Emerging-Market (EM) sovereign rating downgrades have reached the second-highest-ever number in 2022 with risks still to the downside, Fitch Ratings has said.

This reflects the highly challenging macroeconomic and financial environment and the limited buffers among frontier markets after the shocks from the pandemic and the Ukraine war.

So far in 2022, Fitch has made 21 EM rating downgrades, across 11 different sovereigns, compared with just six upgrades.

The number of downgrades and net downgrades is both the second-worst year on record after 2020 at the height of the Covid-19 pandemic.
The number of positive outlooks minus the number of negative outlooks, according to Fitch, has improved to +1 now from a record low of -33 in August 2020, which signals that much of the adverse credit environment may have been reflected in the ratings, and that the ratio of negative to positive rating changes should be more evenly balanced over the next 24 months.
However, risks are still tilted to the downside given the adverse macroeconomic backdrop, and because Fitch does not assign outlooks to sovereign ratings at ‘CCC+’ or below.

“We rate 13 EM sovereigns at ‘CCC+’ or below, a record 16% of the portfolio, which is the part of the rating scale where the greatest downside risks lie”.
The report covered its responses to topical questions from investors on China, Bangladesh, tourism in Asia, Chile, El Salvador, Peru, the energy crisis in central and eastern Europe, Hungary, Armenia and Georgia, fiscal policy in the GCC, Zambia, Angola and African sovereigns’ exposure to weaker global demand.

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