LONDON, Oct 25 (Reuters) – Rishi Sunak became Britain’s third prime minister in two months on Tuesday and pledged to lead the country out of a profound economic crisis and rebuild trust in politics.
Sunak quickly reappointed Jeremy Hunt as his finance minister in a move designed to calm markets that had balked at his predecessor’s debt-fuelled economic plans.
The former hedge fund boss said he would unite the country and was expected to name a cabinet drawn from all wings of the party to end infighting and abrupt policy changes that have horrified investors and alarmed international allies.
Speaking outside his official Downing Street residence, Sunak praised the ambition of his predecessor Liz Truss to reignite economic growth but acknowledged mistakes had been made.
“I have been elected as leader of my party and your prime minister, in part to fix them,” said Sunak, who broke with the tradition of standing beside his family and cheering political supporters.
“I understand, too, that I have work to do to restore trust, after all that has happened. All I can say is that I am not daunted. I know the high office I have accepted and I hope to live up to its demands.”
Sunak said difficult decisions lay ahead as he looks to cut public spending. Hunt, who Truss appointed to calm markets roiled by her dash for growth, has been preparing a new budget alongside borrowing and growth forecasts due out on Monday, and repeated his warning on Tuesday that “it is going to be tough”.
The new prime minister also restored Dominic Raab to the post of deputy prime minister, a role he lost in Truss’s 44 days in office, but reappointed James Cleverly as foreign minister and Ben Wallace at defence.
Penny Mordaunt, who ended her bid to win a leadership contest against Sunak on Monday, also retained her position as leader of the House of Commons, a role that organises the government’s business in the lower house of parliament.
Sources had said she wanted to become foreign minister.
With his new appointments, Sunak was seen to be drawing ministers from across the Conservative Party while leaving others in post – a move that should ease concerns that Sunak might appoint loyalists rather than try to unify the party.
Sunak, one of the richest men in parliament, is expected to slash spending to plug an estimated 40 billion pound ($45 billion) hole in the public finances created by an economic slowdown, higher borrowing costs and an energy support scheme.
He will now need to review all spending, including on politically sensitive areas such as health, education, defence, welfare and pensions. But with his party’s popularity in freefall, he will face growing calls for an election if he ditches too many of the promises that the Conservatives win election in 2019.
Economists and investors have welcomed Sunak’s appointment – Ryanair boss Michael O’Leary said the adults had taken charge again – but they warn he has few options to fix the country’s finances when millions are battling a cost of living crunch.
[1/8] King Charles III welcomes Rishi Sunak during an audience at Buckingham Palace, London, where he invited the newly elected leader of the Conservative Party to become Prime Minister and form a new government. Picture date: Tuesday October 25, 2022. Photo credit should read: Aaron Chown/PA Wire Aaron Chown/Pool via REUTERS
Sunak, who ran the Treasury during the COVID-19 pandemic, promised to put economic stability and confidence at the heart of the agenda. “This will mean difficult decisions to come,” he said, shortly after he accepted King Charles’s request to form a government.
Sunak also vowed to put the public’s need above politics, in recognition of the growing anger at Britain’s political class and the ideological battles that have raged ever since the historic 2016 vote to leave the European Union.
Workers heading towards London’s financial district said Sunak, at 42 Britain’s youngest prime minister for more than 200 years and its first leader of colour, appeared to be the best of a bad bunch.
“I think he was competent, and that’s really what we should hope for at the moment,” said management consultant, James Eastbook, 43.
With two prime ministers appointed in two months without a popular vote, some called for a general election now but others hoped Sunak would stay until the next scheduled election, due by January 2025.
Sunak, a Goldman Sachs analyst who only entered parliament in 2015, faces a challenge ending the factional infighting that has brought his party low. Many Conservatives remain angry with him for quitting as finance minister in July and triggering a wider rebellion that ended Boris Johnson’s premiership.
Others question how a multi millionaire can lead the country when millions of people are struggling with surging food and energy bills.
“I think this decision sinks us as a party for the next election,” one Conservative lawmaker told Reuters.
Historian and political biographer Anthony Seldon said Sunak would also be constrained by the mistakes of his immediate predecessor.
“There is no leeway on him being anything other than extraordinarily conservative and cautious,” he told Reuters.
Many politicians and officials abroad, having watched as a country once seen as a pillar of economic and political stability descended into brutal infighting, welcomed Sunak’s appointment.
Sunak, a Hindu, also becomes Britain’s first prime minister of Indian origin.
U.S. President Joe Biden described it as a “groundbreaking milestone”, while leaders from India and elsewhere welcomed the news. Sunak’s billionaire father-in-law, N.R. Narayana Murthy, said he would serve the United Kingdom well.
“We are proud of him and we wish him success,” the founder of software giant Infosys said in a statement.
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Rishi Sunak already has experience steering Britain’s public finances through a crisis, but that is unlikely to make tackling the country’s economic challenges any less daunting.
As chancellor of the Exchequer from February 2020 to July this year, Mr. Sunak spent heavily to shield households and businesses from some of the economic fallout from the coronavirus pandemic. Back then, inflation was low and the Bank of England was buying government debt, helping keep interest rates low as borrowing ballooned to pay for the large increase in spending.
