EM fiscal risks - a story of growing country differences

EM sovereign debt risks remain much higher than in the pre-pandemic period. There are positive stories of declining risk in those EMs undergoing reforms (e.g. Argentina) and low fiscal risks in the majority of EMs, but sovereign debt dynamics appear concerning – and may deteriorate further – across parts of Latin America, Central Europe as well as South Africa. In the absence of significant fiscal tightening and lower borrowing costs, debt ratios are likely to rise further, putting upwards pressure on sovereign risk premia.