Emerging Markets Credit Risk Highlights

A selection of Moody’s latest comparative insights on global emerging market research. For a complete list of EM reports on Moodys.com click here.

Cross-Sector – Islamic Finance: Islamic finance sector will remain resilient despite tight global financial conditions

07 March 2023

We expect demand for Shariah-compliant instruments to continue to rise in 2023, supported by strong economic growth amid robust oil prices and ambitious development agendas in core Islamic markets.

Financial Institutions – Africa: ESG risks are material, but credit impact is muted by government support,

07 March 2023

African banks are more exposed to governance and environmental risks than their global peers. Relative governance weaknesses have led to operational and loan losses, while risk exposure to climate change and carbon transition is intense.


Credit Conditions – China: Reopening to boost transport, consumer-facing sectors; banking sector strains linger

02 March 2023

The exit from zero-tolerance coronavirus restrictions in December 2022 and shift in government focus to growth prompted us to raise our forecast for inflation-adjusted real GDP growth in 2023 and 2024. 

Banking – Southeast Asia: Banks well places against fintech disruptors after successful digital transformation

02 March 2023

Banks in Southeast Asia have made significant progress on their digital transformation journey, and incumbents that are willing to invest in technology are well placed to compete with fintech’s.

Government Policy – China: FAQ on credit implications of latest policy support for the property sector

01 March 2023

The measures broaden developers' funding access, which will help many better address near-term operating and debt repayment needs.

Banks – Commonwealth of Independent States: Ukraine invasion provides gains for some CIS banks but long-term challenges mount

28 February 2023

Ukraine invasion provides gains for some CIS banks. While banks in Ukraine and Belarus suffered from the Russian invasion of Ukraine last year, banks in other parts of the Commonwealth of Independent States (CIS) reaped some unexpected gains.


Macroeconomics – Emerging Markets: Policy rates in Brazil and Mexico near peaks as inflationary pressures recede

27 February 2023

We expect both Brazil and Mexico’s central banks to remain vigilant about inflation resurgence risks, as well as shifts in US policy direction. Brazil started hiking rates early in 2021 and Mexico followed suit, but from a higher starting point.


Emerging Markets – Global: Tight financing conditions will continue challenging frontier markets’ credit strength

22 February 2023

Recent improvement in financing conditions is positive for many emerging market (EM) issuers, with inflation, yields and spreads all somewhat lower since November 2022. Nevertheless, hopes for rate cuts in the US in the near term are likely misplaced, while China's rebound will not provide the same broad-based benefits as in previous cycles. 

Sovereigns – Emerging markets: Protracted debt restructurings are credit negative for borrowers and lenders

22 February 2023

Drawn-out negotiations to restructure government debt in Zambia, Ethiopia and Suriname highlight the inherent difficulties in reaching an agreement among a diverse creditor base, a risk we flagged two years ago.

Banks – Emerging Markets: Incumbent banks evolve to head off new entrants

22 February 2023

Large incumbent banks across emerging markets (EMs) are making substantial operational changes to contend with new digital market entrants that are fundamentally altering the dynamics of product development, marketing, customer retention and growth.


Emerging markets – Turkiye: Most rated Turkish issuers are resilient to impact of earthquakes

14 February 2023

Most rated issuers are resilient to impact of earthquakes. Economic impact is likely to be moderate; governments strong fiscal position mitigates elevated cost of relief and reconstruction.


Banks – Brazil: Surge in household debt burden will prolong asset risk pressures beyond 2023

07 February 2023

Banks’ asset risk pressures to persist beyond 2023. Brazilian households' disposable income is showing the strains of elevated living and debt-service costs and driving up retail banks' loan-delinquency ratios.


Credit Conditions – Asia-Pacific: China’s growth, tighter funding and geopolitics will define 2023 conditions

01 February 2023

Strong, though moderating, economic growth rates in Asia-Pacific (APAC) will support the region's credit conditions in 2023. However, APAC's growth trajectory will partly hinge on the recovery in China (A1 stable). Peaking inflation globally will provide space for monetary tightening cycles to slow, but financial conditions will remain challenging for the weakest-rated issuers.


Geopolitical Risks – Asia-Pacific: Asian-Pacific regional fault lines will increasingly expose cracks in trade and financial relationships

18 January 2023

Rising geopolitical tensions in Asia-Pacific (APAC) against the backdrop of increased competition between China and the US and its allies in the region will create "fault lines" that could carry long-lasting credit effects.

