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. Weaker currencies also push up public debt. There is also evidence that inflationary pressures do not come down quickly when local currencies strengthen against the US dollar. More than two-thirds of imports are priced in US dollars for most countries in the region.Ī 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. When currencies weaken against the US dollar, local prices rise, as much of what people buy, including essential items like food, are imported. 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. Large budget deficits have compounded the effects of these external shocks by increasing the demand for foreign exchange. At the same time, high oil and food prices, partly due to Russia’s war in Ukraine, pushed up import costs in 2022. 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.įoreign exchange earnings took a hit in many countries as demand for the region’s exports dropped because of the economic slowdown in major economies. The depreciations across the region were mostly driven by external factors.
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