The war in Ukraine has caused the proportion of stable outlooks among sovereign Emerging Europe issuers to be at its lowest level in nearly two decades, Fitch Ratings said in a report on 25 February.
One year since the conflict began, the share of stable sovereign outlooks in Emerging Europe is at its lowest since late 2003, having fallen to just over 36% in February from 70% at end-February 2022. “This is by far the lowest share of any region in Fitch’s sovereign portfolio,” the report says.
The current share of positive and negative outlooks is fairly balanced, at about 23% and 32% respectively.
In Emerging Europe, there are seven sovereigns on negative outlook, the same as at the height of the COVID-19 pandemic, Fitch says.
The negative outlooks for North Macedonia (‘BB+’) and Romania (‘BBB-‘) predate the war. Those for the Czech Republic (‘AA-‘), Estonia (‘AA-‘), Hungary (‘BBB’) and Slovakia (‘A’) reflect risks from the energy crisis and fiscal policy caused by the war.
As well as these negative outlooks, Ukraine (‘CC’) and Belarus (unclassified) were downgraded in 2022 because of the war.
Meanwhile Turkey’s (‘B’) negative outlook reflects long-standing risks from its economic policy stance.
According to Fitch Ratings’ system, anything at ‘BB’ or below is junk or speculative rating
However, Fitch says, the sovereigns in the South Caucasus and Central Asia weathered 2022 remarkably well. The influx of people and capital from Russia, Ukraine and Belarus to Georgia (‘BB’) and Armenia (‘B+’) boosted both sovereigns’ macroeconomic, fiscal and external performance. Georgia’s outlook was revised to positive in January 2023 and Armenia’s on 10 February.
High energy prices have also strengthened the fiscal and external balance sheets of exporters such as Azerbaijan (‘BB+’) and Turkmenistan (‘B+’). Fitch revised Azerbaijan’s outlook to positive in October 2022, and Turkmenistan’s earlier this month.
Bulgaria’s (‘BBB’) positive outlook is due to continued prospects for euro accession.