ΔΙΕΘΝΕΣ ΝΟΜΙΣΜΑΤΙΚΟ ΤΑΜΕΙΟ:ενημέρωση

Dear maria, We just published a new blog—please find the full text below.  African Currencies Are Under Pressure Amid Higher-for-Longer US Interest Rates (Credit: Esther Ruth Mbabazi/IMF Photos) By Laurent Kemoe, Moustapha Mbohou Mama, Hamza Mighri, and  Saad Quayyum Most Sub-Saharan African currencies have weakened against the US dollar, fanning inflationary pressures across the continent as import prices surge. This, together with a growth slowdown, leaves policymakers with difficult choices as they balance keeping inflation in check with a still-fragile recovery. As the Chart of the Week shows, the average depreciation for the region since January 2022 is about 8 percent. The extent varies by country, however. Ghana’s cedi and Sierra Leone’s leone depreciated by more than 45 percent. View the interactive version here. The depreciations across the region were mostly driven by external factors. Lower risk appetite in global markets and interest rate hikes in the United States pushed investors away from the region towards safer and higher paying US treasury bonds. Foreign exchange earnings took a hit in many countries as demand for the region’s exports dropped because of the economic slowdown in major economies. At the same time, high oil and food prices, partly due to Russia’s war in Ukraine, pushed up import costs in 2022. Large budget deficits have compounded the effects of these external shocks by increasing the demand for foreign exchange. About half of the countries in the region had deficits exceeding 5 percent of gross domestic product in 2022, putting pressure on their exchange rates. Implications When currencies weaken against the US dollar, local prices rise, as much of what people buy, including essential items like food, are imported. More than two-thirds of imports are priced in US dollars for most countries in the region. A 1 percentage point increase in the rate of depreciation against the US dollar leads, on average, to an increase in inflation of 0.22 percentage points within the first year in the region. There is also evidence that inflationary pressures do not come down quickly when local currencies strengthen against the US dollar. Weaker currencies also push up public debt. About 40 percent of public debt is external in Sub-Saharan Africa and over 60 percent of that debt is in US dollars for most countries. Since the beginning of the pandemic, exchange rate depreciations have contributed to the region's rise in public debt by about 10 percentage points of GDP on average by end-2022, holding all else equal. Growth and inflation (which reduces the real value of existing debts) helped to contain the public debt increase to about 6 percent of GDP during the same period. Many central banks in the region have tried to prop up their currencies by supplying foreign exchange to importers from their reserves. But with reserve buffers running low in many countries, there is little room to continue intervening in foreign exchange markets. Countries have also applied administrative measures such as foreign exchange rationing or banning foreign currency transactions. These measures can be highly distortive and create opportunities for corruption.  Given that the external shocks are expected to persist, countries where exchange rates are not pegged (fixed) to a currency have little choice but to let the exchange rate adjust and tighten monetary policy to fight inflation. Countries with pegged exchange rates will need to adjust monetary policy in line with the country of the peg. In both country groups, fiscal consolidation can help to rein in external imbalances and limit the increase in debt related to currency depreciation. Structural reforms can help to boost growth. This blog is based on an analytical note from the IMF’s Regional Economic Outlook for Sub-Saharan Africa.   Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

 

(CREDIT: ISTOCK / SLOVEGROVE) Dear maria, The resurgence of export restrictions—bans, controls, and sanctions—is one particularly concerning area for the rules-based trading system, writes Chad P. Bown, senior fellow at the Peterson Institute for International Economics. Headline-grabbing policies are popping up in a variety of novel contexts, Bown writes in an article for the upcoming June edition of Finance & Development Magazine. He states that such policies sometimes push trading partners to respond with additional actions—often in conflict with other WTO rules—to protect themselves from being exposed to future restrictions. This risks a downward spiral. “The WTO should continue to encourage members to limit their use of export restrictions and to keep them targeted and temporary when sales limits must be implemented. But the WTO also needs to push into new and uncomfortable areas and do more, especially to protect the most vulnerable countries in the trading system.” Read the full article Want to get a print copy delivered to your home or office? Click here to subscribe   Have Your Say What do you think of this article? Please write to us directly and let us know your thoughts. We would love to hear from you. Nick Owen Senior Editor F&D Magazine nowen@IMF.org

Dear maria, In today's edition, we highlight: Ghana’s $3-billion program Export controls and multilateral trade Gita Gopinath on inflation risks Africa’s depreciating currencies The costs of corruption

GHANA IMF Board Approves $3-Billion Program (Credit: truba71/Adobe Stock) The IMF’s Executive Board on Wednesday approved an Extended Credit Facility program for Ghana worth $3 billion over three years. The move enables the immediate disbursement of about $600 million to the West African nation. Large external shocks in recent years have exacerbated Ghana’s fiscal and debt vulnerabilities, resulting in a loss of international market access, increasingly constrained domestic financing, and reliance on monetary financing of the government. Decreasing international reserves, currency depreciation, rising inflation and plummeting domestic investor confidence, eventually triggered an acute crisis. “The program will help Ghana overcome immediate policy and financing challenges, including through its catalytic effect in mobilizing external financing from development partners and providing a framework for the successful completion of the ongoing debt restructuring,” a statement said. Earlier, IMF Managing Director Kristalina Georgieva welcomed a statement by the Official Creditor Committee for Ghana on the importance of an IMF-supported economic program, together with its commitment to negotiate debt restructuring terms accordingly. “The Creditor Committee’s action recognizes the Ghanaian authorities’ strong reform program…It also signals that further progress is being made under the G20 Common Framework, demonstrating that international partners are ready to work together to help countries resolve their debt issues.”