Now, Mr. Sunak, who is set to be Britain’s next prime minister after being named leader of the Conservative Party on Monday, will face a very different economic backdrop: The inflation rate has topped 10 percent, the highest in 40 years and, like many countries, the economy is slowing down and at risk of falling into a recession. Meanwhile, the Bank of England is continuing to raise interest rates to curb inflation, and won’t be there to purchase government debt because starting next month it is planning to slowly sell its holdings of bonds. That means the government will rely more on investors, who have been demanding higher interest rates, than the central bank to buy bonds.
In these circumstances, Mr. Sunak has several urgent issues to resolve. One is how to support households squeezed by rising energy costs, after Russia’s war in Ukraine introduced huge volatility into global energy markets. As things stand, household bills have been frozen from this month through to April at an average of 2,500 pounds ($2,826) a year, but after that the government is expected to develop a cheaper policy to help the most vulnerable households. A similar policy is in place to help businesses for six months.
After setting aside tens of billions of pounds to keep energy bills down, the government is also under pressure to show how it will keep borrowing in check, in an effort to restore Britain’s fiscal credibility in markets. Jeremy Hunt, the finance minister recently installed by Liz Truss but a supporter of Mr. Sunak, is scheduled to deliver a fiscal statement on Oct. 31 that he said would show Britain’s debt falling as a share of national income over the medium term.
To bring down debt levels, “decisions of eye-watering difficulty” on spending and tax will need to be made, Mr. Hunt has said. He said he will be asking every government department to find ways to save money despite their already stretched budgets. At the same time, Mr. Hunt said taxes are likely to rise as well. Mr. Sunak, however, is not obligated to keep Mr. Hunt as chancellor or stick to the current timetable for the fiscal statement, though many analysts expect him to.
“The United Kingdom is a great country, but there is no doubt we face a profound economic challenge,” Mr. Sunak said on Monday in a short speech. “We now need stability and unity.”
At this stage, Mr. Sunak hasn’t revealed details about his economic plan as prime minister but investors appear to be taking the prospect of his premiership in their stride.
The pound is trading at about $1.13, a little higher than it was on Sept. 22 before the tax-cutting plan by Ms. Truss that roiled markets, pushing the pound steeply lower and borrowing costs higher. Government bonds yields have fallen from their recent highs. On Monday afternoon, the yield on 10-year bonds was at about 3.75 percent, after closing at 4 percent on Friday. It’s the lowest level since the fiscal statement by Ms. Truss’s government in September.
Lower interest rates will be a comfort to Mr. Sunak. For one, lower rates will shrinkthe amount of money the Treasury will need to set aside for interest rate payments, which could easespending cuts and tax increases. But there are other reminders of the economic difficulties Britain faces.
On Monday, a measure of economic activity in Britain dropped, as the services industry posted its worst monthly decline since January 2021, according to the Purchasing Managers’ Index which measures economic trends. The index for both services and manufacturing activity fell to 47.2 points. A reading below 50 means a contraction in activity.
The data showed that the pace of economic decline was gathering momentum, said Chris Williamson, an economist at S&P Global Market Intelligence.
And on Friday, the credit ratings agency Moody’s changed its outlook on Britain to negative, from stable, while reaffirming the country’s current Aa3 investment grade rating. A lower credit rating tends to lead to higher government borrowing costs.
Moody’s said the outlook was changed to negative because of the “heightened unpredictability in policymaking amid weaker growth prospects and high inflation.” There was also a risk that increased borrowing would challenge Britain’s debt affordability, especially if there was a “sustained weakening in policy credibility.”
These are just the latest in a laundry list of the government’s economic concerns. They include supporting low-income households against the rising cost of living, encouraging investment to improve weak productivity growth, smoothing Britain’s trading relationship with the European Union and growing the labor market to ensure businesses can find people with the right skills.
“We need a clear long-term vision of how the new prime minister will deal with the challenges ahead,” Shevaun Haviland, the director general of the British Chambers of Commerce, said in a statement, “and create the business conditions that allow firms, and the communities that rely on them, to thrive.”
The fall of Liz Truss, Britain’s prime minister for just six tumultuous weeks, has plunged the nation into another phase of economic uncertainty.
When Ms. Truss announced her resignation on Thursday as Conservative Party leader, saying she would stand down as prime minister, the markets that had rebelled against her fiscal policies engaged in a weak and short-lived rally. Investors were left wondering who would be the new leader and what lay ahead for Britain’s economic policy. On Friday morning, government bonds were falling, pushing yields higher, and the pound was dropping.
“It’s a leap into the unknown,” said Antoine Bouvet, an interest rates strategist at ING.
Overall the initial reaction, Mr. Bouvet added, suggested that investors expect that a new prime minister will go ahead with fiscal plans generally supported by the market. But he said it was too early to be sure.
“Let’s see who gets elected leader and what they say on fiscal policy,” he said.
The next prime minister, the third this year, will face a long list of economic challenges. Annual inflation topped 10 percent last month as food prices rose at their fastest pace in more than 40 years. Wages haven’t kept up with rising prices, bringing about a cost-of-living crisis and labor unrest. There is a deepening slump in consumer spending with data on Friday showing people were buying less than before the pandemic. Interest rates are set to rise even as the economy stagnates. And Russia’s war in Ukraine is still rippling through the global economy, especially the energy market.
provoked extraordinary volatility in markets at the end of September when her first chancellor of the Exchequer, Kwasi Kwarteng, announced a plan for widespread tax cuts and huge spending, to be financed by borrowing. Amid the highest inflation in four decades and rising interest rates, markets deemed the plan, delivered without any independent assessment, a rupture in Britain’s reputation for fiscal credibility. The pound dropped to a record low, and government bond yields shot up so violently the central bank was forced to intervene to stop a crisis in the pension funds industry.
began to settle markets. However, bond yields remain noticeably higher than they were before the September tax plan was announced, as investors still demand a higher premium to lend to Britain. On Thursday, 10-year government bond yields closed at 3.91 percent, up from 3.50 percent on Sept. 22, the day before Mr. Kwarteng’s policy announcement.
