Read the lesson in English  
then translate to your own language to verify your understanding.

Sovereign Debt and Default | English Lesson

Apr 21, 2022

Our English vocabulary selection today has to do with sovereign debt and default. This is a very relevant topic as soaring commodity prices and higher interest rates are putting the finances of many poor countries at risk.

Okay. Let’s get started with the key vocabulary, then you’ll hear a short text for listening practice.

VOCABULARY

  • Creditor: The entity that lends money.
  • Debtor: The entity that borrows the money.
  • Default: Failing to repay a loan.
  • Sovereign debt: The amount of money that a country’s government has borrowed.
  • Multilateral institutions: These are formed by three or more nations to work on issues that are relevant to each of them. Examples are the World Bank (WB) and the European Investment Bank (EIB).
  • Floating interest rate: An interest rate that moves up and down with another benchmark rate.
  • Unsustainable debt: Debt not able to be maintained at the current rate or level.
  • Restructure debt: To change the terms on loans to make them easier to pay back.
  • Debt distress: Unsustainable debt can lead to debt distress—that’s when a country is unable to fulfill its financial obligations and the debt needs to be restructured.
  • Capital flight: Capital flight occurs when money quickly leaves a country as a result of an event, or as a consequence of a policy.

DISCUSSION

Here is a text to practice your reading comprehension.

Surging food and energy prices are causing serious problems in highly indebted poor countries.

On April 12th Sri Lanka said that it would suspend payments on the $35bn its government owes foreign creditors.

Sri Lanka may not be the only sovereign debtor to default on its payments in these current conditions.  High food and energy prices are leading to high inflation in other poor and middle-income countries, leaving policymakers little room for fiscal policy and causing unrest in the streets.

In these current conditions, it is the poorest countries that suffer the most. Food prices, which are up by nearly 20% this year, make up a greater share of consumer spending in poor and middle-income countries, and this makes inflation more likely to spiral out of control.

According to the World Bank, nearly 60% of these world’s poorest nations are currently in debt distress or at high risk of it. One worry is that almost a third of their total debt carries a floating rate of interest, and those interest rates are bound to rise due to monetary tightening.

This situation is further complicated as policymakers in poor and middle countries need to worry about capital flight and falling exchange rates, when the  Federal Reserve raises interest rates over the next year.

It is difficult to see a solution in the near term. Many multilateral organizations, like the IMF, only lend to countries with sustainable debts. Policymakers have a big job ahead.

Okay.. that’s it for the text. Let’s review the vocabulary one last time.

VOCABULARY REVIEW

  • Creditor: The entity that lends money.
  • Debtor: The entity that borrows the money.
  • Default: Failing to repay a loan.
  • Sovereign debt: The amount of money that a country’s government has borrowed.
  • Multilateral institutions: These are formed by three or more nations to work on issues that are relevant to each of them. Examples are the World Bank (WB) and the European Investment Bank (EIB).
  • Floating interest rate: An interest rate that moves up and down with another benchmark rate.
  • Unsustainable debt: Debt not able to be maintained at the current rate or level.
  • Restructure debt: To change the terms on loans to make them easier to pay back.
  • Debt distress: Unsustainable debt can lead to debt distress—that’s when a country is unable to fulfill its financial obligations and the debt needs to be restructured.
  • Capital flight: Capital flight occurs when money quickly leaves a country as a result of an event, or as a consequence of a policy.

CONCLUSION

That’s all for now. If you liked this lesson and want to continue improving your level of economic-related vocabulary, check out our lesson on Problems and Delays in the Supply Chain. Until next time, this is Alan Robert. Goodbye.

 

Join Our Podcast Club

You Can Also Subscribe to Our Podcast On These Platforms:

Follow us on spotify
Apple Podcast

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Latest Podcasts

Shrinkflation, Skimpflation and the ‘Sheconomy’

Shrinkflation, Skimpflation and the ‘Sheconomy’

Hello, friends. It’s great to be back. Having been away for quite some time, I've prepared a special episode for you. Today, we're not just covering one but two headlines. As we look at these stories, I'll introduce you to some fascinating terms that describe very...

‘White Swan’ and ‘Black Swan’ Events

‘White Swan’ and ‘Black Swan’ Events

Today, we're exploring a fascinating topic that has attracted a lot of attention in financial circles: the concept of Black Swan and White Swan events. Our discussion and English class today was inspired by a recent Bloomberg article from January 30th titled, "A...

‘Steel Yourself’ for a Potential Trade War

‘Steel Yourself’ for a Potential Trade War

Our lesson today is based on an article from The Economist Magazine, published on January 9th, titled "Xi Jinping risks setting off another trade war." Listen again, "Xi Jinping risks setting off another trade war."...

Predictions 2024: Dollar Bears, Bond Bulls, and Steady Stocks

Predictions 2024: Dollar Bears, Bond Bulls, and Steady Stocks

The source for today’s lesson is an article taken from Bloomberg News, titled “Five Things You Need to Know to Start Your Year”. The article makes several predictions about markets in 2024. They say that there will be “Dollar Bears” “Bond Bulls” and “Steady Stocks”....

Buy Now, Pay Later (BNPL) is Booming

Buy Now, Pay Later (BNPL) is Booming

In Episode 85,  we delve into a fascinating headline from early December published by CNN: ‘It’s lending on steroids’: How Buy Now, Pay Later companies are meeting an influx of demand despite higher costs....