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War in Ukraine heightens risks in fragile EMs

Financial markets in Central Europe have been hit hard by the contagion from the war in Ukraine, but spill-overs to other EMs have been limited so far. If the war were to result in a sustained period of risk aversion and capital outflows, this could cause difficulties for EMs with large external financing needs, such as Turkey and Romania. But perhaps the biggest risks lie in frontier markets with fragile sovereign debt positions, notably Sri Lanka and Tunisia.

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