Ms. Truss’s tenure as prime minister, the shortest in British history, was undone by economic policies that harked back to the trickle-down economics of the 1980s, built on the belief that tax cuts for the wealthy were fair and would lead to investment and economic growth that would benefit everyone.
fixed rates have settled higher.
More on the Situation in Britain
Meanwhile, the new government is likely to be focused on restoring the government’s fiscal credibility. Mr. Hunt is set to deliver a “medium-term fiscal plan,” with spending and tax measures, on Oct. 31. He said he expected to make “difficult” spending cuts as he planned to show that debt levels were falling in the medium term.
It will be accompanied by an independent assessment of the fiscal and economic impact of the policies by the Office for Budget Responsibility, a government watchdog.
While markets have cheered the government’s promise to have its policies independently reviewed, questions remain about how the gap in the public finances can be closed. Economists say there is very little room in stretched department budgets to make cuts. That has led to concerns of a return to austerity measures, reminiscent of the spending cuts after the 2008 financial crisis.
“There is a danger,” Mr. Chadha said, “that we end up with tighter fiscal policy than actually is appropriate given the shock that many households are suffering.” This could make it harder to support people suffering amid rising food and energy prices. But Mr. Chadha argues that it’s clear what needs to happen next: a complete elimination of unfunded tax cuts and careful planning on how to support vulnerable households.
The chancellor could also end up having a lot more autonomy over fiscal policy than the prime minister, he added.
“The best outcome for markets would be a rapid rallying of the parliamentary Conservative Party around a single candidate” who would validate Mr. Hunt’s approach and the timing of the Oct. 31 report, Trevor Greetham, a portfolio manager at Royal London Asset Management, said in a written comment.
Three days after the fiscal statement, on Nov. 3, Bank of England policymakers will announce their next interest rate decisions.
Bond investors are trying to parse how the central bank will react to the rapidly changing fiscal news. On Thursday, before Ms. Truss’s resignation, Ben Broadbent, a member of the central bank’s rate-setting committee, indicated that policymakers might not need to raise interest rates as much as markets currently expect. Traders are betting that the bank will raise rates above 5 percent next year, from 2.25 percent.
The bank could raise rates less than expected next year partly because the economy is forecast to shrink over the year. The International Monetary Fund predicted that the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year.
That’s a mild recession compared with some other forecasts, but it would only compound the longstanding economic problems that Britain faced, including weak investment, low productivity growth and businesses’ inability to find employees with the right skills. These were among the challenges that Ms. Truss said she would resolve by shaking up the status quo and targeting economic growth of 2.5 percent a year.
Most economists didn’t believe that “Trussonomics,” as her policies were called, would deliver this economic growth. Instead, they predicted the policies would prolong the country’s inflation problem.
Despite the change in leadership, analysts don’t expect a big rally in Britain’s financial markets. The nation’s international standing could take a long time to recover.
“It takes years to build a reputation and one day to undo it,” Mr. Bouvet said, adding, “Investors will come progressively back to the U.K.,” but it won’t be quickly.
BoE’s Bailey says agrees with Hunt on need to fix finances
Some Conservative lawmakers say Truss will be ousted
LONDON, Oct 15 (Reuters) – Britain’s new finance minister Jeremy Hunt said on Saturday some taxes would go up and tough spending decisions were needed, saying Prime Minister Liz Truss had made mistakes as she battles to keep her job just over a month into her term.
In an attempt to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.
With opinion poll ratings dire for both the ruling Conservative Party and the prime minister personally, and many of her own lawmakers asking, not if, but how Truss should be removed, Truss is relying on Hunt to help salvage her premiership less than 40 days after taking office.
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In an article for the Sun newspaper published late on Saturday, Truss admitted the plans had gone “further and faster than the markets were expecting”.
“I’ve listened, I get it,” she wrote. “We cannot pave the way to a low-tax, high-growth economy without maintaining the confidence of the markets in our commitment to sound money.”
She said Hunt would lay out at the end of the month the plan to get national debt down “over the medium term”.
But, the speculation about her future shows no sign of diminishing, with Sunday’s newspapers rife with stories that allies of Rishi Sunak, another former finance minister who she beat to become leader last month, were plotting to force her out within weeks.
On a tour of TV and radio studios, Hunt gave a blunt assessment of the situation the country faced, saying Truss and Kwarteng had made mistakes and further changes to her plans were possible.
“We will have some very difficult decisions ahead,” he said.”The thing that people want, the markets want, the country needs now, is stability.”
The Sunday Times said Hunt would rip up more of Truss’s original package by delaying a planned cut to the basic rate of income tax as part of a desperate bid to balance the books.
According to the newspaper, Britain’s independent fiscal watchdog had said in a draft forecast there could be a 72 billion pound ($80 billion) black hole in public finances by 2027/28, worse than economists had forecast.
Truss had won the leadership contest to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng duly announced last month. But the absence of any details of how the cuts would be funded sent the markets into meltdown.
She has already ditched plans to cut tax for high earners, and said a levy on business would increase, abandoning her proposal to keep it at current levels. But a slump in bond prices after her news conference on Friday still suggested she had not gone far enough.
