EM financial markets have continued to perform well in the past quarter, with currencies holding firm against the US dollar and sovereign bond spreads narrowing in many places. This has been supported by low financial vulnerabilities across EMs. Our proprietary risk indicators show that currency crisis risks remain near multi-year lows and sovereign default risk has continued to fall, with our indicator for sub-Saharan Africa now at a post-pandemic low.
That said, there are pockets of concern and financial risks have edged higher in some EMs in the past year. Russia is at our warning threshold for a banking crisis again and FX vulnerabilities remain highest in Egypt, Turkey and Argentina (although Milei’s election victory reduces the near term risk of a disorderly peso depreciation). Fiscal risks are most acute in some frontier markets and moderate across parts of Latin America and Central Europe.
To explore the EM financial risk indicators in more detail please visit our interactive dashboard here.
We’ll be discussing EM risk in a 20-minute online Drop-In at 15.00 GMT on Wednesday 5th November. (Register here.)
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