Amid the ongoing exchange rate fluctuations, the International Monetary Fund (IMF) has asserted that a 10 percent appreciation in the dollar, linked to global financial market forces, was decreasing economic output in emerging market economies including Nigeria by 1.9 percent.
It went on to point out that this decline persisted for two and a half years.
The IMF had earlier announced that the US dollar strengthened to a 20-year high in 2022, with major implications for the global economy.
According to the IMF, a strong dollar meant that trade and financial channels in emerging market economies like Nigeria were affected.
It said, ‘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 Washington-based lender noted that US dollar appreciations impacted the current accounts of these countries. It explained that current accounts captured the change in saving-investment balances of countries.
It stated, ‘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.’
Recall that Nigeria was earlier warned by the IMF to expect a significant drop in foreign loans as the global economy continues to experience new shocks and contractions amidst poor recoveries.
The IMF Deputy Divisional Chief, Wenjie Chen, gave this warning yesterday during a keynote presentation at the International Monetary Fund Regional Economic Outlook which was held in Lagos.
According to Chen, the cost of borrowing, high-interest rates and the increasing value of the dollar has continued to put a strain on Nigeria’s economy and that of its Sub-Saharan African counterparts.
She pointed out that due to the uncertainties surrounding the global economic environment, loans from China, as well as other advanced economies to Africa, have been on a decline.