The US dollar surge could be detrimental to Africa – IMF
According to the International Monetary Fund, a 10% increase in the dollar due to global financial market dynamics reduced economic production in emerging market nations across Africa, including Nigeria, by 1.9%.
It was found that this drop lasted two and a half years. According to the IMF, the US dollar will reach a 20-year high in 2022, with significant repercussions for the global economy. In the same year, the upward capital flows from developing and emerging market countries to established ones returned. China and the commodity-exporting nations were primarily responsible for the net capital outflows from emerging markets and developing countries, which have helped to cover some sizable current account deficits in advanced economies.
According to the IMF, a high dollar hampered trade and financial channels in developing market economies, particularly in Africa.
“Their real trade volumes decline more sharply, with imports dropping twice as much as exports. Emerging market economies also tend to suffer disproportionately across other key metrics: worsening credit availability, diminished capital inflows, tighter monetary policy on impact, and bigger stock-market declines,” the IMF revealed.
The IMF highlighted that the US currency strengthening hurt these nations’ current balances. It stated that current accounts recorded changes in countries’ saving-investment balances.
“As a share of Gross Domestic Product, current account balances (saving minus investment) increase in both emerging market economies and smaller advanced economies, because of a depressed investment rate (there is no clear systematic response for saving). However, the effect is larger and more persistent for emerging market economies,” a statement by the global lender reads.
Historically, increases in the value of the US dollar have had considerable negative cross-border spillovers, disproportionately hurting developing nations, and have raised current account balances as the investment rate declines.