PRESS CONFERENCE Ghana and the IMF

Ghana’s Finance Minister Ken Ofori-Atta, Central Bank Governor Ernest Addison and IMF Mission Chief Stephane Roudet answer reporters’ questions on the $3-billion program at a press conference. Read a transcript.

WORLD TRADE Export Controls Test Multilateral System (Credit: Slovegrove/iStock) The World Trade Organization is struggling to define its place in a fast-shifting geopolitical landscape as the multilateral system comes to terms with trade wars and real wars. A resurgence of export restrictions—bans, controls and sanctions—is particularly problematic for the rules-based trading system. Writing for F&D Magazine, Chad Bown, a senior fellow at the Peterson Institute for International Economics, says such policies risk a “downward spiral” by pushing trading partners to protect themselves with additional actions that are often in conflict with other WTO rules. The WTO should encourage members to limit export restrictions while doing more to protect the most vulnerable countries in the trading system and preserve the gains from globalization, Bown writes in the forthcoming June issue of the magazine. “The WTO will be fortunate if it can help countries maintain the status quo, let alone facilitate additional trade liberalization.” Read related F&D articles by Princeton University’s Harold James in defense of globalization and Yale’s Ruchir Agarwal on industrial policy.

Listen to the brightest minds in the field of economics and development discuss their latest research and deconstruct global economic trends. IMF Podcasts are free to use for broadcasters, educators and institutions, so share the knowledge!

GLOBAL OUTLOOK Markets Too Optimistic On Inflation Global inflation may not fall as fast as people think, forcing central banks to raise interest rates further and increasing financial stability risks, the IMF’s first deputy managing director said on Tuesday. Speaking at Chile’s central bank, Gita Gopinath said financial markets seem too “optimistic” about the pace at which inflation will fall. It takes time for central bank rate hikes to feed through to prices, but the latest inflation prints point to persistent pressure on labor markets. One of the gravest risks to IMF’s global outlook is “spillovers” to the financial sector from further monetary tightening, as seen already during bank runs in the US and Switzerland, Gopinath told the Central Bank of Chile’s Pablo Garcia. “As interest rates go up, you might see more financial stress.” Gopinath said the global financial sector is stronger than in 2008-09 and central banks should continue to use interest rates to stabilize inflation while fending off any financial risks with stability tools. In a separate speech in Brazil on Wednesday, Gopinath warned that too little monetary tightening now may necessitate more painful action later, and emerging market economies face the greatest challenges. Read here.

Most sub-Saharan African currencies have weakened against the US dollar, fanning inflationary pressures across the continent as import prices surge. This, together with a growth slowdown, leaves policymakers with difficult choices as they balance keeping inflation in check with a still-fragile recovery. As the Chart of the Week shows, the average depreciation for the region since January 2022 is about 8 percent. The extent varies by country, however. Ghana’s cedi and Sierra Leone’s leone have dropped by more than 45 percent. Read the blog

Weekly Roundup AFRICA The Big Funding Squeeze A slowing global economy and tighter financing conditions have exacerbated the already challenging situation facing most developing countries, Abebe Aemro Selassie, Director of the IMF’s African Department, writes in The Economist this week. Better-off economies can rely on their hefty foreign-exchange reserves and deeper capital markets. But most African countries are shut off from finance in what the IMF is calling “the big funding squeeze”. GOVERNANCE Corruption Cost Tracker The IMF has released a Corruption Cost Tracker, an interactive online tool that enables policymakers and stakeholders address corruption risks in public procurement. It has dashboards for corruption risk analysis, spending analysis, efficiency gains, and policy scenarios. A technical guide provides further information on the Tracker. STAFF PAPER Tit-For-Tat Trade Barriers Are temporary trade barriers introduced for strategic reasons? An IMF staff paper looks at 25 advanced and emerging market economies over 1989-2019 and finds that responses within one year are more important in terms of intensity and frequency than is commonly understood. Retaliation often consists of responses across many sectors. Larger countries tend to retaliate more, especially during periods of higher unemployment. STAFF PAPER Is the Phillips Curve Getting Steeper? Whether structural changes since the pandemic have steepened the Phillips curves in advanced economies is the focus of a recent IMF staff paper. Analyzing 24 countries in Europe, the paper finds that higher digitalization and lower trade intensity are associated with steeper Phillips curves. Post-pandemic Phillips curve estimates indicate some steepening in the UK, Spain, Italy and the euro area as a whole, but at magnitudes that are too small to explain all of the surge in inflation in 2021-22. STAFF PAPER Fiscal Shocks and Inflation A new IMF staff paper investigates the impact of fiscal shocks on inflation, assessing 139 countries from 1970 to 2021. Findings include that both headline and core measures of inflation increase in response to expansionary shifts in the fiscal policy stance; fiscal policy shocks are primarily significant in developing countries; and the inflationary impact of fiscal policy shocks is dependent on fiscal space and economic conditions, as well as monetary policy type, exchange rate regimes and fiscal rules, at the time of the shock.

MARK YOUR CALENDAR

MAY 31, 9 AM - 5 PM ET Rethinking Fiscal Policy The Peterson Institute for International Economics hosts a joint conference with the IMF featuring keynote speeches from Gita Gopinath, first deputy managing director of the IMF, and Heather Boushey, member of the White House Council of Economic Advisors, and panel sessions with experts and policymakers from the United States, other advanced economies and emerging markets. Watch here

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org