Rising Inflation and Depreciation: Sub-Saharan African Currencies in Trouble

The Sub-Saharan African region has been hit hard by high inflation rates and currency depreciation, with several countries experiencing significant losses in the value of their currencies.

According to the World Bank’s latest Africa’s Pulse report for April 2023, rising food and fuel prices, as well as the depreciation of exchange rates, have been the primary drivers of inflationary pressures in the region.

The report highlighted that the worst-performing currency in the region in 2022 was the Ghanaian cedi, which lost 40 per cent of its value during the year. The Nigerian naira also suffered a significant decline, losing 10.2 per cent of its value. Other currencies that experienced significant losses include those of Sudan (23.6 per cent), Malawi (20.7 per cent), and The Gambia (14.6 per cent).

The Washington-based bank noted that hiking monetary policy rates has not translated to a reduction in inflation rates, with Nigeria increasing rates by 650 basis points. The reduced effectiveness of monetary policy can be attributed to persistent supply shocks driving inflation, such as commodity prices and climatic shocks, lack of central bank autonomy, foreign exchange distortions that widened parallel exchange rate market premia, and fiscal dominance.

The bank warns that it expects 25 per cent of countries in the Sub-Saharan African region to suffer from two-digit inflation rates in 2023. In February, headline inflation in Nigeria rose to 21.91 per cent, according to data from the National Bureau of Statistics.

Nigeria is one of the hardest-hit countries, experiencing both high inflation and high budget deficits. About half of the countries in the Sub-Saharan African region face both high inflation (low monetary policy space) and wider fiscal deficits (low fiscal policy space), including Ghana, Malawi, Zambia, and Burundi.

The International Monetary Fund reports that the naira has been losing 10.6 per cent of its value annually since 1973. The Nigerian Economic Summit Group also revealed that inflation weakened the naira by 14.9 per cent in 2022.