The loan volume of the European countries this year reached $32 billion – three times more than during the same period in 2022, according to calculations of Bloomberg. For the first time in a decade, three Eastern European countries – Poland ($9 billion), Romania ($6 billion), and Hungary ($5 billion) – were among the top five borrowers.
Bloomberg analysts estimate that Eastern Europe’s budget deficit will rise to 4.3 percent of the region’s GDP this year, up from 1.3 percent in 2021.
The analysts believe that the rising interest rate will only aggravate the sudden budget deficit in Eastern Europe. Moreover, if the war in Ukraine prolongs, Eastern Europe will incur even more debt-financed costs. However, foreign investors may refuse to inject additional bonds into the markets of these countries.
The dollar bonds of Poland are already trading at the same yield as those of countries long considered riskier – the Philippines, Indonesia, and Uruguay. If the region’s currencies begin to fall against the dollar, as they periodically do, it will increase the cost to these governments of repaying debt.