Large emerging economies, including India, have weathered repeated global shocks over the past five years without losing access to markets, Moody’s Ratings said on Tuesday.
In a report assessing how emerging market sovereigns handled volatile financial conditions, Moody’s said stronger policy frameworks and higher buffers helped countries absorb shocks, even as external conditions worsened.
“Relatively accommodative external market conditions in the wake of recent shocks helped emerging markets absorb successive external shocks since 2020. Market pressures over this period have been transmitted primarily through yield adjustment rather than through rising sovereign risk premia,” Moody’s said in its report.
“However, outcomes vary across countries, with some like India (Baa3 stable) showing the most resilience across a range of market indicators, and others like Türkiye (Ba3 stable) recording the most volatility, reflecting policy, balance sheet and credibility constraints,” it added.
The report further said that though emerging markets have shown resilience to global volatility, starting points and degrees of progress have differed, with those that strengthened policy frameworks well before the 2020–25 stress period showing lasting resilience.
“India and Thailand (Baa1 stable) are well placed to manage future shocks because monetary policy frameworks are clear and predictable, inflation expectations are well anchored, and exchange rates can adjust when needed. By contrast, Türkiye, Argentina (Caa1 stable) and Nigeria (B3 stable) are less well prepared because of still incomplete or delayed policy,” the ratings agency said.
Fiscal concerns, energy-led inflation and banking risks were concentrated in advanced economies, improving the relative appeal of large emerging markets to global investors, the report said.
Market resilience
According to the report, Malaysia, India, Thailand, Indonesia, and Mexico have consistently shown market resilience. “Widening in hard currency credit spreads was limited and short-lived, emerging market–US yield differentials’ peak moves were moderate and exchange rate depreciation was contained,” said the report.
“Local currency yield volatility rose during stress episodes but remained orderly and well below that of more fragile peers. This suggests that adjustment occurred primarily through predictable rate and foreign-exchange repricing rather than sustained credit stress, it said.
Overall, these countries showed durable resilience across market indicators, where shocks are absorbed through prices rather than financing constraints, it added.
For India, Moody’s said, despite resilience to any external shocks, its still high debt levels constrain policy reforms during periods of stress. However, India and South Africa have extended maturities, which have helped to limit rollover risks in the face of global shocks.
Moody’s assessed sovereign resilience to volatile financial conditions by focusing on large emerging market countries—India, Indonesia, Mexico, Malaysia, Thailand, Brazil, South Africa, Nigeria, Turkiye, and Argentina—over four stress episodes identified by sustained increases in global risk aversion. These are the onset of the covid-19 pandemic in early 2020, the global inflation surge and associated US Federal Reserve tightening cycle in 2022, US regional banking stress in early 2023, and renewed tariff tensions in 2025.
These episodes capture a range of external shocks that typically generate late-cycle emerging-market stress through exchange-rate pressure, tighter funding conditions and refinancing risks.
