Favour567
Where fiscal imbalances are key drivers of exchange rate pressures, fiscal consolidation can help to rein in external imbalances and contain the increase in debt related to currency depreciation.
The IMF also has some advice for countries that have sufficient external reserves but multiple exchange rates can support the forex market via interventions but risk reduction of their reserves.
However, Nigerias external reserves have gone from about 39 billion a year ago to 36.4 billion recently.
In some cases, for countries that have sufficient reserve buffers, the use of foreign exchange intervention can reduce the volatility of the exchange rate.
The International Monetary Fund has advised SubSaharan African countries to seek currency adjustments (devaluation) due to the realities of rising global interest rates and limited access to funding.
The fund opines that some adjustment of currencies seems unavoidable in many cases even if their reaction was to resist it.
There are certainly some reasons for subSaharan African countries to resist exchange rate pressures, including an elevated share of foreigncurrency debt and weakly anchored inflation.
Keypoints
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Related
- African countries and fall in external reserves
- The Nigerian context
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