Ukraine, Argentina, Turkey and Brazil are the nations most vulnerable to a credit event from the continuing appreciation in the US dollar, according to ratings agency Fitch.
Ukraine is in the most peril, Fitch says, with its sovereign, bank, and corporate debt all carrying “high” vulnerability to the current phase of monetary policy tightening by the US Federal Reserve.
Higher interest rates on US dollar-denominated debt can cause huge problems for borrowers when the greenback appreciates broadly, as is currently happening, with both principal and interest repayments surging relative to local currencies.
Here’s the map, showing the debt ratings of emerging economies around the world.
And here’s a handy heat map breaking down how Fitch sees the sector vulnerabilities to the rising dollar for each country:
Rising US interest rates and a stronger dollar were a significant factor in the 1997 Asian debt crisis. The US dollar has been on a rampant rise in recent months — rising 5% since mid-April — with the Fed expected to lift rates two or three times more this year.
Ukraine is particularly vulnerable because of the composition of its debt and weakness of banks. Fitch says asset quality is weak with non-performing loans sitting at around 57%. Sovereign debt repayments start next year after a deal in 2015 and Fitch says continued engagement with the IMF will be critical.