Sovereign debt risks drive up costs for emerging market businesses.
Sovereign debt problems in emerging markets can make it more expensive for private companies to borrow money. A study from 1995 to 2009 shows that when investors worry about a country's ability to pay its debts, they also worry about private companies in that country. This can lead to higher costs for businesses trying to raise money. To prevent this, countries need to improve their own creditworthiness before it affects private firms.