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The International Monetary Fund (IMF) has released a report stating that a 10 per cent appreciation in the US dollar, driven by global financial market forces, has led to a 1.9 per cent decrease in economic output in emerging market economies, including Nigeria.
According to the IMF, this decline in economic output has persisted for two and a half years. The report highlighted that in 2022, the US dollar reached a 20-year high, significantly impacting the global economy.
The strength of the US dollar has affected trade and financial channels in emerging market economies like Nigeria. The IMF noted that in such economies, real trade volumes experienced a sharp decline, with imports dropping twice as much as exports. Additionally, these economies faced challenges in credit availability, reduced capital inflows, tighter monetary policy, and significant stock-market declines.
The impact of US dollar appreciation was also reflected in the current accounts of these countries. Current accounts measure the change in saving-investment balances of countries. For both emerging market economies and smaller advanced economies, current account balances increased as a share of Gross Domestic Product (GDP) due to a depressed investment rate, although the effect was more significant and enduring for emerging market economies.
The IMF’s report sheds light on the implications of a strong dollar on emerging economies like Nigeria, emphasizing the need for policy measures to mitigate the adverse effects and foster sustainable economic growth.
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