‘MEETING OF MINDS’
Kwarteng’s Sept. 23 fiscal statement prompted a backlash in financial markets that was so ferocious the Bank of England (BoE) had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.
British Prime Minister Liz Truss attends a news conference in London, Britain, October 14, 2022. Daniel Leal/Pool via REUTERS
BoE Governor Andrew Bailey said he had spoken to Hunt and they had agreed on the need to repair the public finances.
“There was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that,” Bailey said in Washington on Saturday. “Of course, there was an important measure taken yesterday.”
He also warned that inflation pressures might require a bigger interest rate rise than previously thought due to the government’s huge energy subsidies for homes and businesses, and its tax cut plans.
Hunt is due to announce the government’s medium-term budget plans on Oct. 31, in what will be a key test of its ability to show it can restore its economic policy credibility.
He cautioned spending would not rise by as much as people would like and all government departments were going to have to find more efficiencies than they were planning.
“Some taxes will not be cut as quickly as people want, and some taxes will go up. So it’s going to be difficult,” he said. He met Treasury officials on Saturday and will hold talks with Truss on Sunday to go through the plans.
Hunt, an experienced minister and viewed by many in his party as a safe pair of hands, said he agreed with Truss’s fundamental strategy of kickstarting economic growth, but he added that their approach had not worked.
“There were some mistakes made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut the top rate of tax at a period when we’re asking everyone to make sacrifices,” he said.
It was also a mistake, Hunt said, to “fly blind” and produce the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to check the figures.
The fact that Hunt is Britain’s fourth finance minister in four months is testament to a political crisis that has gripped Britain since Johnson was ousted following a series of scandals.
Hunt said Truss should be judged at an election and on her performance over the next 18 months – not the last 18 days.
However, she might not get that chance. During the leadership contest, Truss won support from less than a third of Conservative lawmakers and has appointed her backers since taking office – alienating those who supported her rivals.
The appointment of Hunt, who ran to be leader himself and then backed Sunak, has been seen as a sign of her reaching out, but the move did little to placate some of her party critics.
“It’s over for her,” one Conservative lawmaker told Reuters after Friday’s events.
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Editing by Emelia Sithole-Matarise, Helen Popper, Ros Russell and Diane Craft
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Bailey says he talked to new finance minister on Friday
‘Very clear and immediate meeting of minds’ on fiscal challenge
Rates likely to rise by more than thought in August – Bailey
Recent bond-buying not about targeting yields
WASHINGTON, Oct 15 (Reuters) – Bank of England Governor Andrew Bailey said there was an “immediate meeting of minds” when he spoke with finance minister Jeremy Hunt about the need to fix the public finances after the tax cut plans of Hunt’s predecessor unleashed market turmoil.
Bailey, speaking in Washington where British officials attending International Monetary Fund meetings have been put on the spot about the crisis engulfing the country, said he had spoken to Hunt on Friday after he replaced Kwasi Kwarteng.
“I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that,” Bailey said.
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“Of course there was an important measure taken yesterday,” he said at an event where he also hinted at a big interest rate rise by the central bank next month.
Prime Minister Liz Truss, seeking to save her term in office which is barely a month old, said on Friday that Britain’s corporation tax rate would increase, reversing a key pledge made during her bid for Downing Street.
Hunt said earlier on Saturday that some taxes might have to rise and others might not fall as much as planned, signalling a further shift away from Truss’s original plans.
Bailey, speaking at an event organised by the Group of Thirty, which comprises financiers and academics, welcomed the role that Britain’s independent budget watchdog would have in assessing the budget plan that Hunt will publish on Oct. 31.
The Office for Budget Responsibility was not tasked with weighing up the impact of Kwarteng’s “mini-budget” which set off a slump in the value of the pound and government bonds when he announced it on Sept. 23.
“Flying blind is not a way to achieve sustainability,” Bailey said.
Truss criticised the BoE during her leadership campaign, saying she wanted to set a “clear direction of travel” for the central bank. BoE officials pushed back at those comments saying their independence was key to managing the economy.
‘STRONGER RESPONSE’ WITH RATES
Bailey said the BoE might raise interest rates by more than it previously thought because of the government’s huge energy bill support – which could lower inflation in the short term but push it up further ahead – and whatever it decides to do on tax cuts and spending.
“We will not hesitate to raise interest rates to meet the inflation target,” Bailey said. “And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
The BoE raised rates by half a percentage point in August – at the time its biggest increase in 27 years – and then did so again in September with inflation around 10%, far above the BoE’s target of 2%.
It is due to announce its next decision on Nov. 3 and many investors think it will either raise them from their current level of 2.25% to 3% or possibly 3.25%.
In the shorter term, the BoE will be keeping a close eye on how financial markets behave on Monday after it ended its emergency bond-buying programme on Friday.
Bailey said the now-completed intervention was “not about steering market yields towards some particular level, but rather preventing them from being distorted by market dysfunction”.
He said the BoE had acted after the violent market moves which exposed the “flaws in the strategy and structure” of a lot of pension funds.
The intervention was different to the much bigger and longer-running bond-buying that the BoE undertook during the coronavirus pandemic and earlier as a monetary policy tool.
“In these difficult times, we need to be very clear on this framework of intervention,” Bailey said.
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Reporting by Howard Schneider in Washington and William Schomberg in London; Additional reporting by Michael Holden in London; Editing by David Clarke
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Covers the U.S. Federal Reserve, monetary policy and the economy, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the local staff of the Washington Post.
