- Some governments seek alternative ways to raise cash
- Emerging markets debt in focus at this week’s IMF World Bank meetings
- Lack of transparency will raise costs for borrowers, say investors
Finance
Frontier debt risks ‘going dark’ amid high costs and creative deals
LONDON/WASHINGTON, Oct 14 (Reuters) – The need for emerging economies to be more transparent about their debt is one issue uniting wealthy countries and multilateral lenders in a fractious, divided world where the international order and development finance face pressure.
The World Bank in June launched a call for “radical” debt transparency and the United States outlined transparency as a key goal for international financial institutions under President Donald Trump’s leadership.
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But in the past several years, the riskiest of those nations – so-called frontier market countries – have been taking on more private, complex and “creative” debt arrangements that inadvertently undercut the visibility of the terms of their debt.
“Everybody loves transparency…(but) whatever the confidentiality clauses say, we are seeing a lot less of the documentation of commercial bank and other private lending,” said Anna Gelpern, a law professor at Georgetown University in Washington, D.C. who works on debt issues.
Collateralised lending to countries in strife that had dwindling options of raising funds causes particular issues, she added.
“That means that everything is going dark in terms of debt transparency.”
LIMITED ACCESS FOR BORROWERS
Countries from Panama and Colombia to Angola and Cameroon have sought to weather double-digit bond yields by seeking less conventional borrowing – from private placements to resource-backed loans or complex debt swaps requiring collateral.
While this is not on its own untoward, it means the terms of the debt – the cost, the collateral and even sometimes the tenure or amount – are not public.
This contrasts with international bond issuance where terms of the borrowing are published.
Some investors say the borrowing is a smart, sophisticated way to wait out times when bond markets might not be so easily accessible. But others warn this makes the total debt pile less transparent.
“With regards to collateralized borrowing, these kinds of hidden instruments, institutions like the IMF should be very worried about it, because they really then make the concept of preferred creditor very complicated,” said Reza Baqir, head of sovereign advisory at Alvarez & Marsal.
NET NEGATIVE, COST SAVING
The IMF estimated in a paper earlier this year that private lending to low-income countries outside international bonds as a percentage of their public and publicly guaranteed debt had risen to 10% by end-2023 from 6% at end-2010. Overall private lending – including international bond issuance – rose to 19% from 6%.
Victor Mourad of Citi said international bond issuance from Sub-Saharan African markets had been net negative – meaning governments raised less than they paid back – for the past three years.
Governments have sought cheaper funding sources – such as loans backed by development finance institutions such as the World Bank – and also more “creativity” via private placements and borrowing facilities in different currencies, though the alternatives they seek vary.
Nigeria has in the past secured oil-backed loans using crude oil cargoes as collateral. Angola opted for a $1 billion “total return swap” with JPMorgan, with privately placed bonds as collateral.
Aaron Grehan, co-head of emerging market debt with Aviva Investors, said Colombia and Panama had also avoided public debt markets, the former with dollar-bond buybacks and a total return swap, the latter with private placements.
Both had done well in these deals, he said, but will need to return to capital markets before too long due to the sheer amount they need. “You kick the can down the road,” he said.
When they return to public markets, investors will need to unpick their debt to try to determine what governments can sustainably borrow and repay.
“We have to do the homework and figure out if what is happening makes sense,” said Elina Theodorakopoulou, managing director and portfolio manager with Manulife Investment Management.
“If there is not enough transparency, that will be translated into the yield that you have to face if you were to access the market.”
Countries themselves say the deals have saved them money. Angola is still deciding on whether to extend its total return swap with JPMorgan, despite getting stung with a temporary $200 million margin call when oil prices slid.
“The cost of those financings is lower than the Eurobond,” said Dorivaldo Teixeira, general director of the public debt management unit at Angola’s finance ministry, while acknowledging the risks involved.
PUBLIC BORROWING, BUT HARDER TO ASSESS
At this week’s IMF and World Bank annual meetings in Washington, one of the issues the Global Sovereign Debt Roundtable will seek to tackle is the trouble of restructuring private debt.
That has snared Zambia and Ghana in default for longer than expected.
