India and Thailand are among the emerging market sovereigns best positioned to manage future global shocks, supported by strong policy frameworks and robust buffers built well before the recent period of stress, according to a report by Moody's Ratings. 

The report highlights that both countries have adopted clear and predictable monetary policy frameworks, with well-anchored inflation expectations, and flexible exchange rates that can adjust when required. This reduces the risk of currency volatility translating into persistent inflation or triggering abrupt policy tightening. 

Strong buffers, but fiscal risks remain 

India benefits from deep domestic financial markets and sizeable foreign-exchange reserves, which help balance its reliance on domestic funding. Thailand, on the other hand, draws strength from a healthy balance of payments and relatively low external debt. 

However, challenges persist. India’s relatively high public debt and weak fiscal balance limit its policy space to respond to repeated shocks. Thailand also faces risks from a rising debt burden, which could erode its resilience over time. 

The report notes that several large emerging market economies have weathered multiple global shocks since 2020—including the pandemic, global monetary tightening, regional banking stress, and renewed trade tensions—without a sustained rise in sovereign risk premia or loss of market access. 

This resilience reflects improvements in policy frameworks, accumulation of buffers, and supportive external conditions such as ample global liquidity and favourable yield differentials. 

Among major economies, India stood out as one of the most resilient across a range of market indicators while countries such as Türkiye showed higher volatility on policy and credibility constraints. 

Role of policy reforms and flexibility 

Structural policy improvements have played a key role in strengthening resilience. Credible monetary policy frameworks helped anchor expectations and stabilise capital flows in countries like Brazil. Greater exchange-rate flexibility enabled South Africa and Indonesia to absorb shocks without depleting reserves or resorting to abrupt policy tightening. 

Similarly, prudent fiscal management and improved spending composition supported investor confidence in Malaysia while Mexico’s lower dependence on external borrowing reduced its exposure to global market volatility. 

In India’s case, large foreign-exchange reserves helped smooth currency volatility and reinforced investor confidence during periods of global stress. 

The report notes that early adoption of sound policies and the buildup of buffers are critical to sustaining resilience. Countries that strengthened their frameworks well before the 2020–2025 stress period have been better able to absorb shocks. In contrast, economies such as Argentina, Nigeria, and Türkiye remain more vulnerable due to delayed or incomplete policy reforms. 

Relatively benign global conditions also supported emerging markets during recent shocks. Strong liquidity, steady capital inflows and moderate global growth helped contain fiscal and external pressures. 

Additionally, some shocks, such as energy-driven inflation and banking stress, were concentrated in advanced economies, improving the relative position of several emerging markets in global portfolios. 

Market response driven by yields 

Market pressures during this period were largely reflected in yield adjustments rather than prolonged increases in sovereign risk premiums. While spreads widened briefly during episodes of acute stress, they stabilised quickly, indicating sustained investor confidence. 

Despite this overall resilience, the report highlights key variation across countries in terms of funding costs, exchange rate movements, and market access, underscoring the importance of continued policy discipline and structural reforms.