Seven countries, including Sri Lanka, Pakistan and Turkey, are at risk of an exchange rate crisis as investors reassess their investments following the contagion in Argentina and Turkey. Photo: Reuters
Seven countries, including Sri Lanka, Pakistan and Turkey, are at risk of an exchange rate crisis as investors reassess their investments following the contagion in Argentina and Turkey. Photo: Reuters

Seven emerging markets at risk of exchange rate crises: Nomura

Given that India runs a current account deficit, it remains vulnerable to bouts of global risk aversion, said Nomura , adding that higher oil prices and portfolio outflows are its key external vulnerabilities

New Delhi: Seven countries, including Sri Lanka, Pakistan and Turkey, are at risk of an exchange rate crisis as investors reassess their investments following the contagion in Argentina and Turkey, a new index by Nomura says.

According to the global financial services major, emerging markets are under pressure as investors reassess the risks amid monetary policy normalisation in developed markets, trade protectionism and China’s economic slowdown.

The new gauge, Damocles, which assessed the risk of exchange rate crises for 30 emerging market economies, noted that seven countries were at risk of exchange rate crises with scores over 100: Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine. A score above 100 suggests a country is vulnerable to an exchange rate crisis in the next 12 months, while a reading above 150 signals a crisis could erupt at any time.

Sri Lanka has a score of 175, followed by South Africa (143), Argentina (140), Pakistan (136), Egypt (111), Turkey (104) and Ukraine (100). India’s score stood at 25.

On India, the report said CPI inflation had moderated (to around 4.5 percent in 2018 from 9.7 percent in 2012), as had the current account deficit (around 2.5 percent of GDP versus 5 percent). Moreover, the central bank has a sufficient forex reserve buffer, as a result, India’s score has fallen to 25 in the July-September quarter.

“Given that India runs a current account deficit, it remains vulnerable to bouts of global risk aversion," Nomura said, adding that “higher oil prices and portfolio outflows are its key external vulnerabilities".

The other risk factors for the Indian economy stem from the government turning more populist ahead of the 2019 general elections and a sharper-than-expected domestic growth slowdown, which in turn would trigger equity outflows, it added.

The Indian rupee has depreciated 13 percent so far in 2018 and has touched a historic low of 72.67 to a dollar.

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