The average household in Ghana is paying two-thirds more than it did last year for diesel, flour and other necessities. In Egypt, wheat is so expensive that the government has fallen half a billion dollars short of its budget for a bread subsidy it provides to its citizens. And Sri Lanka, already struggling to control a political crisis, is running out of fuel, food and medical supplies.
A strong dollar is making the problems worse.
Compared with other currencies, the U.S. dollar is the strongest it has been in two decades. It is rising because the Federal Reserve has increased interest rates sharply to combat inflation and because America’s economic health is better than most. Together, these factors have attracted investors from all over the world. Sometimes they simply buy dollars, but even if investors buy other assets, like government bonds, they need dollars to do so — in each case pushing up the currency’s value.
That strength has become much of the world’s weakness. The dollar is the de facto currency for global trade, and its steep rise is squeezing dozens of lower-income nations, chiefly those that rely heavily on imports of food and oil and borrow in dollars to fund them.
But much of the damage is already behind us.
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“We are in a fragile situation,” Mr. El-Erian said. “Country after country is flashing amber, and some are already flashing red.”
Many lower-income countries were already struggling during the pandemic.
Roughly 22 million people in Ghana, or a third of its population, reported a decline in their income between April 2020 and May 2021, according to a survey from the World Bank and Unicef. Adults in almost half of the households with children surveyed said they were skipping a meal because they didn’t have enough money. Almost three-quarters said the prices of major food items had increased.
Then came Russia’s invasion of Ukraine. The war between two of the world’s largest exporters of food and energy led to a big surge in prices, especially for importers like Ghana. Consumer prices have gone up 30 percent for the year through June, according to data from the research firm Moody’s Analytics. For household essentials, annual inflation has reached 60 percent or more this year, the S&P data shows.
To illustrate this, consider the price of a barrel of oil in dollars versus the Ghanaian cedi. At the beginning of October last year, the price of oil stood at $78.52 per barrel, rising to nearly $130 per barrel in March before falling back to $87.96 at the beginning of this month, a one-year increase of 12 percent in dollar terms. Over the same period, the Ghanaian cedi has weakened over 40 percent against the dollar, meaning that the same barrel of oil that cost roughly 475 cedi a year ago now costs over 900 cedi, almost twice as much.
Adding to the problem are large state-funded subsidies, some taken on or increased through the pandemic, that are now weighing on government finances.
Ghana’s president cut fuel taxes in November 2021, losing roughly $22 million in projected revenue for the government — the latest available numbers.
In Egypt, spending on what the government refers to as “supply commodities,” almost all of which is wheat for its long-running bread subsidy, is expected to come in at around 7 percent of all government spending this year, 12 percent higher — or more than half a billion dollars — than the government budgeted.
As costs ballooned throughout the pandemic, governments took on more debt. Ghana’s public debt grew to nearly $60 billion from roughly $40 billion at the end of 2019, or to nearly 80 percent of its gross domestic product from around 63 percent, according to Moody’s.
It’s one of four countries listed by S&P, alongside Pakistan, Nigeria and Sri Lanka, where interest payments alone account for more than half of the government’s revenues.
“We can’t forget that this is happening on the back end of a once-in-a-century pandemic in which governments, to try and support families as best they could, did borrow more,” said Frank Gill, an analyst at S&P. “This is a shock following up on another shock.”
In May, Sri Lanka defaulted on its government debt for the first time in its history. Over the past month, the governments of Egypt, Pakistan and Ghana have all reached out to the International Monetary Fund for a bailout as they struggle to meet their debt financing needs, no longer able to turn to international investors for more money.
“I don’t think there is a lot of appetite to lend money to some of these countries,” said Brian Weinstein, co-head of credit trading at Bank of America. “They are incredibly vulnerable at the moment.”
That vulnerability is already reflected in the bond market.
In 2016, Ghana borrowed $1 billion for 10 years, paying an interest rate of just over 8 percent. As the country’s financial position has worsened and investors have backed away, the yield — indicative of what it would now cost Ghana to borrow money until 2026 — has risen to above 35 percent.
It’s an untenable cost of debt for a country in Ghana’s situation. And Ghana is not alone. For bonds that also mature in 2026, yields for Pakistan have reached almost 40 percent.
“We have concerns where any country has yields that calls into question their ability to refinance in public markets,” said Charles Cohen, deputy division chief of monetary and capital market departments at IMF.
The risk of a sovereign debt crisis in some emerging markets is “very, very high,” said Jesse Rogers, an economist at Moody’s Analytics. Mr. Rogers likened the current situation to the debt crises that crushed Latin America in the 1980s — the last time the Fed sought to quell soaring inflation.
Already this year, more than $80 billion has been withdrawn from mutual funds and exchange-traded funds — two popular types of investment products — that buy emerging market bonds, according to EPFR Global, a data provider. As investors sell, the United States is often the beneficiary, further strengthening the dollar.
“It’s by far the worst year for outflows the market has ever seen,” said Pramol Dhawan, head of emerging markets at Pimco.
Even citizens in some of these countries are trying to exchange their money for dollars, fearful of what’s to come and of further currency depreciation — yet inadvertently also contributing to it.
“For pockets of emerging markets, this is a really challenging backdrop and one of the most challenging backdrops we have faced for many years,” Mr. Dhawan said.
LOUGHTON, England — After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family began the week almost certain that they would finally own a home.
