Our proprietary EM financial risk indicators show that economic and financial vulnerabilities in most EMs were low coming into the energy shock. Our aggregate EM currency crisis risk indicator remains near multi-decade lows, suggesting that the risk of high energy prices leading to balance of payments strains is much lower than it was in the aftermath of the start of the war in Ukraine. That said, currency crisis risks have increased the most in Turkey as FX reserves have fallen, while risks remain high in Egypt.
There are no countries showing up as “high” banking crisis risk, although several EMs with existing banking vulnerabilities and high interest rates are approaching our risk thresholds. Banking sectors in the Middle East, which appear most vulnerable to spillovers from the Iran war, were among the strongest across EMs before the conflict started. And while sovereign debt vulnerabilities remain acute in a handful of smaller EMs, the overall story is that fiscal risks have continue to fall, particularly in Africa.
We’ll be discussing EM financial risks in a 20-minute online Drop-In at 10.00 ET/15.00 BST on Wednesday 6th May. Register here.
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