The commodity price slump will not lead to a 1980s-style rash of sovereign defaults, despite obstacles blocking the necessary fiscal reform in many exporting countries, according to analysis by Oxford Economics.

However, a further wave of sovereign downgrades is likely — with rating agencies still overrating exporters by two notches on average — and a few more countries may be forced to go cap in hand to the International Monetary Fund.

Oxford Economics identified 28 sovereign defaults by 17 emerging market countries in the wake of the 1980s commodity slump, with Brazil, Argentina, Chile, Peru, Venezuela, Ecuador and Iran all defaulting twice.

So far this time, none of the 26 big commodity exporters identified by Oxford has defaulted, and it believes only Venezuela has a greater than 10 per cent chance of doing so.

Moreover, only Ghana and Rwanda are on IMF programmes. Although Angola, which has sought a bailout of up to $1.5bn from the fund, is likely to follow suit, Oxford thinks Ecuador and Zambia are the only other commodity exporters with a more than 25 per cent likelihood of joining them this year.

“When I first looked at [these countries] I thought they would all be queueing at the IMF,” says Gabriel Sterne, head of global macro research at Oxford.

He attributes this resilience to two related factors. First, there is an absence of “debt-funding cliffs”. In the 1980s, US interest rates rose as high as 15 per cent, sending yields on dollar-denominated debt spiralling. This time round, borrowing costs have remained more manageable.

Second, emerging market sovereigns have become less likely to borrow in dollars in the first place, instead issuing bonds in their domestic currencies. This means debt service costs do not rise if and when their currencies depreciate against the dollar, and also reduces the incentive for debtor countries to default on, or reschedule, their dollar debt in order to improve their finances.

“You don’t have the funding cliffs and that’s quite a change,” Mr Sterne says. “It’s liquidity that gets you in the end, that’s why you default. It’s not because of the ever-growing stock of debt.”

Despite that, Mr Sterne still believes there are problems ahead. Instead of a wave of defaults, he envisages an adjustment process that is more of a “long, hard grind”, due to weaker economic growth than in the 1980s.

Moreover, Oxford’s analysis suggests that about a third of the 26 countries — namely Venezuela, Iraq, Mongolia, Angola, Zambia, Nigeria, Gabon, Algeria and Azerbaijan — need to overhaul their fiscal structures in order to reduce reliance on commodities and rebalance public finances.

In each of these countries energy and minerals account for at least three quarters of goods exports, and the states are adjudged to be high risk, based on a combination of their public debt, fiscal balance, current account and foreign exchange reserves, all measured with respect to their gross domestic product, and GDP per capita, as illustrated in the first chart.

“The task for asset managers is to make a judgment whether there is a way back from the precipice, possibly via IMF programmes, and to what extent currencies will suffer during adjustment,” Mr Sterne says.

In many countries, the necessary adjustment process faces significant obstacles, Oxford argues.

Azerbaijan, Kuwait, South Africa and Zambia, for instance, are deemed to suffer from a combination of a weak government and popular opinion that is firmly against adjustment.

Indonesia is seen as being in the same boat, but with the added problem of ideological opposition to reform within the government.

Some countries suffer from just one of these problems, while a need to fund development and basic infrastructure works against the likelihood of fiscal reform in Cameroon, Gabon, Ivory Coast and Rwanda. The second chart illustrates these perceived obstacles by country.

One obvious plus point is the partial recovery in the prices of many commodities from the lows they touched in January.

Brent crude, for instance, is now trading at about $45 a barrel, rather than $27. This is in line with, or above, the oil prices assumed in the budgets of Angola, Venezuela, Saudi Arabia, Nigeria, Ecuador and Kuwait, although it remains below the levels pencilled in by Bahrain, Ghana, Russia, Colombia and Mexico.

Mr Sterne argues that while the rebound in commodity prices is “extremely helpful” in the short term, it does obviate the need for fiscal adjustment, which a lot of countries are already “reluctant to embrace”.

Furthermore, it is unlikely to save exporting nations from further downgrades by the rating agencies, he argues. Oxford’s analysis suggests commodity exporters are typically rated two notches higher than other emerging markets with the same sovereign bond yields, suggesting “rating agencies are too optimistic relative to markets”.