Threatening currency crisis

Japanese investment bank Nomura has warned that over half a dozen countries including Pakistan are at “high risk” of a currency crisis, while 22 of the 32 countries monitored by its in-house warning system have seen significant risk increases over the past six months. The bank’s scoring model suggests emerging market currencies have been at the highest risk of a crisis situation since 1999, and are only a hair away from the global score during the 1997 Asian financial crisis. Nomura’s model compares eight key indicators in every country against historical data from 61 different currency crises since 1996.

For global citizens, an even more worrying sign may be that Türkiye is among the countries at highest risk of a crisis — its score was equal to Sri Lanka, which is currently in default, and only a little behind Egypt and Romania, the highest risk countries. It is worth noting that Türkiye has had to swallow its pride and open talks with Saudi Arabia — after years of tensions over competition for the ‘regional leader’ role — for a $5 billion cash injection, while Egypt has already devalued its currency and sought an IMF bailout, and Romania’s central bank and other financial planners have had to make several interventions to avoid disaster.

Meanwhile, given that Pakistan was ‘only’ ranked sixth, despite the tremendous upheaval the rupee has been through over the last six months or so, we shudder to think how bad the situation is getting elsewhere. All of the eight indicators considered by Nomura — including forex reserves, exchange rate, interest rate, and other data on the state of the economy — remain underwhelming, at best. Also, Pakistan has already tapped most of the sources of last-minute relief that other at-risk countries are approaching one by one — we are already receiving an IMF loan, the Saudis and others have given us temporary deposits to shore up our reserves, and the State Bank of Pakistan has intervened several times. Still, we remain on the precipice.

Published in The Express Tribune, November 28^th, 2022.

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