Sovereigns – Asia-Pacific: 2023 outlook stable on debt sustainability but social risks will curb fiscal consolidation

09 January 2023

Our outlook for sovereign creditworthiness in Asia-Pacific (APAC) for 2023 is stable overall, contrasting with our negative outlook for sovereigns globally. Debt sustainability and financial stability are relatively well anchored in the region, with contained government liquidity risks, broadly stable debt dynamics and generally sound external positions.

Regional and Local Governments – China: 2023 outlook negative as debt, contingent liabilities build, land sales remain weak

09 January 2023

Our outlook for credit conditions for Chinese regional and local governments (RLGs) in 2023 is negative, given our expectation of ongoing weakness in land sales revenue, persistently high fiscal deficits, and continued growth in direct debt and contingent liabilities.

Banks – Emerging markets: Foreign-currency risk is acute for some banking systems

05 December 2022

FX risk is acute for some EM banking systems. A material exposure to currency fluctuation could expose emerging markets (EM) banks in these countries to additional risks to asset quality, liquidity and capital.


A prolonged slowdown in China will reverberate through Asia-Pacific and beyond

2 November 2022

Economies with significant direct trade exposure to China would incur the biggest negative effects, with slower growth in China likely to depress confidence and investment in the region.

Government of South Africa: Medium-term budget's stronger revenue projections and improved fiscal forecasts point to lower debt trajectory

28 October 2022

The Medium Term Budget Policy Statement announced better-than-expected revenue outcomes, which translate to improved fiscal deficits and lower-than-expected debt levels in the coming years, a credit positive.

Government of Egypt: IMF staff level agreement enhances Egypt's funding prospects

28 October 2022

On 27 October, the International Monetary Fund (IMF) reached a Staff-Level Agreement on a 46-month, $3 billion Extended Fund Facility Arrangement (EFF) with the government of Egypt. The EFF, which we expect will be finalized before year end, is credit positive because it is expected to unlock additional funding from multilateral and regional partners.

Cross-Sector – Emerging Markets: EM corporates face high refinancing risk as tight financial conditions persist

25 October 2022

Tight financial conditions, high credit spreads and outflows from EMs will make it difficult for many lower-rated issuers to refinance maturing international bonds.


Government Policy – Brazil: FAQ on presidential election's credit implications for issuers in different sectors

13 October 2022

Our baseline scenario does not incorporate major post-election disruptions for Brazil, but any persistent uncertainty over policy direction will hinder the country's economic and financial prospects.

Carbon Transition – Southeast Asia: Commodity reliance challenges transition, while regional cooperation supports green finance potential

3 October 2022

The countries of the Association of Southeast Asian Nations (ASEAN) have varied approaches toward reducing carbon emissions but face a number of common challenges such as heightened exposure to physical climate risk and carbon transition costs from their fossil fuel dependence and reliance on energy-intensive manufacturing. 

Government of El Salvador: Debt buyback amounts to a distressed exchange, second buyback planned

28 September 2022

On 22 September, El Salvador (Caa3 negative) finalized its debt buyback operation of two bonds maturing in 2023 and 2025 for $360 million, which we consider a distressed exchange and hence a default under our definition .

Sovereigns – Asia Pacific: Currency depreciation highlights a range of risks across the rating spectrum

15 September 2022

Over recent months, dollar appreciation on the back of tightening by the US Federal Reserve (Fed) and higher commodity prices have resulted in most currencies across Asia Pacific (APAC) and beyond coming under significant depreciation pressure. 


Non-Investment-Grade Sovereigns – Global Headwinds raise credit pressure

1 September 2022

Rating actions for non-IG EM sovereigns between March and early September 2022 primarily reflect the change in credit conditions stemming from Russia’s invasion of Ukraine, with Emerging Europe including Eurasia seeing the bulk of negative actions. In terms of ESG-related drivers of rating actions, governance considerations were most pertinent over this period


Sovereigns – Asia Pacific – Currency depreciation highlights a range of risks across the rating spectrum

15 September 2022

Recent currency depreciation has been much less pronounced than the declines seen during the taper tantrum in 2013, and the sell-off after the start of the coronavirus pandemic in late 2019. However, if persistent, currency depreciation would present a range of credit pressures


Government Policy – China – Rising state role in PE market boosts some sectors but brings about credit risk

15 September 2022

Rising state involvement in private equity market aids the development of public and strategic sectors in China. However, it brings about credit risks to both state and private participants.


