Fitch Warns More Emerging Markets Face Downgrades This Year

(Bloomberg) -- Emerging markets face more rating downgrades than upgrades this year as foreign debt levels leave them vulnerable to potentially rising U.S. interest rates and the strength of the dollar, according to Fitch Ratings.

Latin America, the Middle East and Africa will be impacted more by lower credit scores because of the high share of their foreign-currency debt, said James McCormack, Hong Kong-based global head of sovereign and supranational group at Fitch.

Emerging Europe will probably have more positive ratings as the area benefits from growth in Germany, while Asia will see stable ratings, he said.

“The countries that have borrowed in dollars are the countries that are most exposed,” McCormack said in an interview in Singapore. “We’re already seeing that U.S. interest rates are moving higher, the dollar has been strengthening.”

*NOTE: Costa Rica was lowered to B+ on Jan. 15, 2019

The depreciation in emerging-market currencies last year alone raises the burden on governments who borrowed in foreign currencies, McCormack said.

Argentina, whose peso was the worst-performing emerging-market currency last year, has 83 percent of its government debt in foreign currency, according to Fitch. Turkey, whose lira fell more than 28 percent last year, has 47 percent of the total in non local debt.

Below are some of Fitch’s views on the global economy for 2019 and emerging markets:

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