TAC ECONOMICS’ August 2025 Monthly Comments highlight new vulnerabilities across several emerging markets, as weakening growth, restrictive trade measures, and geopolitical tensions reshape the global risk landscape.
Key Takeaways
- New Early Warning Signals were activated for Bangladesh, Bolivia, Dominica, and Uruguay, pointing to a high probability of significant shocks.
- Bangladesh, Bolivia, and Dominica face risks to economic activity, while Uruguay is exposed to exchange rate volatility.
- In contrast, Ethiopia’s currency adjustment has alleviated previous exchange rate concerns, closing its Watch List Indication.
Our Methodology
TAC ECONOMICS relies on a proprietary set of quantitative techniques to anticipate systemic shocks in emerging markets. At the core is a composite non-parametric data mining model, designed to detect three types of crises — exchange rate, cyclical, and payment/transfer — across three time horizons (less than 1 year, 1–3 years, 3–5 years).
The methodology combines the results of five independent models:
- A Crisis Signal (CS) is issued when four or five models converge, signaling a very high probability of a significant shock.
- A Watch List Indication (WLI) appears when three models align, highlighting strong vulnerabilities even if a full crisis is less certain.
This systematic approach provides early warnings of heightened fragility, allowing clients to anticipate risks and adjust strategies well before crises materialize.
Country Insights
Bangladesh: Political Turmoil Fuels Economic Fragility
The ousting of Sheikh Hasina’s government in August 2024, followed by constitutional reforms and upcoming elections in 2026, has deepened political uncertainty. Growth slowed to around 4% in 2024–2025 (from 7% pre-2022), despite IMF support.
Added pressures come from U.S. tariffs (20%) on key exports and rising banking sector weaknesses, leaving Bangladesh vulnerable to cyclical shocks through at least 2028.
Bolivia: Unsustainable Policy Mix
Bolivia remains on the Watch List for economic activity (2026–2030). Weak growth, eroding foreign reserves (below 2 months of imports), and a significant parallel currency depreciation undermine stability.
With inflation at 25% (July 2025) and a rigid exchange-rate peg, the country faces the risk of a painful adjustment unless fiscal and monetary reforms are enacted.
Dominica: External Imbalances Deepen
Dominica is once again flagged for economic vulnerability (2025–2027). The island’s -32% current account deficit (2024), high external debt, and limited foreign reserves are compounded by tighter global financing and weaker capital inflows. Domestic demand is weakening, suggesting tough cyclical conditions ahead.
Uruguay: Exchange Rate Risks Ahead
While Uruguay enjoys solid governance, its economy faces currency risk due to heavy reliance on commodity exports, past debt restructurings, and volatile capital flows (FDI outflows of USD -5.4bn in 2023 et USD -2.5bn in 2024). The country’s risk premium has climbed significantly, pointing to potential exchange rate instability through 2028.
Ethiopia: Birr Devaluation Eases Pressures
After a near 100% devaluation of the Birr in 2024, Ethiopia’s currency is now considered more balanced. The adjustment removed the previous Watch List Indication on exchange rate, ending years of overvaluation concerns.
Conclusion
The August 2025 update underlines the increasingly uneven risk outlook across emerging markets. While some countries like Ethiopia have corrected structural imbalances, others — notably Bangladesh, Bolivia, Dominica, and Uruguay — face rising vulnerabilities.
Businesses and investors operating in EMs must therefore prepare for greater volatility, policy uncertainty, and external shocks in the coming quarters.
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