An assessment of emerging market sovereign credit ratings

Summary

For the past few months, we have written about the various ways in which we are concerned about emerging markets. We commented on underlying debt dynamics that worry us and the rising risk of a pending wave of sovereign defaults. In this report, we dive into the outlook for sovereign credit ratings and note that many of the larger and more systemically important emerging market sovereigns could experience credit rating downgrades in the next 12 months. According to our methodology, Chile and Mexico are likely to experience downgrades that take each sovereign to the brink of non-investment grade status, while Colombia and India are likely to lose their investment grade ratings by the end of 2023. The notable exception is Argentina. Our framework suggests Argentina is at an inflection point where conditions are gradually improving under an IMF program, which could warrant a credit rating upgrade in the near future.

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