Emerging Markets – Global – Economic outlook dampens as financial conditions deteriorate

15 September 2022

We anticipate that emerging markets' growth will buck the global trend and accelerate to 3.8% in 2023, from 3.3% in 2022. However, this will be driven almost entirely by China – most other EMs will still see a reduction in growth. 


Emerging Markets – Asia 2022 Summit – MDBs, policymakers can arrest decline in funding diversity for EM Asia infrastructure

13 September 2022

Tighter credit conditions will result in both lower financing activity and lower diversity in the financing of Asian emerging market infrastructure in the next 12-18 months, which will have an outsized impact on emerging markets (EM), especially outside of China.


Cross-sector - Islamic Finance: Sukuk issuance to remain under pressure

12 September 2022

We expect global sukuk issuance to slide further in 2022 after a large decline in 2021, which followed several years of consecutive growth.


Macroeconomics - Emerging Markets: Domestic economic and political factors will influence EM exchange rate stability as global financial conditions tighten

8 September 2022

In this year's uncertain environment, the likelihood of sporadic risk-off episodes pushing capital flows from EMs to safe havens is high.

Government of Sri Lanka - IMF staff-level agreement reopens door to external financing, a credit positive

2 September 2022

The deal will aid government efforts to turn around the economy, which lacks the foreign exchange resources to import essential items such as fuel, fertilisers and food, or to address social challenges.

Government of Mongolia - ADB funding will support targeted fiscal spending, alleviate external liquidity strains

2 September 2022

The disbursements will help offset the government's outlays for its post-pandemic countercyclical development expenditure program (CDEP) that aids vulnerable sectors of the society, support longer-term economic reforms and ease pressure on its balance of payments position. 

Government of Pakistan - IMF approves $1.1 billion disbursement and loan programme enhancement, a credit positive, but risks remain

31 August 2022

The IMF financing and the additional support from bilateral partners that it will catalyse will ease pressure on Pakistan's dwindling foreign exchange reserves, which currently cover less than two months of imports.

Sovereigns - Global: Some lower-income economies have strengthened their credit quality through a range of policies

30 August 2022

Some sovereigns have overcome constraints related to low incomes through institutional, social and economic reforms which have bolstered their credit strength.


Emerging & Frontier Markets – Global: Most EMs will avert a debt crisis but frontier markets are exposed to turning credit cycle

26 August 2022

While higher-rated EMs are resilient, some lower-rated frontier markets are facing rising liquidity risks due to challenging market conditions, raising debt sustainability risks.

Government of El Salvador: Debt buyback operation likely to be considered a distressed exchange

12 August 2022

The president's announced intention to buy back two bonds maturing in 2023 and 2025 at market prices, below par, would likely constitute a distressed exchange.

Sovereign – Gulf Cooperation Council – Hydrocarbon windfall more than offsets credit-negative effects of rising global inflation

27 July 2022

Currency pegs and fuel price caps will keep GCC inflation below levels reported elsewhere, while robust oil revenues will allow governments to sustain fuel subsidies and contain social risks

Government Policy – Asia-Pacific – Policy response to food shocks will have lasting effects on sovereigns, companies

19 July 2022

Food security has become a major concern for governments in Asia-Pacific as the Russia Ukraine military conflict continues to disrupt the supply and raise the cost of agricultural products.

Government of Panama - Rising social pressure complicates fiscal consolidation plans

19 July 2022

Given current fiscal dynamics, it looks increasingly difficult for the government to meet its fiscal targets this year.

Government of Belarus - Rouble payment of foreign-currency debt constitutes a default

14 July 2022

Forced currency re-denomination is not permitted under the bond’s indenture and results in a diminished financial obligation.

Sovereigns – Africa: Rollover risk increases amid tighter financial conditions and upcoming maturity wall

28 June 2022

An upcoming maturity wall and a deterioration in global financial conditions triggered by the Russia-Ukraine conflict will intensify rollover risks for many African sovereigns over the next decade.

Banks – G-20 emerging markets: Rapid inflation-driven rate hikes will be double-edged sword for banks

27 June 2022

Policy rate hikes to curb inflation typically lead to improvements in banks' margins. Yet a more rapid acceleration of inflation would negatively impact asset quality, erasing margin gains.

Government of Ukraine: FAQ on economy, liquidity risks and debt sustainability

7 June 2022

The Russian invasion has severely disrupted the economy and public finances. International support is forthcoming but debt will likely prove unsustainable, raising risks of a restructuring.

