Currency Depreciation: Consumers Suffer

by time news

2023-06-02 10:09:45

Most sub-Saharan African currencies have weakened against the US dollar, stoking inflationary pressures across the continent as import prices rise, the International Monetary Fund (IMF) said.

Julien COSTA

“This, combined with slowing growth, leaves policymakers facing tough choices as they balance tackling inflation with a still-fragile recovery,” four IMF experts said in a recently published op-ed.

The average depreciation for the region since January 2022 is around 8%, revealed Laurent Kemoe, Moustapha Mbohou Mama, Hamza Mighri and Saad Quayyum, citing as examples the Ghana cedi and the Sierra Leone leone which devalued by more than 45%. In Kenya, the shilling continues an endless dizzying fall against the US dollar, pushing millions of consumers already impacted by Covid-19 to sleepless nights.

Indeed, the Kenyan currency went from 123.05 Ksh on December 20, 2022 to 138.60 Ksh at the end of May 2023, i.e. a depreciation of 15.55 Ksh. This is a real nightmare for consumers in one of the most indebted countries on the continent where the price of water, electricity and imported goods and services continues to rise.

According to these experts, when currencies weaken against the US dollar, local prices rise because much of what people buy, including essentials like food, is imported. More than two-thirds of imports are denominated in US dollars for most countries in the region. “Currency depreciations in sub-Saharan Africa were mainly due to external factors. Declining risk appetite in global markets and rising interest rates in the United States have pushed investors away from the region towards safer and higher yielding US Treasuries “, explained the aforementioned experts.

Slow-down

Weaker currencies make the fight against inflation more difficult given the region’s dependence on imports, added Laurent Kemoe, Moustapha Mbohou Mama, Hamza Mighri and Saad Quayyum.

In the CFA zone (west), where the central bank seems to “beatify” the fight against inflation, the CFA franc is fighting like a wounded beast to remain “useful”, negatively impacting the vulnerable populations already bruised by corruption in the top of the state, insecurity, dictatorship, chronic unemployment and extreme poverty.

According to the IMF, foreign exchange earnings have been hit in many countries as demand for exports from the sub-Saharan region has fallen due to the economic slowdown in major economies. “Large budget deficits have compounded the effects of these external shocks by increasing the demand for foreign currency. About half of the countries in the region had deficits above 5% of Gross Domestic Product in 2022, which put pressure on their exchange rates”.

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