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How will the debt crisis impact countries’ political stability?

By Sam Wilkin | December 21, 2023

As featured in our Autumn/Winter 2023 Political Risk Index, find out more about the alarming implications for political stability due to the current emerging market debt crisis.
Credit and Political Risk

In early October 2023, Oxfam put out a press release with the headline, “world’s poorest countries to slash public spending by more than $220 billion in face of crushing debt.” This headline has alarming implications for political stability, considering that austerity and unrest have been shown to have a strong correlation. In general, despite dramatic examples in Ecuador and Sri Lanka, austerity appeared to play a relatively small role in global protest in 2022 and 2023, when nearly 80% of countries either held government spending constant or increased expenditures. 2024 appears likely to be a different story, as governments struggle to manage unsustainable debts. The current emerging market debt crisis could be compounded by social unrest.

Looking at the mechanisms by which austerity links to unrest, we might expect the current emerging markets debt crisis to result in more countries opting for less transparent short-term funding; significant risks that debt sustainability initiatives will prove self-defeating; and an elevated chance of ‘contagious protests’ spreading to multiple countries. An Index of people power and pressure for spending cuts suggests that countries already in default will face the highest risk, although Brazil appearsto have a surprising potential for austerity-linked unrest.

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Director of Political Risk Analytics, Financial Solutions


Regional Head of Financial Solutions, Asia Pacific

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