Debt distress

Credit risk - borrowings.

Debt distress is a situation in which a borrower is unable to meet its financial obligations to creditors.

Borrowers in default are - by definition - in debt distress.

However, debt distress is a broader concept, also including situations where the borrower has not yet defaulted on its borrowing obligations.

Debt distress is a more serious form of financial distress.

Self-fulfilling dynamics in debt distress

"Governments that are near or in debt distress do not have room to provide even temporary fiscal support to firms and households.

Moreover, an increase in the risk of debt distress typically leads to a downgrade in the sovereign credit rating, which sets off self-fulfilling dynamics because the downgrade itself deteriorates macroeconomic fundamentals and the access to capital by private firms."

International Monetary Fund - World Development Report 2022 - p207.

See also

• Credit rating
• Credit risk
• Default
• Downgrade
• eurozone crisis
• Financial distress
• Firm
• Fiscal
• Household
• Private
• Private sector
• Recession
• Rescheduling
• Restructuring
• Sovereign debt
• Sovereign debt crisis
• Sovereign risk

Other resource

• IMF - World Development Report - 2022