The fiscal degradation that has taken place over the past two years has been acute.
The degree of fiscal slippage is apparent when looking at credit default swaps of emerging and frontier markets. Five-year emerging market CDSs are higher than their five-year averages in 36 of 45 emerging market sovereign issues tracked by Bloomberg, with the widest spreads in Argentina, Ghana, El Salvador, Pakistan and Tunisia.
African and Latin American sovereigns have seen the most significant widening in their spreads over the past two years. This implies that African and Latin American sovereigns have been hit the hardest by the triple-pronged sword of the COVID-19 pandemic, global monetary policy tightening and deterioration in global risk appetite linked to Russia’s invasion of Ukraine.