Japan-based Nomura Holdings has put Pakistan, Egypt, Romania, Sri Lanka, Turkey, the Czech Republic, and Hungary in a high-risk category of nations that may experience currency crises.
Nomura Holdings said that since its May 2022 update, the risk in 22 of the 32 countries covered by its internal “Damocles” warning system had gone up, with the Czech Republic and Brazil witnessing big increases.
Since May, the sum of the model’s scores for all 32 nations increased from 1,744 to 2,234 points.
Nomura Holdings characterized it as “the highest total score since July 1999 and not too far from the peak of 2,692 during the height of the Asian crisis” and noted that it was “an ominous warning sign of the growing broad-based risk in EM currencies.”
The model computes an overall score based on eight critical variables, including a nation’s foreign exchange reserves, exchange rate, financial health, and interest rates.
A score above 100 indicates a 64% chance of a currency crisis in the next 12 months, based on data from 61 Emerging Markets’ currency crises since 1996.
Egypt, which devalued its currency in 2022 and requested monetary help from the International Monetary Fund, now has the lowest score of 165.
The following country on the list, Romania, has been using interventions to support its currency.
Turkey and Sri Lanka, which frequently experience currency crises, receive scores of 138, while the Czech Republic, Pakistan, and Hungary receive scores of 126, 120, and 100, respectively.
The news comes amid Pakistan raising its benchmark interest rate by a full percentage point to prevent stronger-than-anticipated inflation from spiraling out of control.
The State Bank of Pakistan increased the target rate to 16%. The authority also raised its annual inflation forecast to 21%-23% from about 18%-20%.