Transplants to London who fell in love as housemates, Laetitia Anne, an operations manager from France and her husband, Maciej Szostek, a chef from Poland, had long dreamed of being homeowners. They had waited out the uncertain pandemic years and worked overtime shifts to save up for the deposit for a mortgage on a three-bedroom apartment in a neighborhood outside London. Their 13-year-old twins were excited they could finally paint the walls.
That was before British financial markets were upended, with the pound briefly hitting a record low against the dollar on Monday and interest rates soaring so rapidly that the Bank of England was forced to intervene to restore order. The economic situation was so volatile that some mortgage lenders temporarily withdrew many products.
By Tuesday evening, the Szostek family learned the bad news: The loan that they were close to securing had fallen through. Suddenly, they were scrambling to find another lender as interest rates climb higher.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Rising home prices and income inequality priced many out of the market, but for strivers who aspired to homeownership, the latest ruptures to the economy hit hard. The release of the new government’s sweeping plan for debt-funded tax cuts led to a big uptick in interest rates this week that roiled the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring energy and food prices and a general cost-of-living crisis.
Before they were informed they were no longer eligible, the family had been in the final stages of applying for a five-year fixed-rate mortgage on an apartment priced at £519,000, or around $576,000, in the leafy parish of Loughton, a town about 40 minutes north of London by train where the streets fill with students in the afternoon and the properties span from lower-end apartments to million-pound mansions.
according to the Financial Conduct Authority. And more than a third of all mortgages are on fixed rates that expire within the next two years, most likely exposing those borrowers to higher rates, too. By contrast, the vast majority of mortgages in the United States are locked in for 30-year fixed terms.
And the abrupt surge in interest rates could threaten to set off a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates stayed at the levels now being offered, that would suggest that house prices were around 30 percent overvalued “based on the affordability of mortgage payment.”
“This just adds a significant further strain to finances in the order of hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies, adding that the squeeze on household budgets will affect the broader economy.
Uncertainty and even panic was clear this week, with many homeowners seeking financial advice. Mortgage brokers said they were receiving a higher volume of inquiries than normal from people stressed about refinancing their loans.
“You can feel the fear in people’s voices,” said Caroline Opie, a mortgage broker working with Ms. Anne who said she had not seen this level of worry in a long time. One couple this week even called her the morning of their wedding, she said, to set an appointment to refinance their mortgage next week.
the war in Ukraine. “Something has got to give,” he said. “Prices are too high anyway.”
To save for the deposit, Mr. Szostek, 37, picked up construction shifts and cleaning jobs when restaurants closed during Covid-19 lockdowns. A £5,000 inheritance from Ms. Anne’s grandfather went into their deposit fund. At a 3.99 percent interest rate, the mortgage repayments were set to be about £2,200 a month.
“I wanted to feel at home for real,” said Ms. Anne, adding she would have been the first in her family to own a property. Mr. Szostek called it “a lifelong dream.”
On Wednesday night, that dream still seemed in reach: The mortgage dealer Ms. Opie had found another loan, which they rushed to apply for.
The higher interest rate — 4.6 percent — will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they felt lucky to secure anything at all, hoping it will mean their promises to their children — of bigger bedrooms, more space, freedom to decorate how they like — will materialize.
They would wait to celebrate, Mr. Szostek said, until they had the keys in hand.
RICHMOND, Va. — In late July, Norman Otey was rushed by ambulance to Richmond Community Hospital. The 63-year-old was doubled over in pain and babbling incoherently. Blood tests suggested septic shock, a grave emergency that required the resources and expertise of an intensive care unit.
But Richmond Community, a struggling hospital in a predominantly Black neighborhood, had closed its I.C.U. in 2017.
It took several hours for Mr. Otey to be transported to another hospital, according to his sister, Linda Jones-Smith. He deteriorated on the way there, and later died of sepsis. Two people who cared for Mr. Otey said the delay had most likely contributed to his death.
the hospital’s financial data.
More than half of all hospitals in the United States are set up as nonprofits, a designation that allows them to make money but avoid paying taxes. Although Bon Secours has taken a financial hit this year like many other hospital systems, the chain made nearly $1 billion in profit last year at its 50 hospitals in the United States and Ireland and was sitting on more than $9 billion in cash reserves. It avoids at least $440 million in federal, state and local taxes every year that it would otherwise have to pay, according to an analysis by the Lown Institute, a nonpartisan think tank.
In exchange for the tax breaks, the Internal Revenue Service requires nonprofit hospitals to provide a benefit to their communities. But an investigation by The New York Times found that many of the country’s largest nonprofit hospital systems have drifted far from their charitable roots. The hospitals operate like for-profit companies, fixating on revenue targets and expansions into affluent suburbs.
borrowing tricks from business consultants, have trained staff to squeeze payments from poor patients who should be eligible for free care.
John M. Starcher Jr., made about $6 million in 2020, according to the most recent tax filings.
“Our mission is clear — to extend the compassionate ministry of Jesus by improving the health and well-being of our communities and bring good help to those in need, especially people who are poor, dying and underserved,” the spokeswoman, Maureen Richmond, said. Bon Secours did not comment on Mr. Otey’s case.
In interviews, doctors, nurses and former executives said the hospital had been given short shrift, and pointed to a decade-old development deal with the city of Richmond as another example.
In 2012, the city agreed to lease land to Bon Secours at far below market value on the condition that the chain expand Richmond Community’s facilities. Instead, Bon Secours focused on building a luxury apartment and office complex. The hospital system waited a decade to build the promised medical offices next to Richmond Community, breaking ground only this year.
