LONODN (Bloomberg) - Countries in Eastern Europe have borrowed some $32 billion so far this year, three times more than during the same period a year ago.
Poland has tapped overseas markets for nearly $9 billion, putting it second among emerging-market economies in terms of overseas borrowing, trailing only Saudi Arabia.
Meanwhile, Romania and Hungary, which have borrowed a respective $6 billion and $5 billion, are the fourth and fifth largest emerging-market borrowers. This marks the first time in a dozen years that three Eastern European countries are among the top five overseas emerging-market borrowers.
The surge in borrowing is attributable to an increasing need to dole out subsidies due to the still-raging energy crisis, as well as soaring spending related to the military conflict in Ukraine. Eastern European countries have had to build up their military capabilities and help refugees from the neighboring state.
Meanwhile, hawkish policies pursued by key central banks have made it much more expensive to borrow in bond markets, even for highly rated nations. Poland is paying 5.5% in annual interest on a new 30-year bond, significantly above the rate the same bond would have sold for back in 2021.
Rising interest rates are projected to add to the suddenly swelling budget deficits across Eastern Europe, inevitably putting more pressure on finances in the region.
According to analyst estimates on Bloomberg, Eastern Europe’s budget deficit will surge to 4.3% of the region’s gross domestic product in 2023, up from the 1.3% recorded two years ago.
The conflict in Ukraine “hits fiscal deficits from both sides,” Daniel Wood, a fixed income portfolio manager at William Blair International, told Bloomberg. “It lowers growth, which reduces revenue collection for the government, and on the expenditure side it has been necessary for governments to help those that have been hit hard by the cost of living.”