Sources said governments and advisors underestimated how hard it would be to unpick, determining who holds it, on what terms and whether there was collateral which can put one borrower ahead in the queue. This complicates debt reworks, in which all borrowers, ostensibly, must get equal treatment.
“It raises risks,” said Thys Louw, a portfolio manager with Ninety One. “Anything that’s marginally opaque adds complexity.”
Reporting by Libby George and Karin Strohecker, Additional reporting by Nell Mackenzie; Editing by Andrea Ricci
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BRUSSELS, Nov 10 (Reuters) – The European Union will on Thursday discuss two main ways to raise financial support for Ukraine – borrowing the money, or the more likely option of using frozen Russian assets, a senior EU official said.
EU finance ministers are meeting in Brussels after the bloc’s leaders pledged on October 23 to cover Ukraine’s needs for 2026-2027, and asked the European Commission to prepare options on how to do that.
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The EU official close to the talks said the Commission’s options paper was not ready yet, but there were only two realistic ways to provide the 130-140 billion euros ($152-163 billion) Ukraine is likely to need.
One was to use the frozen Russian assets, as proposed by the Commission. Russia said last month any such move would be illegal and threatened to deliver a “painful response”.
The other was for EU governments to borrow the funds on the market, but this would involve paying interest.
Most of the Russian assets frozen in Europe are on the accounts of Belgian securities depository Euroclear. Since Moscow’s invasion of Ukraine in February 2022, almost all of the securities have matured and become cash.
The option involving frozen assets would mean the EU would replace the Russian cash on Euroclear accounts with zero-coupon AAA bonds issued by the European Commission.
The cash would then go to Kyiv, which would only repay the loan if it eventually gets war reparations from Russia, effectively making the loan a grant and making Russian reparations available before the war ends. The option is called the Reparations Loan, because it would be linked to Russia paying reparations.
PREFERENCE FOR USE OF RUSSIAN FROZEN ASSETS
Under that arrangement, the only financial contribution on the part of European Union governments would be to guarantee the Commission loans issued for Euroclear. The risk that the guarantees would be called upon is very small because EU governments themselves decide when to release the frozen Russian assets.
“In my mind EU leaders will opt for the reparations loan model,” the senior EU official said.
But Belgium, which is home to Euroclear, believes it would be liable in case of a successful Russian lawsuit against the company. It wants EU governments to pledge they would come up with the necessary cash to repay Moscow within three days if a court ever decided that the assets must be returned.
EU government officials say that, even though it was unlikely ever to be needed, mobilising potentially more than 100 billion euros in three days would be a big challenge for the EU.
Belgium also wants the Commission to produce a solid legal base for the whole operation to minimise the risk of a lost lawsuit and has asked other EU countries that hold frozen Russian assets to join the scheme to spread responsibility.
The Commission is now in talks with Belgium to address its demands with a view to securing support of EU leaders for the plan in December.
The other option would be for EU governments to borrow on the market and pass the cash on to Ukraine.
This is for them a far less appealing option because it would increase debt levels of many already highly indebted EU countries and entail paying annual interest for the duration of the loan, either by Ukraine, which can ill afford it, or by the EU.
($1 = 0.8575 euros)
Reporting by Jan Strupczewski; Editing by Andrew Heavens
Our Standards: The Thomson Reuters Trust Principles.
Finance
PRESS RELEASE: Global Finance Names The 2026 FX Tech Awards As Part Of The Gordon Platt Foreign Exchange Awards
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Global Finance magazine has named its annual FX Tech Awards as part of the Gordon Platt Foreign Exchange Awards 2026. This awards program honors companies that conceive fresh ideas and demonstrate exceptional skill in designing or deploying technology to improve foreign exchange.
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An exclusive report on this program will be published in the January 2026 print and digital editions, as well as online at GFMag.com. It will also include Global Finance’s 26th annual World’s Best Foreign Exchange Banks Awards.
Winning organizations will be honored at Global Finance’s Gordon Platt Foreign Exchange and Best SME Bank Awards Ceremony in London – Date and Location TBD.
Global Finance’s regional experts considered bank and technology provider submissions and used their own research and knowledge to make shortlists in all regions and categories, before applying a custom algorithm, which includes market share, scope of global coverage, innovative features, competitive pricing, and customer service to help choose the 2026 FX Tech Award winners.
