Amid forecasts of drastic declines in global economic growth and possible stagflation threats, many African countries are also grappling with a serious dollar shortage crises.
The forex crises has already dealt a huge blow on many economies on the continent. For instance, we reported last week on how foreign airlines operating in Nigeria are finding it difficult to repatriate their earnings due to the country’s inability to raise dollars for them. In the same vein, other businesses in the West African countries are struggling raise dollars to facilitate essential imports.
Over in Kenya, many businesses are also struggling due to dollar scarcity. In the past months, the Kenya Association of Manufacturers (KAM) has repeatedly raised concerns over the economic risks posed by the country’s worsening dollar scarcity. The situation is so bad such that the Central Bank of Kenya (CBK) recently directed commercial banks to ration dollar sales. And the implication of this is that not everyone who needs the currency is able to get it.
Mind you, Nigeria and Kenya among Africa’s top economies. A previous article by Business Insider Africa listed them among 10 African countries with the largest foreign exchange reserves. Now, if countries with the largest foreign exchange reserves are facing forex-related difficulties, imagine how much worse the situation would be for countries with low foreign exchange reserves.
The rest of this article shall be focusing on African countries with the lowest foreign exchange reserves. But first, let’s briefly explain what foreign exchange entails.
What are foreign exchange reserves?
According to Investopedia, foreign exchange reserves are typically dollar-denominated assets that are held on reserve by central banks.
The International Monetary Fund (IMF) further defines foreign exchange reserves as “official public sector foreign assets that are readily available to, and controlled by the monetary authorities, for direct financing of payments imbalances, and directly regulating the magnitude of such imbalances, through intervention in the foreign exchange markets to affect the currency exchange rate and/or for other purposes.”
The constitutions of different African countries require their central banks to maintain external assets in the following forms: bullion or gold coins, foreign short-term treasury bills, bonds, the IMF’s special drawing rights, account balances in foreign banks, etc.
Each of these assets must possess a basic feature of liquidity and can easily be converted to either dollars, pound sterling, Euro or other similar hard currencies.
Importance of foreign exchange reserves
- Foreign exchange reserves are necessary for influencing the monetary policies of countries.
- Foreign exchange reserves serve as backup funds just in case a country’s currency drastically devalues.
- It’s a source of economic prestige, as countries with high foreign exchange reserves are respected for their strong economic standing.
- Countries with good foreign exchange reserves tend to attract viable foreign trade and investment opportunities.
Below are 10 African countries with the lowest foreign exchange reserves
- Somalia: Has foreign exchange reserves of $23.1 million, according to The World Bank.
- Equatorial Guinea: Has foreign exchange reserves of $40.8 million, according to The World Bank.
- Sao Tome and Principe: Has foreign exchange reserves of $75.2 million, according to The World Bank.
- Sudan: Has foreign exchange reserves of $177.9 million, according to The World Bank.
- South Sudan: Has foreign exchange reserves of $183.6 million, according to The World Bank.
- Burundi: Has foreign exchange reserves of $266.1 million, according to The World Bank.
- Chad: Has foreign exchange reserves of $310 million, according to The World Bank.
- Comoros: Has foreign exchange reserves of $329.6 million, according to The World Bank.
- Central African Republic: Has foreign exchange reserves of $350 million, according to The World Bank.
- Liberia: Has foreign exchange reserves of $538.5 million, according to The World Bank.
