Fitch, which monitors over 100 countries, said the Ukraine-Russia war was stoking problems such as higher inflation, trade disruptions and weaker economies which are all now hurting sovereign credit conditions.
"Rising interest rates are increasing government debt-servicing costs," Fitch's Global Head of Sovereigns, James McCormack, said, cutting the firm's view on the sovereign sector to "neutral" from "improving".
"Most exposed are emerging market (EM) sovereigns, but some highly indebted developed markets are at risk as well, including in the euro zone."
The number of countries seeing their credit ratings cut has begun to rise again this year as the pressures have built.
Most of the governments Fitch covers have either brought in subsidies or cut tax cuts to try to cushion the impact of surging inflation. But that carries costs.
"While modest fiscal deteriorations can be absorbed by the positive effects inflation has on government debt dynamics, such effects depend on the retention of low interest rates, which are now less certain," McCormack said.
While commodity exporters will benefit from higher prices, those who have to import the bulk of their energy or food will suffer.
Gross external funding needs will be highest this year in both nominal terms and relative to foreign-exchange reserves for EM sovereigns that are net importers of commodities, McCormack added.
"They now face tighter global funding conditions, and with a record-high share of sovereigns rated in the 'B' category or lower, it is likely there will be additional defaults."
The list of countries either in default or whose financial market bond yields suggest they will be currently stands at a record 17.
Those 17 are Pakistan, Sri Lanka, Zambia, Lebanon, Tunisia, Ghana, Ethiopia, Ukraine, Tajikistan, El Salvador, Suriname, Ecuador, Belize, Argentina, Russia, Belarus and Venezuela.
(Reporting by Marc Jones; Editing by Nick Macfie)
By Marc Jones
