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These are now the 5 most fragile countries exposed to higher interest rates, according to S&P

  • The threat from monetary tightening is now more concrete than before, S&P Global said
  • Tighter monetary policy poses risks for emerging economies in a variety of ways
  • Turkey was the only sovereign nation that was always among the most vulnerable, regardless of the variable chosen

Credit ratings agency S&P Global has reshuffled its list of the countries that are most negatively affected in an environment of rising interest rates.

Following years of ultra-loose monetary policy since the global financial crash, central banks across the world have started to reverse their quantitative easing programs and have even raised benchmark rates in some cases.

Now, S&P global suggest that Turkey, Argentina, Pakistan, Egypt, and Qatar are the new "fragile five" and are the emerging market economies that are set to suffer the most with this new policy from developed nations.

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

"Yet the threat from monetary tightening is now more concrete than before," he noted.

The U.S. Federal Reserve has begun raising interest rates and the Bank of England took the same step last week, for the first time since 2007. The European Central Bank has also announced that it will reduce its purchase of government and corporate bonds starting next year.

Tighter monetary policy poses risks for emerging economies in a variety of ways. One is that it increases borrowing costs for these nations as the U.S. dollar usually rises as rates are hiked, and these countries borrow in dollars. Another is that raising rates means that American investors pour their money back into their home country in anticipation of higher yields.

In its assessment, 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.

"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," Kraemer said in the report.

In 2015, Brazil, India, Indonesia, South Africa, and Turkey were the Fragile Five.