Fitch Ratings warns that geopolitical risks are set to increase credit pressures for emerging markets in 2026. Despite a net neutral base-case, events like US policy shifts and transatlantic tensions could create downside credit risks this year.
Heightened geopolitical risks are set to elevate credit pressures for emerging-market sovereigns and issuers in 2026, global credit rating agency Fitch Ratings said in a new report published on Friday.
Fitch said that while its base-case forecast for the macro-credit environment in emerging markets remains net neutral relative to 2025, evolving geopolitical events could introduce downside risk to sovereign and corporate creditworthiness this year.
The report noted, "Potential pressures stemming from geopolitical events are among the risks to our base-case expectation that the macro-credit environment for emerging markets this year will be net neutral relative to last year."
Key Geopolitical Flashpoints
US Foreign Policy and Latin America
The agency highlighted recent shifts in US foreign policy, including the removal of Venezuelan leader Nicolas Maduro, as a potential catalyst for realignment in Latin America that could influence investor sentiment and sovereign funding conditions.
The report noted, "The US removal of Venezuelan leader Nicolas Maduro in early January could have a powerful demonstration effect on Latin American and potentially other countries' orientation towards the Trump administration's priorities."
Transatlantic Tensions and Eastern Europe
Fitch added that transatlantic tensions, exemplified by disagreements over Greenland, have compounded geopolitical uncertainty in Eastern Europe and may increase the likelihood of adverse tail-risk scenarios, including further military conflict or sanctions regimes.
"Transatlantic tensions over Greenland have compounded geopolitical risks in Eastern Europe, amplifying defence spending pressures and potentially making tail-risk scenarios relating to further Russian aggression more likely," stated the report.
Broader Economic and Fiscal Pressures
Fitch also observed that elevated defence spending and strategic competition among major powers will exert pressure on fiscal balances, particularly for countries with limited external buffers.
In this context, high gold prices, often seen as a safe-haven response to geopolitical stress, may support some emerging-market reserve positions, though volatility in other asset prices could have broader credit impacts.
The report underscored that while favourable funding and liquidity conditions could persist for many issuers, the widening gap between buoyant financial markets and geopolitical uncertainties could amplify volatility in borrowing costs and credit spreads throughout 2026. (ANI)
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