Member states of monetary unions experience strengthened currencies in 2018

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Southern Times Writer

Harare - The year 2018 saw currencies of many African countries appreciating against the US dollar due to strong monetary unions.

According to the African Trade report 2019 published by Africa Export Import Bank (Afrexim), the best-performing currencies were generally those whose countries were members of monetary unions — including the CFA franc, the common currency of 15 countries, mainly former French colonies in Central and West Africa, that is pegged to the euro. The CFA franc appreciated by about 4.45 percent against the US dollar in 2018.

Other African currencies that appreciated against the US dollar included those of Rwanda (18.09 percent), Mozambique (5.47 percent), Kenya (2.04 percent), and the Democratic Republic of Congo (1.22 percent).  

The report showed that among the worst-performing African currencies was the Sudanese pound, which depreciated by 371.24 percent because of a widening trade deficit and heightening political tensions.

The Angolan kwanza depreciated by 48.44 percent as the country continued to deal with the protracted effects of the end of the commodity super cycle, which led to the sharp deterioration of its external balances and widening fiscal and current account deficits.

The Liberian dollar depreciated by 27.95 percent, due to pressure on its domestic currency from limited inflows of foreign reserves.

The report also revealed that the improvement in the commodity prices witnessed in the fourth quarter of the year 2018 boosted the stock of reserves of some African countries.

“In a region where oil accounts for more than 45 percent of export receipts, the sustained recovery in oil prices — averaging higher than US$70 per barrel during the fourth quarter of 2018 — and increases in the volume of production in oil-exporting countries were the major driving forces behind the gradual but steady improvement in the region’s reserve position. “Further support for reserves came from the increasingly stable socio-political environment in several countries. This was particularly the case in heavily tourist-dependent economies, where a drastic reduction in the level of security-induced shocks led to a rebound in tourism. Another positive factor was an increase in migrant remittances to the region.

“Accordingly, Africa’s total reserve holdings, which increased by 6.53 percent to US$424.26 billion in 2017, accelerated to a 9.73 percent increase in 2018, to US$465.54 billion. Oil-exporting countries benefited even more from the recovery in oil prices and increased production, which raised the level of foreign exchange reserves by 19.47 percent in Algeria, 288.89 percent in Chad, 37.47 percent in Gabon, 10.96 percent in Libya, and 11.21 percent in Nigeria,” stated the report.

 

The Afrexim bank also stated that Egypt’s foreign reserves increased by 14.23 percent to US$41.01 billion (6.44 months of import cover) from US$35.89 billion (4.96 months of import cover) in 2017. A similar trend was observed in Kenya, where the foreign reserves increased by 16.1 percent to US$8.53 billion (5.75 months of import cover), from US$7.35 billion (5.3 months of import cover).

According to the report in a context of a generalised improvement in the external balance of the region, average import coverage rose to 9.67 months in 2018 from 9.10 months in 2017 and remained well above the IMF’s recommended external reserves threshold of three months of imports.

“The improvement in export revenues sustained the performance of many African currencies,” stated the report.

 

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