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Geopolitical Tensions to Hike Emerging Market Credit Risks in 2026: Fitch

Fitch Ratings warns that heightened geopolitical tensions are set to increase credit pressures for emerging market sovereigns and corporations in 2026. The agency cites recent shifts in US foreign policy, including actions in Venezuela, as potential catalysts for regional realignment and investor sentiment shifts. Transatlantic disagreements and elevated defense spending are compounding uncertainties and straining fiscal balances. While favorable liquidity may persist for some, the report cautions that the gap between strong financial markets and geopolitical risks could amplify borrowing cost volatility.

Key Points: Emerging Market Credit Risks Rise on Geopolitical Tensions: Fitch

  • Geopolitical risks elevate 2026 credit pressures
  • US foreign policy shifts act as catalyst
  • Transatlantic tensions amplify uncertainty
  • Defense spending strains fiscal balances
  • Market-volatility gap could widen
2 min read

Geopolitical tensions raise emerging market credit risks in 2026: Fitch Ratings

Fitch Ratings warns geopolitical risks, US policy shifts, and defense spending will pressure emerging market sovereign and corporate credit in 2026.

"Potential pressures stemming from geopolitical events are among the risks to our base-case expectation - Fitch Ratings Report"

New Delhi, January 31

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."

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."

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.

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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Reader Comments

R
Rohit P
The part about defence spending is crucial. With tensions on our borders, India's defence budget is already under pressure. This report suggests that pressure will only increase globally, which could squeeze funds for development projects. A tough balancing act for the finance ministry. 🇮🇳
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Aman W
Interesting they mention gold prices. In India, we've always trusted gold as a safe asset. Maybe this global uncertainty will make our household savings in gold look wiser than ever. But overall, volatility is bad for business and job creation. Hope for stability.
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Sarah B
While the analysis is sharp, I feel it underplays the agency of emerging markets themselves. Countries like India aren't just passive recipients of risk; they are active geopolitical players shaping outcomes. The report's lens feels very US/West-centric.
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Vikram M
The "demonstration effect" in Latin America is a stark reminder. It shows how external political shifts can create ripple effects worldwide. India's foreign policy of strategic autonomy and multi-alignment is the right approach in such turbulent times. Jai Hind!
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Karthik V
As someone in the export business, this is worrying. Higher borrowing costs and volatile credit spreads mean more expensive capital and unpredictable markets. The government needs to ensure easy credit for MSMEs to weather this potential storm.

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