08 - 10 - 2026

The Sovereign Risks Threatening Russia, China, and others in BRICS

BRICS has unquestionably become too large for global finance to ignore.

In 2025, the grouping accounted for roughly 40% of global GDP measured at purchasing-power parity and around a quarter of global merchandise exports, according to CareEdge Global Ratings. That gives BRICS enormous economic weight and an increasingly important role in global trade, commodities, energy and capital flows.

But economic size is not the same thing as financial strength.

Behind the headline numbers sits one of the most diverse sovereign-credit groupings in the world. Its members range from large, comparatively resilient economies with deep domestic financing capacity to sovereigns confronting severe debt and external-liquidity pressures.

That divergence may ultimately determine how much of BRICS’ growing economic scale can be converted into durable financial influence.

One Bloc. Very Different Risks

The central mistake in analysing BRICS is to look for a single “BRICS debt problem.” There isn’t one.

China’s challenge is increasingly about local-government and quasi-fiscal debt, property-sector adjustment, weak domestic demand and the sustainability of an investment-heavy growth model. India’s challenge is different: public debt remains elevated, but it is accompanied by strong domestic demand for government securities, substantial foreign-exchange reserves, relatively low external debt and a favourable medium-term growth outlook.

Brazil’s pressure point is debt affordability: high interest costs and elevated public debt restrict fiscal flexibility.

South Africa combines rising public debt with long-standing infrastructure constraints and contingent liabilities associated with state-owned enterprises.

At the weaker end of the sovereign spectrum, countries such as Egypt and Ethiopia confront much greater external-financing and liquidity vulnerabilities.

The result is a bloc whose collective economic footprint can look formidable while its underlying sovereign balance sheets tell very different stories.

China: The Biggest Risk May Be Hidden Below the Sovereign Balance Sheet

China deserves particular attention because its challenge illustrates why headline government-debt numbers can be misleading. The IMF’s 2026 work on Chinese local-government finances highlights the rapid expansion of both official local-government debt and liabilities associated with Local Government Financing Vehicles (LGFVs).

China has already begun tackling the problem. Authorities announced a programme to refinance RMB 10 trillion of hidden local-government debt over five years, beginning in 2024.

But refinancing does not eliminate the underlying structural problem. The IMF estimates that under its broader “augmented” definition—which includes significant off-budget government-linked liabilities—general-government debt could rise from around 117% of GDP in 2024 to 163% by 2034 under its baseline assumptions.

That sounds alarming in isolation. But China also demonstrates why sovereign risk cannot be reduced to a debt-to-GDP ratio. Much of its debt is domestically held, foreign-currency exposure is limited, domestic savings are enormous and the financial system retains substantial capacity to finance the state.

The IMF therefore still assesses China’s overall sovereign risk as moderate, despite the elevated debt trajectory.

The more fundamental question is whether China can shift from debt-intensive investment toward consumption-led growth while simultaneously managing its property correction, local-government liabilities, ageing population and slowing productivity.

India: High Debt, But a Very Different Risk Profile

India presents almost the opposite analytical problem. Its general-government debt remains high. IMF analysis puts it above 80% of GDP, while CareEdge identifies high government debt and relatively weak debt affordability as important constraints on India’s sovereign credit profile.

However, stopping there would substantially understate India’s strengths.

India benefits from a large and diversified economy, strong growth prospects, substantial foreign-exchange reserves and relatively low external indebtedness.

Perhaps even more importantly, government debt enjoys a large domestic investor base.

The IMF notes that Indian financial institutions continue to demonstrate robust demand for government securities and that the banking system is sufficiently liquid and capitalised to act as an important residual financier of the sovereign.

The IMF currently expects India’s debt ratio to gradually decline over the medium term, reaching approximately 77% of GDP by FY2030/31 under its baseline.

So India’s principal sovereign challenge is less about immediate refinancing risk and more about creating additional fiscal space. Reducing interest burdens and broadening the tax base could release significantly more government resources for infrastructure, healthcare, education, climate investment and other productivity-enhancing expenditure.

That distinction matters enormously. Two countries can have similar debt ratios and completely different sovereign-risk profiles depending on who owns the debt, what currency it is denominated in, how deep domestic savings are and how quickly the economy is growing.