‘Glorified Emergency Room’
founded in 1907 by Black doctors who were not allowed to work at the white hospitals across town. In the 1930s, Dr. Jackson’s grandfather, Dr. Isaiah Jackson, mortgaged his house to help pay for an expansion of the hospital. His father, also a doctor, would take his children to the hospital’s fund-raising telethons.
Cassandra Newby-Alexander at Norfolk State University.
got its first supermarket.
according to research done by Virginia Commonwealth University. The public bus route to St. Mary’s, a large Bon Secours facility in the northwest part of the city, takes more than an hour. There is no public transportation from the East End to Memorial Regional, nine miles away.
“It became impossible for me to send people to the advanced heart valve clinic at St. Mary’s,” said Dr. Michael Kelly, a cardiologist who worked at Richmond Community until Bon Secours scaled back the specialty service in 2019. He said he had driven some patients to the clinic in his own car.
Richmond Community has the feel of an urgent-care clinic, with a small waiting room and a tan brick facade. The contrast with Bon Secours’s nearby hospitals is striking.
At the chain’s St. Francis Medical Center, an Italianate-style compound in a suburb 18 miles from Community, golf carts shuttle patients from the lobby entrance, past a marble fountain, to their cars.
after the section of the federal law that authorized it, allows hospitals to buy drugs from manufacturers at a discount — roughly half the average sales price. The hospitals are then allowed to charge patients’ insurers a much higher price for the same drugs.
The theory behind the law was that nonprofit hospitals would invest the savings in their communities. But the 340B program came with few rules. Hospitals did not have to disclose how much money they made from sales of the discounted drugs. And they were not required to use the revenues to help the underserved patients who qualified them for the program in the first place.
In 2019, more than 2,500 nonprofit and government-owned hospitals participated in the program, or more than half of all hospitals in the country, according to the independent Medicare Payment Advisory Commission.
in wealthier neighborhoods, where patients with generous private insurance could receive expensive drugs, but on paper make the clinics extensions of poor hospitals to take advantage of 340B.
to a price list that hospitals are required to publish. That is nearly $22,000 profit on a single vial. Adults need two vials per treatment course.
work has shown that hospitals participating in the 340B program have increasingly opened clinics in wealthier areas since the mid-2000s.
were unveiling a major economic deal that would bring $40 million to Richmond, add 200 jobs and keep the Washington team — now known as the Commanders — in the state for summer training.
The deal had three main parts. Bon Secours would get naming rights and help the team build a training camp and medical offices on a lot next to Richmond’s science museum.
The city would lease Bon Secours a prime piece of real estate that the chain had long coveted for $5,000 a year. The parcel was on the city’s west side, next to St. Mary’s, where Bon Secours wanted to build medical offices and a nursing school.
Finally, the nonprofit’s executives promised city leaders that they would build a 25,000-square-foot medical office building next to Richmond Community Hospital. Bon Secours also said it would hire 75 local workers and build a fitness center.
“It’s going to be a quick timetable, but I think we can accomplish it,” the mayor at the time, Dwight C. Jones, said at the news conference.
Today, physical therapy and doctors’ offices overlook the football field at the training center.
On the west side of Richmond, Bon Secours dropped its plans to build a nursing school. Instead, it worked with a real estate developer to build luxury apartments on the site, and delayed its plans to build medical offices. Residents at The Crest at Westhampton Commons, part of the $73 million project, can swim in a saltwater pool and work out on communal Peloton bicycles. On the ground floor, an upscale Mexican restaurant serves cucumber jalapeño margaritas and a Drybar offers salon blowouts.
have said they plan to house mental health, hospice and other services there.
a cardiologist and an expert on racial disparities in amputation, said many people in poor, nonwhite communities faced similar delays in getting the procedure. “I am not surprised by what’s transpired with this patient at all,” he said.
Because Ms. Scarborough does not drive, her nephew must take time off work every time she visits the vascular surgeon, whose office is 10 miles from her home. Richmond Community would have been a five-minute walk. Bon Secours did not comment on her case.
“They have good doctors over there,” Ms. Scarborough said of the neighborhood hospital. “But there does need to be more facilities and services over there for our community, for us.”
This is Jones’ second defamation trial in as many months for spreading false defamatory conspiracy theories about the 2012 Sandy Hook shooting.
It was a testimony of fits and starts when Alex Jones took the stand Thursday in Waterbury, Connecticut.
Attorneys for both sides as well as Alex Jones were admonished by the judge. The judge dismissed the jury several times during testimony so she could handle disputes between opposing sides.
Plaintiff attorney Christopher Mattei: “I asked you whether you believe the FBI is a plaintiff in this case?”
Alex Jones: “Yes, I believe this is a deep state situation.”
While on the stand, the attorney representing those connected to the Sandy Hook Elementary tragedy pressed Jones on everything from his company’s finances to derogatory comments he’s made about the trial on his show just this week.
“I’m talking to the people who went to that puppet courthouse and put Infowars stickers everywhere,” Jones said. “We commend you.”
JONES: “It’s peaceful protest when they burn down two million dollars, that’s good, but when conservatives put up stickers then we’re bad.”
More than a dozen family members of various Sandy Hook victims showed up to observe his testimony in Waterbury Superior Court Thursday.
While this is Jones’ first appearance in the Connecticut courtroom, he’s given multiple statements outside of court — calling the proceedings a sham.
