LONDON: Seven nations, including Egypt, Romania, Sri Lanka, Turkey, the Czech Republic, Pakistan, and Hungary, are currently at a high danger of experiencing currency crises, according to Nomura.
The Japanese bank reported that 22 of the 32 nations covered by its internal “Damocles” warning system had witnessed an increase in risk since its last update in May, with the Czech Republic and Brazil experiencing the biggest rises.
It indicated that the model’s overall score sum had significantly increased since May, rising from 1,744 to 2,234 across all 32 variables.
The Nomura economists characterised it as “an ominous warning sign of the mounting broad-based risk in EM currencies” and noted that it was the highest total score since July 1999 and not far off the peak of 2,692 during the height of the Asian crisis.
A country’s FX reserves, exchange rate, financial health, and interest rates are among the model’s eight major factors that are combined to get a final score.
Nomura calculates that a score above 100 predicts a 64% likelihood of a currency crisis in the next 12 months based on data from 61 past EM currency crises since 1996.
The lowest score currently comes from Egypt, which has already depreciated its currency significantly twice this year and applied for an IMF programme. It currently receives a 165.
Romania continues on position 145 after using interventions to support its currency. Sri Lanka, which is now in default, and Turkey, which frequently experiences currency crises, both have ratings of 138, while the Czech Republic, Pakistan, and Hungary receive scores of 126, 120, and 100, respectively.