Top 10 countries at the highest sovereign default risk

The turmoil generated by financial crisis has created macroeconomic problems and every country across the globe is feeling the pinch of the recession. Find out what are the countries most prone to sovereign default, a ranking compiled by financial markets monitoring company, CMA.

10. Bulgaria

Our neighbor across the Danube is the least volatile sovereign debt issuer, with a probability of 24.95% of defaulting on its debts. The 5-year credit default swap spread increased to 405 basis points.

Bulgaria is also the poorest member of the European Union and now experiences its first recession in 11 years. The state is considering a financing package from International Monetary Fund. Bulgaria had an annual economic growth of almost 6% over the last years, and now it faces wide current account gap and high sovereign debt.

9. California

USA’s largest state has a budget gap of 24 billion dollars and needs another 2,8 bln dollars to deal with urgent expenses.

The State of California faces a probability of default of 27.75% and a CDS spread of 363.32 basis points. California is thus replacing Romania in CMA ranking. Earlier this month, Romania had a sovereign default risk of 25.4% and a 5-year CDS spread of 390 bp. Although CDS spread were higher for Romania, the probability of defaulting on their sovereign debt took precedence in the ranking.

8. Lithuania

The Baltic country faces a sovereign risk of defaulting on its debts of 29.60% and a CDS spread of 501.93 basis points.

International Monetary Fund said recently that Lithuania’s economy would drop in 2009 by more than expected so far and saluted state’s decision to keep national currency – Litas - pegged to euro.

The central bank of Lithuania estimated a contraction of the GDP by 15.6% this year, while the minister of Finance said there was the risk of 18.2% contraction of the Gross Domestic Product.

7. Kazakhstan

CDS spread of Kazakhstan are in the range of 495 basis points, while the probability of sovereign default is 29.81%.

Three of Kazakhstan’s major banks agreed in October last year a partial nationalization, due to financial crisis.

Banks in Kazakhstan are deemed as extremely exposed to credit crisis, local equity markets being on ice.

6. Dubai

As a consequence of high amount of money borrowed by the state for the development and construction of various projects, Dubai faces a risk of defaulting on its sovereign debts of 32.34%.

The five-year credit default swap spread is at 550.36 basis points.

5. Latvia

After receiving a financing package of 5 billion euros from International Monetary Fund and European Union, on sharp reduction in state revenues, the probability of Latvia defaulting on its sovereign debts is 37.70%. CDS spread stand at 686.66 basis points.

Latvia ranks first in a list of eight EU states that could experience a failure of repaying debts, according to Royal Bank of Scotland.

The Minister of Finance of the country, Einars Repse said the deficit could climb to 11.6% of GDP this year, even in the event of a 10% drop in state expenditures.

4. Iceland

Iceland’s fall into recession in the fourth quarter last year has determined the nation’s lawmakers to borrow 2.1 billion dollars from International Monetary Fund and 2.5 billion dollars from Nordic states. The country is facing a probability of default of 37.90%.

After forecasts indicated a 10.6% contraction of Gross Domestic Product in 2009, the state announced earlier in June that is handling talks with Russia for an additional loan.

3. Venezuela

The sovereign default risk of the country in South America is at 63.37%, the second highest in the region, while the CDS spread is 1,452.50 basis points.

Venezuela is facing high inflation rates that could zoom to 28% and has a currency exchange rate pegged to dollar of 2.15 bolivar/dollar, as in the black market, the American currency is sold at 6 bolivars.

In an attempt to reduce the dependence to United States, Venezuela concluded a loan contract of 4 billion dollars with China to finance infrastructure projects.

2. Ukraine

IMF agreed last year to lend 16.4 billion dollars to Ukraine in a financing arrangement part of a rescue plan in the context of financial crisis.

With a 20% drop in GDP, Ukraine is dealing with a sovereign default risk of 67.18% and CDS spread of 1,769.31 basis points.

1. Argentina

Argentina has the highest risk of defaulting on its sovereign debts in the world – 71.07% as the CDS spread reach 1,980.30 basis points.

Argentina’s economy, the second largest in South America increased by 6.8% in first quarter, the lowest rate since 2002 dragged down by agriculture and construction.