The International Monetary Fund said today, Wednesday, that emerging market economies bore the brunt of the dollar’s rise in 2022 to its highest level in two decades, and were affected by the exit of capital, high import prices and tightening financial conditions.
The IMF said new research in its annual report on the external sector showed that the dollar’s rise last year had a greater impact on emerging markets than on smaller developed economies, in part because exchange rates in the latter group are more flexible.
The fund stated that for every 10% rise in the dollar as a result of global financial market forces, the gross domestic product of emerging market economies will decline by 1.9% after one year, and this is expected to continue for two and a half years.
The same research showed that the impact was much smaller in developed economies, with output declines peaking at 0.6% after one quarter and the effects largely fading within a year.
The fund said in the report that the real exchange rate of the dollar rose 8.3% in 2022 to its highest level in two decades, in light of the Federal Reserve (the US central bank) carrying out a series of rapid increases in raising interest rates to curb inflation in addition to the rise in global commodity prices due to Russia’s invasion of Ukraine.
The Fund added, “Emerging and developing market economies, which were already suffering from weaknesses such as high inflation and unbalanced external conditions, were subjected to greater pressure due to the dollar’s decline, while the economies of commodity exporting countries benefited from the increase in these prices.”
2023-07-19 15:40:00
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