Financial vulnerabilities remained near multi-year lows across EMs at the end of last year, driven by a further decline in currency crisis risk. The overall picture remains one of EM resilience and this leaves them in a relatively strong position to cope with higher US Treasury yields and a stronger dollar.
That said, there are still pockets of vulnerability. Banking sector risks have emerged in Russia. Sovereign default risks remain high in a handful of EMs and fiscal risks are building in some countries in Latin America and Central and Eastern Europe that are running large budget deficits.
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