Global risk appetite has improved in recent weeks, easing some of the strains in EMs. But economic and financial vulnerabilities in EMs are larger going into 2023 than they were at this point last year. More Frontier Markets are likely to join Sri Lanka in defaulting on sovereign debt. Private sector debt problems are likely to become a bigger concern (Chile, Brazil and Korea look like the biggest risks). And large current account deficits make a number of mid-sized EMs (particularly in Latin America and Emerging Europe) vulnerable to large currency falls if external financing conditions tighten again.
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