Iran War May Trigger African Currency Devaluations, BMI Says

Article content(Bloomberg) — The conflict in the Middle East could spark another round of devaluations in Africa as rising energy costs limit authorities’ ability to defend their currencies, according to BMI, a unit of Fitch Solutions Inc.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentBurundi’s franc and Malawi’s kwacha are most vulnerable as high energy import costs erode buffers, according to Orson Gard, a senior emerging- and frontier-market analyst at BMI.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentThe Iran war already threatens to unleash renewed inflationary pressures as oil prices surge, risking an end to a policy easing cycle across the continent. A wave of devaluations last hit the region from 2023, affecting Nigeria to Egypt, Angola and Ethiopia. The Egyptian pound this week fell to its weakest level against the dollar since July.Article contentArticle content“We consider countries with an already-strained external position and considerable currency overvaluation (in real effective exchange rate terms) to be at most risk of weakness in an escalatory US-Iran conflict scenario,” Gard said. “Should the US-Iran war escalate and last longer than we currently anticipate, the likelihood of a significant devaluation would increase substantially.”Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentBurundi is one of sub-Saharan Africa’s “most exposed currencies” because of its reliance on imported oil and “critically low” reserve buffers due to the central bank’s strategy of managing the franc’s exchange rate, Gard said. Article contentWhile authorities will likely try to maintain a gradual depreciation of the franc, a prolonged Middle East war would increase the likelihood of a “significant devaluation” similar to the one seen in 2023, he said. That year, the franc lost more than a quarter of its value within a month. Article contentThe Malawian kwacha is also “highly exposed,” with similar risks to Burundi including foreign-exchange reserves of less than one month’s import cover. “We see limited scope for policymakers to defend the kwacha’s value in the event of an external shock,” Gard said.Article contentArticle contentOther frontier-market currencies, like the Democratic Republic of Congo’s franc and Mauritius’ rupee, would also face pressure due to idiosyncratic factors such as shortages of key industrial inputs and rising freight costs, he said.Article contentThe impact on Africa’s major currencies would be uneven, Gard said, with oil exporters like Nigeria and Angola seeing gains and importers like South Africa and Kenya facing depreciatory pressures, Gard wrote.Article contentThe Next Africa newsletter runs every weekday. Sign up here for the newsletter, and subscribe to the Next Africa podcast on Apple, Spotify or anywhere you listen.Article contentTrending Posthaste: Canada loses to the U.S. again, but this time it's not in the hockey rink News These eight charts show 'rupture' with Canada under Trump's tariffs Economy Bank of Canada governor warns of growing risks to financial stability Economy Posthaste: This dormant pipeline needs to be restarted for the sake of Canada, economists say News Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it News Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Posthaste: Canada loses to the U.S. again, but this time it's not in the hockey rink News These eight charts show 'rupture' with Canada under Trump's tariffs Economy Bank of Canada governor warns of growing risks to financial stability Economy Posthaste: This dormant pipeline needs to be restarted for the sake of Canada, economists say News Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it News