REVEALED: The five most fragile countries exposed to higher interest rates

After around a decade of ultra-low interest rates around the world following the financial crash the tide is now turning and central banks are now either reviewing their policy of loose monetary policy or starting to cautiously raise rates in an attempt to head off any early signs of inflationary pressures.

S&P Global have now released what they dub the new “fragile five” – the countries that are most at risk of rising interest rates.

According to the agency the emerging markets of Turkey, Argentina, Pakistan, Egypt, and Qatar are likely to suffer the most as the cost of borrowing rises.

Moritz Kraemer, S&P Global’s managing director and sovereign global chief rating officer, said in a report on Monday, monetary conditions are “exceptionally accommodative” and, for some emerging markets, “the funding environment is now the most benign in living memory.”

According to CNBC, he said: “Yet the threat from monetary tightening is now more concrete than before.”

The Bank of England’s Governor Mark Carney took the step on November 2 to raise the bank base rate a quarter of a per cent to 0.5 per cent – the central bank’s first rate increase for 10 years.

On the same day, the Czech National Bank raised interest rates for the second time this year. 

The US Federal Reserve has also begun raising interest rates, with hikes in March and June, but kept them unchanged last week.

And the European Central Bank also announced it will reduce its purchase of government and corporate bonds starting next year.

The Bank of Japan also voted to keep rates unchanged last week

Rising interest rates can hit emerging countries particularly hard.

Not only do interest rate rises increase borrowing costs for countries attempting to expand their countries, reducing the amount invested which is diverted to pay off the interest occurred.

As well domestic investors in the advanced economies move their investments more into domestic funds as the rising interest rates improve the competitiveness.

S&P Global used seven variables, including current account balance as a percentage of growth and the percentage of debt denominated in foreign currency as part of the total debt the countries possess.

Turkey was the only sovereign nation that was always among the most vulnerable, regardless of the variable chosen, the rating agency noted.

Mr Kraemer said: “Qatar has a weak position on most flow variables, but is second only to Saudi Arabia on having a strong external asset balance sheet. Some observers might therefore argue that, because of its deep pockets, Qatar should not be in the new Fragile Five. If we exclude Qatar from that group, Colombia would take its place.”

Previously in 2015 the agency named Brazil, India, South Africa and Turkey in its “fragile five” list.