“Global Finance’s 2026 FX Tech Award winners are redefining what’s possible in foreign exchange technology,” said Joseph Giarraputo, founder and editorial director of Global Finance. “By delivering smarter, faster, and more secure solutions, these innovators are shaping the future of finance. Global Finance is proud to honor their outstanding contributions.”
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PA MediaScotland’s finance secretary has asked for a meeting and assurances from the chancellor over speculation she will raise income tax in her Budget.
Such a move, which Rachel Reeves refused to rule out last week, would lead to an automatic deduction from Scotland’s funding from the Treasury.
Shona Robison said Labour should ditch “outdated” fiscal rules which include making sure day-to-day spending is funded by tax revenues.
The Treasury said it would not comment on speculation but claimed its previous “record settlement” for Scotland meant it receives 20% more funding per head of population than the rest of the UK.
In an unusual pre-Budget speech in Downing Street last week, Reeves said she would make “necessary choices” in her tax and spending plans later this month after the world had “thrown more challenges our way”.
She did not rule out a U-turn on Labour’s general election manifesto pledge not to raise income tax, VAT or National Insurance, leading to speculation that a tax rise is on the way.
Any increase in income tax by the UK government could see a fall in the block grant Scotland receives from Westminster as a result of a funding agreement called the Block Grant Adjustment.
The Fraser of Allander Institute has estimated a 2p rise in the basic rate of tax elsewhere in the UK could cut Scotland’s budget by up £1bn, unless the Scottish government matches the increase with its own tax rise.
Robison said the chancellor’s speech had “piled uncertainty on uncertainty” and that she had requested an “urgent meeting” where she would set out three tests.
These are:
- The chancellor “ditch her outdated, restricted fiscal rules” and faces up to a “new reality”.
- All money raised from tax increases is invested in public services, meaning the block grant also increases as a result
- Confirmation that Scotland will not see a cut in funding
She said: “They came to office promising an end to austerity, so to impose it on Scotland would be a political betrayal from which Labour would never recover.”
Getty ImagesIncome tax in Scotland
Ahead of the last general election First Minister John Swinney urged the next UK government to replicate Scotland’s devolved taxation system where higher earners pay more in tax.
People living in Scotland earning below about £30,300 pay slightly less income tax than they would elsewhere in the UK, with a maximum saving of about £28.
Above that threshold they pay increasingly more as earnings increase. Someone on £50,000 in Scotland pays £1,528 more than they would in the rest of the UK. That rises to £5,207 for someone on £125,000.
Swinney recently said he had no plans to make any further changes to taxation in Scotland ahead of next May’s Holyrood election.
However, following the chancellor’s speech last week he has now declined to rule this out.
What is the Treasury saying?
The Treasury said it could not comment on the chancellor’s plans ahead of her Budget, but it said she had outlined the global and long term economic challenges that would influence her decisions.
A spokesperson said: “Our record funding settlement for Scotland will mean over 20% more funding per head than the rest of the UK.
“We have also confirmed £8.3bn in funding for GB Energy-Nuclear and GB Energy in Aberdeen, up to £750m for a new supercomputer at Edinburgh University, and are investing £452m over four years for City and Growth Deals across Scotland.
“This investment is all possible because our fiscal rules are non-negotiable, they are the basis of the stability which underpins growth.”
Why would a UK tax hike cut Scotland’s budget?
A change to UK income tax would apply directly to residents in England, Wales and Northern Ireland – but it could also have an impact on Scottish taxpayers.
When the devolved government in Scotland was given more tax raising powers nearly a decade ago, an agreement called the Fiscal Framework was agreed setting out how the new system would work.
Part of that was something called the Block Grant Adjustment (BGA) which meant the funding Holyrood receives from Westminster was reduced to take into the account money the Scottish government was now able to raise directly.
The BGA was intended to stop either government being better or worse off due to devolution.
It means the UK government is able to deduct funds from the block grant that it estimates it would have received if tax-raising powers were not devolved.
If the chancellor raises income tax, the BGA will also change.
Scotland will then have to generate more tax revenue or cut public spending in order to avoid a budget shortfall.
The Scottish Budget will be announced on 13 January.
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