Pakistan currency-crisis odds exceed 50pc as floods undo progress

KARACHI: The odds of Pakistan facing a currency crisis in the next 12 months now exceed 50 percent following floods that killed thousands of people and displaced millions more, a Bloomberg Economics risk model showed.

The probability of a currency-crisis episode involving a very large depreciation of the nominal exchange rate and extensive depletion of foreign-exchange reserves could climb to about 59 percent by June 2023 from 29 percent in August, economist Ankur Shukla wrote in a note.

Shukla used a currency risk model initially applied to Pakistan but will be expanded to other emerging markets.

“Crop damage and a host of other problems stemming from the disaster all but erase any progress toward stability that came with the IMF’s aid,” Shukla wrote in a note on Tuesday. “Much of the progress toward stabilizing external balances has been undone by the floods.”

The country secured a $1.1 billion loan from the International Monetary Fund in late August to avert an imminent default, but the deadly flooding wrought damages of about $30 billion. Islamabad has made an urgent appeal for debt relief from rich nations.