Weakening currencies in emerging markets to hamper recovery from coronavirus: IMF

SectorFinancial Markets

Decreasing exports, combined with supply and demand disruptions are expected to weaken the local currencies of emerging markets and developing economies (EMDEs) in the short term, said an International Monetary Fund (IMF) report released on Tuesday. Amid the ongoing COVID-19 crisis, EMDEs have faced an unprecedented shock of collapsing global demand and commodity prices, capital outflows, major supply chain disruptions and a generalised drop in global trade, which drove their currencies to witness a sharp weakeness, according to the IMF. Building on its dataset, the IMF demonstrated that the short-term gains from weaker currencies may be limited in EMDEs, where firms price their international sales and finance themselves in a few foreign currencies, notably the US dollar, so-called Dominant Currency Pricing and Dominant Currency Financing. In this regard, the IMF’s...read more...