In a research note issued yesterday, Wednesday, experts at Nomura Bank said that some emerging economies’ currencies are facing a serious currency crisis, and on top of these emerging economies exposed to this crisis are Egypt Experts believe that Egypt is the country most vulnerable to a currency crisis among emerging markets during the next 12 months, according to the Bank’s early warning model for exchange rate crises in emerging markets, known as Damocles.
And the research note continued that Egypt has significantly exceeded the risk level on the Damocles index and recorded a level of 164 on the index, despite the sharp decline in the value of the Egyptian pound during the past 12 months, but Egypt has not yet emerged from the danger circle due to the economic fundamentals that are still weak and on top of them High inflation, and that the ranking of the countries most exposed to a currency crisis during the coming period is represented in Egypt, Romania, Sri Lanka, Turkey, the Czech Republic, Pakistan, and Hungary.
The Damocles model, which was invented by Nomura Bank, is considered an early warning bell for exchange rate crises in emerging markets, which is based on 6 indicators that include foreign exchange reserves, the size of short-term external debt and its ratio to exports, the ability of reserves to face short-term debt, and the rate of change in foreign direct investment. And other economic indicators, and that if the Damocles index exceeds the level of 100, then this means that the country is exposed to a crisis in the exchange rate during the next 12 months by 64%, and that the model was tested in 61 times on 32 countries.
It is noteworthy that the Egyptian Central Bank decided in late October to liberalize the exchange rate of the Egyptian pound against various foreign currencies, so that the pound lost about 20% of its value, and the US dollar is trading near the level of 25 pounds at the present time.