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AfDB: Naira, others to appreciate in 2018, 2019

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AfDB: Naira, others to appreciate in 2018, 2019

Countries in the West African sub-region with flexible exchange rate regimes such as Nigeria and Ghana are likely to see their currencies (naira and the cedi) appreciate in 2018 and 2019 due largely to anticipated higher global commodity and crude oil prices, the African Development Bank (AfDB) has stated.

 

The bank made this forecast in its 2018 African economic outlook released yesterday.

 

According to the AFDB: “West Africa has two dominant exchange rate regimes: flexible and pegged. Anglophone countries generally have flexible regimes, while francophone countries tend to have pegged regimes. In the anglophone countries (except Sierra Leone and Guinea), exchange rate volatility has been greater. In Ghana and Nigeria, currency fell considerably between 2014 and 2016, largely due to global declines in commodity and crude oil prices.

 

“But the flexible currencies are expected to appreciate in 2018 and 2019 because of anticipated higher global commodity and crude oil prices, combined with prudent monetary and fiscal policies.”

 

The AfDB pointed out that in spite of their dependence on primary commodities, exchange rates in many francophone countries have remained fairly stable due to the fact the CFA franc is pegged to the euro.

 

“CFA (Communauté financière d’Afrique) franc economies—Benin, Burkina Faso, Guinea- Bissau, Côte d’Ivoire, Mali, Niger, Senegal, and Togo—were cushioned by an appreciating euro, despite regional dependence on primary commodities,” the Bank stated.

 

In addition, the AfDB report forecasts that while there will be a slight decline in inflation in the West African Sub region for this year and 2019, the rate will remain in double digits as a result of exchange rate depreciation.

 

The Bank stated: “From 2014 to 2017, average inflation in West Africa rose from 8.2 percent to 13.3 per cent, while average inflation in Africa rose from 7.4 percent to 13 percent. West African inflation is projected to decline moderately but stay in double digits—11.6 percent in 2018 and 11.0 percent in 2019.

 

“The high inflation projections reflect unfavorable macroeconomic developments in key economies such as Nigeria, with 2017 inflation estimated at 16.8 percent, Ghana at 17.5 percent, and Sierra Leone at 19.3 percent. Inflationary pressure came from exchange rate depreciation and domestic imbalances during declines in commodity prices and global demand.”

 

Pointing out that West Africa’s economy depends on just a few countries such as Nigeria which the Bank said accounts for over 70 percent of regional GDP, “and if Ghana, Côte d’Ivoire, and Senegal are included, the total adds up to 90 percent,” the AfDB added : “The region’s economic prosperity depends on developing these economies, and conversely, it would be harmed by adverse shocks to them, particularly to Nigeria.”

 

Besides, it stated: “In 2017, regional growth rebounded, averaging about 2.5 percent. In 2018, it is projected to increase to 3.6 percent, and in 2019 to 3.8 percent, Nigeria’s projected performance drives these trends, too.

 

“The other major economies in the region, Côte d’Ivoire and Ghana (in that order), together contributed about 11 percent of the total regional GDP in 2017, and their projected growth in 2018–19 will reinforce Nigeria’s recovery. The positive outlook for the region is premised on oil price recovery and oil production increases for Nigeria and Ghana, and on strong agricultural performance.”

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