Nigeria, other developing countries lost $241 billion external reserve in 2022

The United Nations Conference on Trade and Development (UNCTAD) findings show that 81 developing countries (excluding China) lost $241 billion in international reserves in 2022.

UNCTAD said in its recent Trade and Development Report Update released, Wednesday, that the developing countries recorded an average decline of 7 percent, with over 20 countries experiencing a drop of over 10 percent and in many cases exhausting their recent addition of Special Drawing Rights — the international reserve asset created by the IMF to supplement the official reserves of its member countries.

Nigeria, which has since retained the status of a developing country has continually recorded decline in its gross external reserves.

Nigeria’s gross external reserve fell to $35.74 billion in March, 2023. This indicates the lowest balance since September 2021, according to data from the Central Bank of Nigeria.

Yet, UNCTAD warns that developing countries are facing years of difficulty as the global economy slows down amid heightened financial turbulence.

The UN trade and development body estimates that interest rate hikes will cost developing countries more than $800 billion in foregone income over the coming years.

UNCTAD forecast annual growth across large parts of the global economy to fall below the performance registered before the pandemic and well below the decade of strong growth before the global financial crisis

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UNCTAD expects global growth in 2023 to drop to 2.1 percent, compared to the 2.2 percent projected in September 2022, assuming the financial fallout from higher interest rates is contained to the bank runs and bailouts of the first quarter.

“Developing countries face the crushing effect of soaring debt, interest rate hikes, high food prices and insufficient liquidity,” it said.

The UN trade and development body stated that many developing countries face a deepening development crisis as soaring debt levels and higher servicing costs squeeze productive investment in both the public and private sectors.

“A shortfall of international liquidity has already turned unforeseen shocks into a vicious financial cycle in some countries,” it said.

“Meanwhile, borrowing costs, measured through sovereign bond yields, increased from 5.3 percent to 8.5 percent for 68 emerging markets. Overall, external creditors’ pressure on developing countries to reduce fiscal deficits is expected to increase.”

The intergovernmental organisation also said debt distress will result in a development crisis and wider inequalities, with 39 countries paying more to their external public creditors than what they received in new loans, causing an adverse impact on public investments and social protection.

Over the last decade, debt servicing costs have consistently increased relative to public expenditure on essential services, UNCTAD said, adding that the number of countries spending more on external public debt service than healthcare increased from 34 to 62 during this period.

UNCTAD said that even if financial conditions stabilize, the slowdown in economic growth in many developing countries combined with the end of the cheap money era points to future rounds of debt distress.

It said high food prices hurt developing countries. “Record profits for agricultural commodity traders have been driven by economic uncertainty and market volatility over the past four years.”

A regional economic outlook by the International Monetary Fund(IMF) titled: ‘The big funding squeeze’ stated that persistent global inflation and tighter monetary policies have led to higher borrowing costs for sub-Saharan African countries and have placed greater pressure on exchange rates.

“Indeed, no country has been able to issue a Eurobond since spring 2022,” IMF said “The interest burden on public debt is rising, owing to a greater reliance on expensive market-based funding combined with a long-term decline in aid budgets.”

IMF noted that the lack of financing affects a region that is already struggling with elevated macroeconomic imbalances.

“Public debt and inflation are at levels not seen in decades, with double-digit inflation present in about half of the countries—eroding household purchasing power and striking at the most vulnerable. In this context, the economic recovery has been interrupted,” IMF said in the report.

IMF forecasts growth in sub-Saharan Africa to decline by 3.6 percent this year. “Amid a global slowdown, activity is expected to decelerate for a second year in a row.

“Still, this headline figure masks significant variation across the region. The funding squeeze will also impact the region’s longer-term outlook.

“A shortage of funding may force countries to reduce resources for critical development sectors like health, education, and infrastructure, weakening the region’s growth potential,” IMF said.