Tag Archives: Morocco

Sovereign debt implications of Middle East turmoil

Disregarding the discussion about the political effects of the protests in the Middle East, how about the financial implications?

The cost of protecting sovereign debt against non-payment in northern Africa and the Middle East continued to rise Tuesday as investors reacted to ongoing turmoil in Libya. Morocco was hardest hit, with the spread on five-year credit default swaps widening to 200 basis points from around 184 on Monday, according to data provider Markit. That means it would cost $200,000 annually to insure $10 million of Moroccan debt against default for five years, up from $184,000. The Egyptian CDS spread widened 19 basis points to 375, Markit said, while Bahrain’s spread widened 10 basis points to 317. The Israel CDS spread widened to 163 from 154.

Losses by banks in this region will only hurt the important countries’ fiscal situation.

Looking at Portugal, now the key country, interest rate are new highs.

The turmoil in the Middle East just adds a new twist to the sovereign debt crisis. Until nations reduce their debt levels, which none are doing right now, this story is far from over and will be around for years to come.