LONDON, Oct 14 (Reuters) - Countries are likely to

default more frequently on their foreign currency debt in the

coming decade than they did in the past due to higher debt and

an increase in borrowing costs, agency S&P Global Ratings warned

in a report on Monday.

Sovereigns' credit ratings overall have also weakened

globally in the past decade.

The report's findings are a stark warning as the world exits a

punishing round of sovereign debt defaults - even as wealthy

creditor nations said earlier this year that the risk of debt

crisis that has weighed on the world was beginning to recede.

"These factors quickly create liquidity challenges as access

to financing dries up and capital flight accelerates," the

report said. "In many cases, this constitutes the tipping point

where liquidity and solvency constraints become problematic for

a government."

The COVID-19 pandemic in 2020 strained state finances, and

there were seven instances of countries defaulting on their

foreign currency debt - Belize, Zambia, Ecuador, Argentina,

Lebanon and Suriname twice.

A spike in food and fuel prices after Russia's February 2022

invasion of Ukraine piled on more pressure, and eight more

countries defaulted in 2022 and 2023, including both Ukraine and

Russia.

The combined number of defaults since 2020 amounts to more

than a third of the 45 sovereign foreign currency defaults since

2000.

S&P Global Ratings analysed defaults over the past two

decades and found that developing countries are now relying more

heavily on government borrowing to ensure foreign capital

inflows. But when that reliance was paired with unpredictable

policies, a lack of central bank independence and shallow local

capital markets, trouble repaying often followed.

Higher government debt and fiscal imbalances prompted

capital flight, which in turn intensified balance-of-payment

pressures, depleted foreign exchange reserves and eventually cut

off their ability to borrow - essentially a doom spiral that led

to default.

It also warned that debt restructurings are taking

significantly longer now than in the 1980s - with big

consequences.

"We also found that the long-term macroeconomic consequences

are more severe for sovereigns that remain in default for

multiple years, increasing the probability of further defaults

down the line," it said.

Interest payments in soon-to-default countries tended to

approach or even exceed 20% of government revenue in the year

before default, and the countries also typically entered

recession, while inflation rose to double digits, making life

tougher for people there.

"Sovereign defaults have significant implications for

economic growth, inflation, exchange rates, and the solvency of

a sovereign's financial sector," the report said.