Islamabad

Nomura Holdings, Japan's top brokerage and investment bank, has warned that seven countries - Pakistan, Egypt, Romania, Sri Lanka, Turkey, Czech Republic, and Hungary - are now at a high risk of currency crises.

The Japanese bank said that 22 of the 32 countries covered by its in-house "Damocles" warning system have seen their risk rise since its last update in May.

The model crunches eight key indicators - a country's foreign exchange reserves, exchange rate, financial health, and interest rates - to give an overall score.

Based on data from 61 different Emerging Market currency crises since 1996, Nomura estimates that a score above 100 indicates a 64 per cent chance of a currency crisis in the following 12 months.

Nomura also ran the Damocles model on the G7 group of leading economies, with the results showing that all but Japan now have Damocles scores above the 100 thresholds, led by the US and Britain.

ALSO READ: Indian banking sector resilient: RBI Governor

Emerging Market economies are still more vulnerable. Most have not fully recovered from the Covid-19 pandemic and now face high inflation, limited fiscal space, negative real interest rates, a weaker balance of payments and diminished FX reserve cover.