many of the Negative Outlooks were assigned," the report said.

The coronavirus crisis has seen credit ratings plummet and defaults spike.

There have been a record number of sovereign defaults already in 2020: Argentina, Ecuador, Lebanon and Suriname. All four were in trouble before the pandemic struck.

Fitch expects Zambia to be the fifth country to default on its government debt in 2020, after creditors rejected the country's request for a number of its debt payments to be deferred until April 2021.

Zambia's bonds slumped on Wednesday and continued to fall on Thursday as the standoff between the country's government and private-sector creditors intensified.

The G20 group of major economies have agreed to extend a multi-billion-dollar debt freeze for the world's poorest countries.

The G20, International Monetary Fund, World Bank and various finance ministers have called for private creditors to play a role in relieving the debt burden on poorer countries.

(Reporting by Elizabeth Howcroft; editing by Marc Jones and Bernadette Baum)

((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))

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