Strong Dollar To Have Negative Effect in Emerging Market Debt

The strong dollar is threatening an Asian-style debt crisis in sub-Saharan Africa, a thinktank has warned.

The rising value of the US currency is increasing the risk of sovereign debt defaults in the region, according to the Overseas Development Institute (ODI), by handing countries an additional $10.8bn (£7.1bn) of currency costs – equivalent to 1.1% of the region’s gross domestic product.

Judith Tyson, author of the research, said the region’s ability to make debt repayments hinged on strong economic growth, itself threatened by weak export markets and plunging oil prices.

“Today’s economic environment in sub-Saharan Africa is similar to the boom that preceded the bust in the debt crises in Africa and Asia in the 1990s, when western governments and banks wrote off billions of pounds of debt. Today billions of dollars are again at stake, not to mention the financial stability of the region,” she said.

Tyson said currencies in Nigeria and Ghana had suffered particularly sharp falls against the dollar over the past year, increasing their dollar-denominated sovereign bond liabilities.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza