Emerging market (EM) sovereign ratings have been fairly stable in 2021, with only four downgrades and no upgrades, after a net 30 downgrades in 2020, Fitch Ratings says in a new report.
EM sovereigns with Negative Outlooks exceed those with Positive Outlooks by 20, signalling that further downgrades are likely this year, but the balance has improved by 13 since August 2020.
Stagnant EM living standards in US dollar terms are weighing on ratings. Median real GDP growth for 81 Fitch-rated EM has been on a slowing trend since the mid-2000s, but still averaged 4% over 2010-2019. This outpaced median developed market growth of 2.2%.
However, real GDP growth can paint an overly rosy picture of living standards where it reflects population growth or is undercut by real exchange-rate depreciation. The median EM living standard in 2021 is set to be only 10% higher than its level of 2011 based on GDP per capita in US dollars at market exchange rates, compared with a 39% rise for the US.
Weak growth exacerbates political and fiscal sustainability risks. The 20 worst-performing EM on growth in GDP per capita in US dollars have seen a decline in their average ratings of 2.4 notches since the end of 2010, compared with 1.3 notches on average for all EM and no net change for the 20 best-performing countries.
The report covers responses to typical questions from investors on China, India, Indonesia, Thailand, Mexico, Colombia, central America, Romania, Belarus, auto sector stoppages in central and eastern Europe, Gabon, public debt sustainability in east Africa and the risks from higher food prices on sovereigns in the Middle East and Africa.\
(FT)