Political unrest poses credit risk for APAC sovereigns in 2026: Fitch

November 26, 2025 (MLN): Fitch Ratings has warned that political instability will continue to pose a significant credit risk for several Asia-Pacific emerging market sovereigns in 2026, following a year marked by unrest in Indonesia, the Maldives, Mongolia, Nepal, and the Philippines.

In its assessment, the rating agency noted that episodes of major social unrest typically weaken near-term economic activity by eroding consumer and business confidence.

Tourism, foreign investment, remittances, and capital flows can also suffer, pressuring external balances and growth forecasts.

Fitch cautioned that the fiscal outlook of politically fragile economies may deteriorate further if governments respond to unrest by loosening fiscal policy or if prolonged tensions disrupt budget performance.

The risk intensifies when political instability triggers government collapses or abrupt shifts in policymaking, which can alter sovereign credit metrics.

The agency said the degree of credit deterioration will depend heavily on a country’s fiscal and external buffers, including debt levels and liquidity positions.

Citing Nepal as an example, Fitch said its recent affirmation of the country’s ‘BB–’ rating reflects adequate external liquidity and low, mostly concessional debt, factors that help absorb the impact of the September protests and subsequent change of government.

Fitch’s outlook highlights growing concerns among investors and analysts about the political risk premium in APAC emerging markets heading into 2026, as regional economies navigate slower global demand, weaker capital flows, and heightened geopolitical uncertainty.

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