Sovereigns with relatively short average maturity of debt and weak debt affordability are generally the most exposed to a larger than expected rise in borrowing costs, Moody's Investors Service warned in a report last week.
"The sovereigns most vulnerable to an interest rate shock are generally low rated, with shorter maturities and weak debt affordability," said Elisa Parisi-Capone, a Moody's Vice President -- Senior Analyst and co-author of the report.
"In our view, exposure to a shift in financing conditions is highest for Lebanon (B3 stable), Egypt (B3 stable), Pakistan (B3 stable), Bahrain (B1 negative) and Mongolia (B3 stable). Sri Lanka (B1 negative) and Jordan (B1 stable) are also highly exposed."
"Moody's central forecast is that the anticipated tightening of global financing conditions will be gradual. However, financing conditions could tighten more rapidly than Moody's currently assumes, either globally or for specific sovereigns," the report noted.
In a study of 125 rated sovereigns, Moody's analysed the sensitivity of sovereign fiscal metrics to two hypothetical interest rate shocks, one moderate and gradual and one severe and more immediate. Both shocks are assumed to be sustained over four years.
Moody's concludes that a moderate shock would generally be manageable, with limited impact on sovereigns' debt affordability and debt burdens other than for those which already exhibit very low fiscal strength. A severe shock would pressure a broader set of ratings.