Published: September 23, 2024
Many developing markets have seen an uptick in their ratings this year, as they start to reap the benefits of lower interest rates and policy reforms.
Since 2020 emerging market credit ratings have seen a general downward turn, with the likes of Turkiye, Brazil, Russia and South Africa seeing their ratings tumble. New data, however, from Bank of America suggests that this trend has started to reverse. Almost three-quarters (73%) of new ratings actions this year moved in a positive direction, compared to the near-total spate of downgrades (93%) witnessed in 2020.
According to research from Bank of America, this pattern holds especially true in Latin America, the Middle East, North Africa, and Central and Eastern Europe.
In the EMEA region, Fitch has upgraded Turkiye’s rating twice this year, the most recent upgrade occurred on 6 September taking when it moved the rating from B+ to BB- and changing the outlook from ‘positive’ to ‘stable’. Moody’s moved the needle forward for Turkiye as well when in mid-July the ratings agency raised the county’s rating by two notches from B3 to B1 and set the outlook to ‘positive’. This was the first upgrade by Moody’s for Turkiye in over a decade and was punctuated with comments from the firm like ‘the key driver of the upgrade to B1 is improvements in governance, more specifically the decisive and increasingly well-established return to orthodox monetary policy’.
All three ratings agencies have upgraded Egypt’s outlook to positive, while Serbia is a hair’s breadth from gaining a coveted investment-grade rating, following a positive outlook revision from S&P Global. At the riskier end of the spectrum, Zambia has seen upgrades in its foreign currency and local currency ratings, reflecting the steps it has taken to move out of default.
Bank of America remarks that, while ‘2024 will be memorable for upgrades’, most of these positive ratings took place in the B and BB categories. Countries that have a CCC-rating are experiencing more downgrades.
Supportive conditions
Ed Parker, global head of research for Sovereigns and Supranationals at Fitch Ratings, says that Fitch has upgraded seven emerging market sovereigns so far this year (Cabo Verde, Costa Rica, Jamaica, Nicaragua, Qatar, Ras Al Khaimah and Turkiye), compared with just three downgrades (Bangladesh, Bolivia and Panama). What’s more, there are 12 emerging marketing countries on a positive outlook, compared with seven on a negative outlook.
“Macro-financial conditions have turned more supportive this year as many global central banks have started cutting interest rates or are expected to do so,” he tells EMEA Finance. The situation will be further helped by the US’s Federal Reserve half point interest rate cut announced on 18 September.
Parker adds that, since the positive ratings actions have been spread across several geographic regions, it makes sense to talk about a broader pattern at play rather than just a handful of countries coincidentally seeing improvements at the same time.
“[The upgrades] reflect a combination of idiosyncratic country-specific developments, more conducive macroeconomic conditions and some countries implementing adjustment and reform policies to support economic and fiscal recovery from the succession of shocks suffered since 2020,” he says.