During the recent BRICS meeting, Prime Minister Narendra Modi had said that within the BRICS group, a special emphasis is on strengthening resilience. “It is equally important to identify challenges in time, be prepared for them, and take prompt action,” he said.

With this approach, we have agreed on a BRICS Integrated Early Warning System for the prevention of and response to infectious diseases. Early Warning Data Integration Guidelines have been prepared for disaster management. The BRICS Logistics Supply Chain Cooperation Framework will help make our supply chains more reliable and resilient, he added.

Brazil: When the Cost of Debt Becomes the Constraint

Brazil illustrates another version of the problem.

The IMF estimates that Brazil’s public-debt ratio exceeded 93% of GDP in 2025, while interest payments have risen sharply.

That means Brazil’s challenge is not simply the amount of debt outstanding.

It is the price of carrying it.

High real interest rates can create a damaging fiscal feedback loop: larger interest payments widen deficits, larger financing requirements increase borrowing needs, and those requirements can restrict the government’s ability to undertake productive investment.

Brazil nevertheless retains important strengths, including a large domestic financial system, a diversified economy and substantial institutional capacity.

Its sovereign-credit trajectory will therefore depend heavily on whether fiscal consolidation can place public debt on a convincingly declining path without undermining growth.

South Africa: The Sovereign Risk Sitting Inside State Companies

South Africa demonstrates yet another source of sovereign vulnerability: contingent liabilities.

Years of operational and financial weakness across major state-owned enterprises have repeatedly transferred economic costs back onto the government.

The IMF estimates that fiscal transfers to major SOEs accumulated to around 7% of GDP since 2008, while government guarantees on SOE debt stood at roughly 7% of GDP in 2025 on an exposure basis.

Eskom and Transnet are therefore not merely corporate turnaround stories.

Their performance directly affects electricity availability, logistics, exports, productivity—and ultimately the sovereign balance sheet.

South Africa’s credit improvement consequently depends not just on fiscal consolidation but on structural reforms that make electricity, railways and ports more reliable and reduce SOEs’ dependence on government support.

Egypt and Ethiopia: When External Liquidity Becomes the Immediate Risk

For weaker-rated members, the risk changes again.

Here, external liquidity can matter more than domestic debt ratios.

Large external financing requirements, thinner foreign-exchange buffers and dependence on international capital flows leave countries more exposed to changes in global interest rates, commodity prices and investor sentiment.

When global liquidity tightens, refinancing pressure can quickly become a balance-of-payments problem.

This creates a fundamental dividing line within BRICS:

Some members primarily need to improve fiscal efficiency. Others need to protect external solvency and access to foreign capital.

Treating those as the same sovereign-credit problem misses the point.

BRICS vs G7: Debt Levels Don’t Tell the Whole Story

This is also where comparisons between BRICS and the G7 require greater nuance.

Global government debt is hardly an emerging-market phenomenon. The IMF estimates global public debt reached just under 94% of GDP in 2025 and could approach 100% by 2029.

Several advanced economies carry extremely high public-debt burdens.

Yet they frequently possess advantages that make those liabilities easier to finance: deep domestic capital markets, large institutional investor pools, highly liquid sovereign bond markets and, in several cases, reserve currencies used globally.

That is the real structural divide. The critical question is not simply:

“How much does a government owe?” It is:

“In what currency, to whom, at what interest rate, at what maturity—and supported by what depth of domestic capital?”

That is a much better measure of sovereign resilience.

BRICS’ Next Frontier: Build Its Own Financial Plumbing

This leads to perhaps the most important strategic opportunity for BRICS.

If the bloc wants its economic weight to translate into financial influence, it must develop deeper financial infrastructure alongside trade.

The New Development Bank (NDB) could become increasingly important here.

Its current strategy targets 30% of financing in local currencies, explicitly reducing foreign-exchange risk for borrowers.

And that strategy is becoming tangible.

The NDB is developing an Indian rupee bond programme that aims to mobilise approximately ₹250 billion over five years. It already issues extensively in China’s renminbi market and is expanding local-currency financing elsewhere.

The logic is powerful. Borrow in local currency.

Finance projects in local currency. Develop domestic institutional-investor markets.

Reduce currency mismatches. Increase cross-border financial connectivity.

And gradually reduce dependence on hard-currency borrowing for development projects. This is potentially far more consequential than simply debating whether BRICS will create a common currency.

By Venkatesh G