Government Policy – Hungary: Windfall taxes will reduce the deficit, but intensify uncertainty for foreign investors and weaken bank profits

1 June 2022

While the new measures will accelerate deficit reduction, the additional tax burden will intensify policy uncertainty for investors and businesses and further weaken bank profitability, a credit negative.

Emerging Markets – Global: Russia-Ukraine conflict heightens risks for nearly 30% of nonfinancial companies

19 May 2022

In our downside scenario about 30% of the emerging market companies we rate are at risk of credit quality erosion through commodity price shocks and financial and economic disruption.

Emerging markets: Cryptocurrency adoption is highest among lower rated sovereigns, increasing their macro risks

18 May 2022

We expect the greatest risks for sovereigns with weaker macroeconomic frameworks, particularly where cryptocurrencies can be used to evade capital controls, weakening policy effectiveness.

Banking – Emerging markets: New risks from Ukraine conflict create diverging paths for emerging market banks

17 May 2022

Some emerging market banks are better placed to deal with the latest crisis than others.

Emerging Markets - Global: Russia-Ukraine shock amplifies pandemic led credit deterioration for many sovereigns

21 April 2022

While the credit impact of the pandemic on emerging market sovereign credit was uniformly negative, this shock will result in a range of outcomes which hinder, but do not derail, the trajectory of the recovery from the pandemic


Russia-Ukraine crisis dents but does not derail global economic recovery; impact on emerging markets most acute

12 May 2022

In this report, we summarize key risks for the sovereign credit profiles of some emerging markets (EM) based on meetings with investors in Washington DC on the sidelines of the IMF-World Bank spring meetings.


Government of South Africa: FAQ on the fiscal and growth outlook, and resilience to shocks

4 May 2022

South Africa's government has faced major challenges over the past couple of years to balance support for its economy, especially during the coronavirus pandemic, with fiscal sustainability.


IMF Spring Meetings: Social and political risks tighten brake on globalization as crisis fighting fatigue sets in

28 April 2022

In April, a delegation of Moody’s analysts attended the IMF Spring Meetings in Washington DC and met with sovereign issuers from across the globe, as well as public and private-sector market participants. In this report are some of the key takeaways from those meetings.

Adequate capital and liquidity will preserve most African MDBs' credit quality amid challenging operating conditions

27 April 2022

Healthy capital positions and access to liquidity mitigate the deterioration in asset quality and performance we expect post pandemic.

FAQ on Turkey's vulnerability to Russia-Ukraine conflict

25 April 2022

The stability of key funding sources and credit stimulus limit the impact of key transmission channels from the conflict. Lira stability will be key to contain any further rise in inflation.

Emerging Markets - Global: Russia-Ukraine shock amplifies pandemic economic, fiscal scars for many sovereigns

21 April 2022

Government of Kenya - Rising energy prices increase cost of government’s fuel subsidy and slow pace of fiscal consolidation

18 April 2022


Efforts to attract private infrastructure investment are gaining ground, but scale remains a challenge

6 April 2022

Crowding-in private-sector investment will be crucial for emerging markets to meet their Sustainable Development Goals. Risk mitigation strategies are positive but the market seeks scale.

Broadening Russia-Ukraine shock weighs on credit profiles through multiple channels

31 March 2022

The ripple effects of the Russia-Ukraine conflict are spreading globally at a time when most sovereigns are still dealing with economic and fiscal scarring from the pandemic. The most exposed sovereigns are Poland, the Baltics and Moldova given their political risk exposure, as well as Commonwealth of Independent State sovereigns that face significantly lower growth and higher external vulnerability.


CBDCs can promote financial inclusion, stability; success depends on design, institutional credibility

22 March 2022

Emerging markets are increasingly considering implementing central bank digital currencies (CBDCs) as an alternative to cryptocurrencies and crypto assets, which are volatile and can threaten financial stability. However, even if still-nascent implementation efforts accelerate over the next year, it will take years before CBDCs become a key feature of the global financial architecture.

Sovereigns – Commonwealth of Independent States – Sharp recession in Russia poses immediate sustained risks to CIS credit quality

17 Mar 2022

The sharp deterioration in Russia's economy represents an acute shock for the region's external vulnerability risk, growth outlook and prospects for fiscal consolidation.

Sovereigns – Global: Central bank digital currencies offer sovereigns opportunity to improve policy effectiveness and economic performance

14 March 2022

While still far from wide adoption, particularly given limitations to technical infrastructure worldwide, a credible, widely accessible and reliable CBDC could support economic growth.

