Egypt is among the major emerging and frontier market economies witnessing key vulnerabilities and a number of shocks, including growth challenges and oil price declines, the International Monetary Fund (IMF) said in a report Tuesday.

In its Global Financial Stability Report, released on Tuesday ahead of the World Bank and IMF spring meetings, the IMF said that Egypt faces blows of external financing vulnerabilities and fiscal sector issues.

It shows that the sharp decline in economic output and sudden increase in borrowing costs could hurt economies with limited fiscal space, high financing needs, or external financing vulnerabilities, which include Brazil, Colombia, Egypt, Hungary, India, South Africa, and Turkey.

Additionally, economic output decline is also likely to be meaningful for Mexico, Russia, and Thailand, according the report.

According to IMF estimations, emerging and frontier market economies have experienced the sharpest reversal in portfolio flows on record, in dollar terms and as a share of emerging and frontier market GDP.

It forecasts that the loss of external debt financing in emerging market economies is likely to put pressure on more leveraged and less creditworthy borrowers what could lead to a rise in debt restructurings.

According the report, emerging markets and developing countries may be particularly hard hit by the coronavirus outbreak given their dependence on external funding, increased leverage, and high reliance on commodity production for some economies.

Additionally, many such economies have faced the virus crisis with weaker initial conditions than in 2008, which witnessed the global financial crisis, according the report.

As the report states, emerging market bond issuers are much more levered now than they were in 2008, and they include new issuers with a larger dependence on oil and other commodities. Furthermore, many major emerging market economies have less policy space, as real policy rates in most emerging market economies are now lower than before 2008, especially for those with traditionally much higher interest rates.

The report also said that many of the emerging market and frontier economies are now much more dependent on foreign portfolio investors and external funding than in 2008/09.

Oil exporters are at risk, given the nearly 60 percent oil price collapse in the first quarter of 2020, with Colombia, Nigeria, Russia, and Saudi Arabia being most exposed, according the report.

“As a result of these pressures, Colombia, Mexico, South Africa, and several Middle Eastern economies were downgraded or put on negative outlook by rating agencies. On the positive side, some economies have large foreign currency reserves and other buffers that can be used to absorb these shocks,” the report said.

For exchange rate pressures, the report shows that many emerging markets are already facing volatile market conditions due to sharp reversals of portfolio flows, thus, their exchange rate flexibility should be used where feasible.

Moreover, multilateral and bilateral swap lines may be needed to mitigate foreign currency funding pressures, while countries with adequate reserves, exchange rate intervention can play a role in curbing excessive volatility.

However, the report states that interventions should not prevent necessary adjustments in the exchange rate and should be planned on the basis that the pressures are caused by the current crisis, which might last several months or longer.

“If macro prudential buffers exist, their relaxation can reduce the impact of the current shock on market conditions and on the overall economy. For example, foreign currency reserve requirements can be relaxed to mitigate foreign-exchange funding pressures,” the report said.

The report also touches upon the emerging markets and developing countries’ capital outflows, showing that introducing outflow capital flow management measures (CFMs) could be part of a broad policy package, but CFMs cannot substitute for warranted macroeconomic adjustment.

“Introducing CFMs need to have due regard to the country’s international obligations. CFMs generally need to be broad-based and effectively enforced to reduce capital outflows. Such measures should be implemented in a transparent manner, be temporary, and be lifted once crisis conditions abate,” the report said.

Meanwhile, sovereign debt managers should adopt urgent plans for dealing with limited access to external funding markets for an elongated period and reducing trade-off between cost and risk, and its rollover risks should take priority over concerns about containing costs when there are large downside risks stemming from potential loss of market access, according to the report.