The 10 Countries Most Likely To Default

The recent economic meltdown in Dubai may turn out to be the proverbial canary in the coal mine.

The Emirate's massive debt problem may ultimately serve as a warning of the troubles brewing in other nations. Could other sovereign debt defaults be on the horizon?

Remarkably, there are countries even worse off than Dubai.

The Business Insider recently ranked "The 10 Countries Most Likely to Default."


#10 Lebanon
Cumulative Probability of Default: 17 %

Reuters: "Lebanon, one of the most heavily indebted states in the world, completed a debt swap in March for around $2.3 billion of foreign currency paper maturing this year.

Strong economic growth has helped reduce Lebanon's ratio of debt to gross domestic product to 153 percent in June from around 180 percent three years ago. The country's gross debt stands at $48 billion."

#9 State of California
Cumulative Probability of Default: 18 %

Though it is just a U.S. state and not an independent nation, the Golden State has the world's eighth largest economy, and it is a mess. California’s budget deficit will balloon to $20.7 billion during the next year and a half, the nonpartisan Legislative Analyst’s Office predicted in a November report. As of November, year-to-date revenues were more than $1 billion below what had been expected.

According to The Press Enterprise, “California will pay $6 billion in debt service in the current fiscal year, or nearly 7 percent of the state’s general fund. And that expense is only for part of the bonds voters and legislators have approved: California has $83.5 billion in outstanding debt, including $64 billion in general obligation bonds. But the state has $47.5 billion in already authorized bonds that it has yet to sell, too.”

#8 Lithuania
Cumulative Probability of Default: 19 %

Bloomberg: "Lithuania will probably miss a 2011 European Union deadline to bring its deficit in line with the bloc’s budget threshold, ruling out euro adoption before 2013, Finance Minister Ingrida Simonyte said..

The former Soviet state’s budget shortfall will swell to 9.8 percent of gross domestic product this year, and narrow to 9.7 percent in 2011"

#7 Iceland
Cumulative Probability of Default: 23%

Bloomberg: "Iceland’s economy contracted the most on record last quarter after the island’s banking failure left locals poorer and as businesses lacked funds for investment.

Gross domestic product shrank an annual 7.2 percent, after contracting a revised 6.2 percent in three months through June, Reykjavik-based Statistics Iceland said on its Web site. From the previous quarter, GDP shrank 5.7 percent."

Iceland’s banking collapse last year plunged the Atlantic island into its worst economic decline since gaining independence from Denmark in 1944 and forced the government to seek an international bailout to avert default."

#6 Emirate of Dubai
Cumulative Probability of Default: 29%

Dubai's inability to pay its debts on time forced it to request a six-month extension on loan repayments. That news rocked world markets and sent shivers throughout the financial world. Dubai may simply be the beginning of further sovereign defaults in the coming year.

#5 Latvia
Cumulative Probability of Default: 30%

Bloomberg: "Latvia’s economy contracted a preliminary 18.4 percent in the third quarter, the biggest decline in the EU. The country’s banks may have the highest need for new capital in eastern and central Europe along with Lithuania because they rely on collateral that’s been falling in value amid house price declines, Fitch Ratings said in a report today...

The country is rated two levels below investment grade at BB by Standard & Poor’s. Moody’s Investors Service ranks Latvia at the lowest investment-grade level of Baa3."

#4 Pakistan
Cumulative Probability of Default: 36%

Business Recorder: "The country's external debts and liabilities have posted a raise of some three billion dollars to a new peak of 55.2 billion dollars by end of September 2009."

#3 Argentina
Cumulative Probability of Default: 49%

WSJ: "Fitch Ratings said Argentina's credit ratings are likely to remain in highly speculative territory even if its planned $20 billion debt exchange is executed successfully, noting the country's continuing economic and financial pressures as well as high debt ratios.

Argentina's Senate voted to approve a bill that would allow the government to reopen a 2005 debt restructuring. At issue are about $20 billion in face value of bonds that weren't included in a 2005 transaction. Economy Minister Amado Boudou said recently that the government plans to reopen the offer under similar terms to try to attract as many of those investors as possible."

#2 Ukraine
Cumulative Probability of Default: 55%

Bloomberg: "Ukraine will keep its B2 credit rating, with a negative outlook, the ratings company said in a statement released late yesterday, after Ukrzaliznytsya defaulted on a principal payment on a Barclays Capital-led syndicated loan on Nov. 20...

The B2 rating reflects “weak macroeconomic fundamentals, a banking system that remains under strain, and distinctly poor coordination between fiscal and monetary policies,” Moody’s said. “While some of these problems may well reflect political in-fighting in the run-up to the presidential election, the fiscal loosening inherent in recent legislation -- which may raise the budget deficit by up to 7 percent of gross domestic product in 2010 -- is a serious concern. Hence, the negative outlook on the B2 sovereign rating remains in place.”

#1 Venezuela
Cumulative Probability of Default: 60%

WSJ: "one week ago, the government was forced to begin shutting down seven small banks that together represent up to 12% of banking system deposits, after the public began to get wind of some of the banks allegedly using depositors' funds for corrupt ends.

Those takeovers alone would have frayed nerves in financial markets. But Chavez piled on by saying he would nationalize the entire banking system if needed. The comments, last Wednesday, sent Venezuela's bolivar currency and sovereign bond prices tumbling."

Somehow, Greece didn't make this list. Perhaps it should have.

Late Wednesday, Standard & Poor's downgraded Greece to a BBB+ rating, matching a downgrade from Fitch Ratings just over a week ago, on concerns the country will struggle to rein in a deficit that stands at more than 12% of gross domestic product.