Stronger US Dollar Bad for Africa, Emerging Economies TheExchangeEA: Africa
the greenback has appreciated by as much as 11% since the beginning of 2022. Several major currencies have lost ground to the US dollar and this development has serious implications for emerging markets, many of which are in Africa.
World Bank warns that a strong United States dollar environment will adversely affect Africa and emerging market economies. This is because of fundamental and structural economic vulnerabilitiesin July 2022 reported that the United States dollar is the strongest it has been in a generation. The New York tabloid and the World Bank agree in terms of why the Greenback has strengthened as much as it has so far. The Greenback appreciates value because of the strong demand for United States dollars.
According to the World Bank's Global Economic Prospects 2022 report,"Global growth is expected to slump from 5.7 per cent in 2021 to 2.9 per cent in 2022-- significantly lower than 4.1 per cent that was anticipated in January. It is expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.
For lenders, they cannot afford to be paid back for credit that they would have extended in the volatile currencies of emerging markets. In this instance, these same low-income and poor countries commit to borrowing United States dollars and repaying their debts in United States dollars regardless of the exchange rate.
According to the EIU graphic, much of the external debt stock of African countries consists of public medium- and long-term borrowings. This form of borrowing has been on the rise since 2000.
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