JONES: “This is a travesty of justice, and this judge is a tyrant. This judge is ordering me to say that i’m guilty and to say that i’m a liar.”
Back in November of 2021, Judge Barbara Bellis, who is presiding over this case, entered a default judgment against Jones for “willful noncompliance” during the discovery phase of the trial.
“This callous disregard of their obligations to fully and fairly comply with discovery and court orders on its own merits a default against the Jones defendants,” Bellis said.
This is Jones’ second defamation trial in as many months for spreading false defamatory conspiracy theories about the 2012 Sandy Hook shooting that killed more than two dozen people.
Over the last two weeks, jurors have heard powerful testimony from Connecticut parents who lost children during the shooting and endured harassment from Jones’ followers.
In August, a Texas jury awarded nearly $50 million to the family of Jesse Lewis, a 6-year-old who was killed during the Sandy Hook shooting, in a separate defamation case.
TikTok recently tried to tamp down concerns from U.S. lawmakers that it poses a national security threat because it is owned by the Chinese internet company ByteDance. The viral video app insisted it had an arm’s-length relationship with ByteDance and that its own executive was in charge.
“TikTok is led by its own global C.E.O., Shou Zi Chew, a Singaporean based in Singapore,” TikTok wrote in a June letter to U.S. lawmakers.
But in fact, Mr. Chew’s decision-making power over TikTok is limited, according to 12 former TikTok and ByteDance employees and executives.
Zhang Yiming, ByteDance’s founder, as well as by a top ByteDance strategy executive and the head of TikTok’s research and development team, said the people, who declined to be identified for fear of reprisals. TikTok’s growth and strategy, which are led by ByteDance teams, report not to Mr. Chew but to ByteDance’s office in Beijing, they said.
increasingly questioned TikTok’s data practices, reigniting a debate over how the United States should treat business relationships with foreign companies.
On Wednesday, TikTok’s chief operating officer testified in Congress and downplayed the app’s China connections. On Thursday, President Biden signed an executive order to sharpen the federal government’s powers to block Chinese investment in tech in the United States and to limit its access to private data on citizens.
a March interview with the billionaire investor David Rubenstein, whose firm, the Carlyle Group, has a stake in the Chinese giant. Mr. Chew added that he had become familiar with TikTok as a “creator” and amassed “185,000 followers.” (He appeared to be referring to a corporate account that posted videos of him while he was an executive at Xiaomi, one of China’s largest phone manufacturers.)
Jinri Toutiao. The two built a rapport, and an investment vehicle associated with Mr. Milner led a $10 million financing in Mr. Zhang’s company that same year, three people with knowledge of the deal said.
The news aggregator eventually became ByteDance — now valued at around $360 billion, according to PitchBook — and owns TikTok; its Chinese sister app, Douyin; and various education and enterprise software ventures.
By 2015, Mr. Chew had joined Xiaomi as chief financial officer. He spearheaded the device maker’s 2018 initial public offering, led its international efforts and became an English-speaking face for the brand.
“Shou grew up with both American and Chinese language and culture surrounding him,” said Hugo Barra, a former Google executive who worked with Mr. Chew at Xiaomi. “He is objectively better positioned than anyone I’ve ever met in the China business world to be this incredible dual-edged executive in a Chinese company that wants to become a global powerhouse.”
In March 2021, Mr. Chew announced that he was joining ByteDance as chief financial officer, fueling speculation that the company would go public. (It remains privately held.)
appointed Mr. Chew as chief executive, with Mr. Zhang praising his “deep knowledge of the company and industry.” Late last year, Mr. Chew stepped down from his ByteDance role to focus on TikTok.
Kevin Mayer, a former Disney executive, left after the Trump administration’s effort to sunder the app from its Chinese parent. China was also cracking down on its domestic internet giants, with Mr. Zhang resigning from his official roles at ByteDance last year. Mr. Zhang remains involved in decision making, people with knowledge of ByteDance said.
Mr. Chew moved to establish himself as TikTok’s new head during visits to the app’s Los Angeles office in mid-2021. At a dinner with TikTok executives, he sought to build camaraderie by keeping a Culver City, Calif., restaurant open past closing time, three people with knowledge of the event said. He asked attendees if he should buy the establishment to keep it open longer, they said.
a TikTok NFT project involving the musical artists Lil Nas X and Bella Poarch. He reprimanded TikTok’s global head of marketing on a video call with Beijing-based leaders for ByteDance after some celebrities dropped out of the project, four people familiar with the meeting said. It showed that Mr. Chew answered to higher powers, they said.
Mr. Chew also ended a half-developed TikTok store off Melrose Avenue in Los Angeles, three people familiar with the initiative said. TikTok briefly explored obtaining the naming rights of the Los Angeles stadium formerly known as the Staples Center, they said.
He has also overseen layoffs of American managers, two people familiar with the decisions said, while building up teams related to trust and safety. In its U.S. marketing, the app has shifted its emphasis from a brand that starts trends and conversations toward its utility as a place where people can go to learn.
In May, Mr. Chew flew to Davos, Switzerland, for the World Economic Forum, speaking with European regulators and ministers from Saudi Arabia to discuss digital strategy.
June letter to U.S. lawmakers, he noted that ByteDance employees in China could gain access to the data of Americans when “subject to a series of robust cybersecurity controls.” But he said TikTok was in the process of separating and securing its U.S. user data under an initiative known as Project Texas, which has the app working with the American software giant Oracle.
“We know we’re among the most scrutinized platforms,” Mr. Chew wrote.