Emerging-market economies are once again confronting heightened debt risks amid a resurgence in the US dollar’s strength. The week ending July 23, 2025, saw notable pressure on emerging-market currencies, stemming from a robust greenback that has gained ground against both G10 and most developing-nation currencies. This resurgence is raising concerns about the ability of heavily-indebted emerging-market countries to refinance their burdens and avoid destabilizing financial scenarios in the second half of the year [1].
The value of the US dollar has a profound influence on global financial markets, particularly for emerging markets that rely on dollar-denominated debt. As the dollar strengthens, servicing and refinancing debt becomes more expensive for these states, often leading to concerns about potential defaults or the necessity for sovereign debt restructuring talks. In the most recent week, the US dollar demonstrated notable gains, climbing against a majority of G10 currencies and extending its advantage over those in the emerging-markets realm [1].
This development places added strain on public finances in countries with high external debt, as their local currencies depreciate and foreign reserves may come under pressure. Investors and analysts are carefully monitoring countries that already face fiscal vulnerabilities, with some market participants warning that credit ratings could be reassessed and funding costs might sharply increase. Such dynamics can force some governments to consider seeking relief through debt restructuring talks or even pre-emptive measures to stabilize finances before conditions deteriorate further.
Despite these challenges, there are signs that some emerging-market economies are preparing to meet the unfolding risks proactively. Policy responses, such as tightening monetary policies or drawing upon existing international support frameworks, can help cushion the blow of currency fluctuations. Moreover, global institutions like the International Monetary Fund are historically positioned to assist countries in distress, potentially preventing widespread contagion and maintaining a degree of investor confidence.
Looking ahead, the trajectory of the US dollar will remain a critical factor for emerging-market debt sustainability. While the current strength is posing short-term challenges, the situation is dynamic and may shift as global economic conditions evolve. The willingness of policymakers and international stakeholders to support vulnerable economies can help mitigate the risks and, with prudent management, allow many emerging-market countries to navigate what may otherwise be a precarious period [1].
