IMF Says Strong Dollar Value Impacts Emerging Economies Like Nigeria

The International Monetary Fund (IMF) has revealed that a 10% increase in US dollar value impacts emerging market economies like Nigeria by decreasing their output by 1.9%.

The IMF said in a statement that the US dollar recorded its highest in the last 20 years in 2022 and this had a major impact on global emerging economies. The organization explained the trade volumes of these countries decline more sharply with imports, as it drops twice as much as exports.

"Emerging market economies also tend to suffer disproportionately across other key metrics: worsening credit availability, diminished capital inflows, tighter monetary policy on impact, and bigger stock-market declines," IMF added.

"As a share of gross domestic product, current account balances (saving minus investment) increase in both emerging market economies and smaller advanced economies, because of a depressed investment rate (there is no clear systematic response for saving). However, the effect is larger and more persistent for emerging market economies," IMF said, according to the Punch.

Compared to the US dollar, Nigeria's official currency naira closed at N743 per $1 on Tuesday, as per Nigerian Central Bank, Bloomberg reported.

Chief executive of Forward Marketing Bureau de Change Ltd. in Lagos Abubakar Mohammed said on Wednesday that this was about 14% stronger than N860 per $1 that has been fetched in a parallel market.

Considering Nigeria is one of the biggest crude producers in Africa, it can create an impact on the exchange rate.

National President of the Independent Petroleum Marketers Association of Nigeria Chinedu Okonkwo explained last month that depending on how the country will manage its crude oil, the exchange rate will keep moving up and down, adding "by the time we begin to meet our OPEC quota and other areas of generating foreign exchange, the naira will begin to firm up."

The president further explained--in the wake of increased petrol prices after subsidy removal--that once the naira rate improves, fuel prices will automatically come down. Therefore, Nigerians should not think that fuel prices will continue to rise.

Nigerians have been dealing with financial crises since demonetization (currency redesign policy), which mopped up over 70% of cash from the country. Reportedly, it has caused an estimated loss of N20 trillion.

The government also launched digital currency eNaira in 2021, but the IMF disclosed in May that 98.5% of people, who downloaded the eNaira wallets, have not used it.

The World Bank shared in April that the Nigerian currency naira lost 10.2% of its value due to a rise in food and fuel prices in the country.

Considering the naira's decreasing value and the dollar going strong, it seems prices will further rise for Nigerians in the near future unless the country starts trading in another currency. For instance, earlier this week, the UAE and India decided to trade in local currencies.