Government Policy – China – Two sessions aim for robust growth via targeted support; credit impact subject to policy implementation and transmission

11 March 2022

China’s ambitious growth target amid rising economic stress and external uncertainty to push up leverage, debt ratio; credit impact relies on growth outturn, effectiveness of implementation.

Sovereigns – Emerging & Frontier Markets: High food prices will exacerbate macroeconomic challenges, raise social risks; Middle East & Africa most exposed

14 March 2022

The disruption of food supplies from Russia and Ukraine is likely to further compound inflationary pressures in global food prices.

FAQ on credit implications and challenges posed by Russia-Ukraine military conflict

11 March 2022

The invasion of Ukraine has led to a steady deterioration in the ability and willingness of all three governments to repay debt, and will have long-term economic and fiscal consequences.

Government of Egypt - Global capital market disruptions will raise liquidity and external risks if sustained

9 March 2022

Sharply higher risk premia indicate that external market access on affordable terms is effectively interrupted and, if persistent, would increase liquidity risks.


Regional & Local Governments – China – Q4 2021 Debt and Finances Update

4 March 2022

Economic and fiscal metrics recovered and leverage increased, with outstanding RLG bonds exceeding RMB30 trillion for the first time.

Non-Investment Grade-Sovereigns – Global – Fiscal and debt metrics will remain weaker than pre-pandemic despite continued economic recovery; liquidity, external and social risks loom

2 March 2022

Rating actions in 2021 through 24 February 2022 were more balanced between negative and positive actions compared to 2020, although the pandemic continued to place downward pressure on non-investment-grade sovereign ratings.

Government of Russia: FAQ on sovereign debt service in Russia

1 March 2022

Ban on servicing new foreign-currency debt undermines institutional strength, a credit negative

Macroeconomics – Latin America: Inflation Will Stoke More Rate Hikes, Causing Stress Among Consumers And Other Debtors

16 February 2022

Sovereign – Russia & Ukraine: FAQ on heightened tensions and an outright conflict between Russia & Ukraine

8 February 2022

The risk that heightened tensions may culminate in a further military conflict have risen. We answer questions regarding the credit implications in a scenario in which tensions escalate.

Government of El Salvador: Liquidity and funding pressures remain high as Bitcoin bond issuance set for March

10 February 2022

Should the Bitcoin bond issuance fail, El Salvador would have to rely solely on multilateral financing and unconventional policy measures to raise funds to repay the 2023 bond.

High dollarization poses long-term risks for banks and for wider financial stability

7 February 2022

Dollarization is highest for banks in Latin America, emerging Europe and CIS.

FAQ on credit implications of Argentina's potential new agreement with the IMF

4 February 2022

Program targets under the potential new agreement with the IMF will likely fail and the program itself is unlikely to reverse the sovereign's debt restructuring needs.

Sovereigns – Hydrocarbon exporters: Strengthening global commitment to carbon transition increases longer-term credit risks.

11 January 2022

Quality of institutions and the capacity to adjust will determine the credit impact of carbon transition for hydrocarbon-reliant sovereigns.


Regional and local governments – Emerging markets: Widening infrastructure gaps present growing fiscal and social challenges

9 December 2021

Regional and local governments (RLGs) in South Africa, India, Russia and Mexico are likely to accelerate their capital expenditure (capex) after cuts triggered by the pandemic. However, infrastructure gaps have widened and progress will likely remain stalled absent greater external support

Demographic trends will drive divergence of growth and profitability prospects

8 December 2021

In the majority of emerging markets, banks will continue to benefit from the expansion of working-age populations. Yet the demographics of those countries pose their own risks for banks.

Tourism will recover unevenly through 2024 but region offers solid business prospects

7 December 2021

Pent-up demand for tourism offers good prospects for Latin America and the Caribbean's travel-related sectors in 2022 and beyond. Despite a lingering uneven recovery and the unknown implications of the Omicron variant, rekindled demand fortravel to the broader region will persist through 2022, with infection rates in the region declining through November 2021 and vaccinations accelerating in large markets.

FDI flows to emerging markets face structural headwinds, weighing on growth potential

6 December 2021

FDI inflows into emerging markets have fallen amid declining returns and weaker growth. With structural headwinds likely to prevent a reversal of this trend, growth potential may be weakened.

Corporates – Latin America & Caribbean: Deforestation intensifies reputational risk for companies operating in Brazil.

2 December 2021

Environmental damage to Brazil's biomes will have a substantial impact on Brazilian companies in coming years, rippling across different sectors and the wider economy.