Determinants of Exchange Rate in African Sub-Sahara Countries

Abstract

The study examines empirically exchange rate determinants in African sub-Sahara countries specifically Anglophone West African countries like The Gambia, Ghana, Liberia, Nigeria, and Sierra Leone between 1981 and 2019. In order to achieve this objective, both descriptive statistics and the Panel Least Square (PLS) estimation methods were employed to analyze the data. The result of the analysis reveals that INFL has a negative relationship with EXCR but it does impact significantly on it at 5 percent level; INTR has negative and an insignificant impact on EXCR at 5 percent level; CABL has negative relationship with EXCR and it also impacts significantly on it at 5 percent level; TMTR has negative relationship with EXCR and it also impact significantly on it at 5 percent level. The study therefore concludes that inflation rate (INFL), interest rate (INTR), current account balance (CABL) and terms of trade (TMTR) depreciates exchange rate (EXCR) in African sub-Sahara countries specifically Anglophone West African countries. Based on the findings of the research work, the following are recommended: The government should encourage export diversification especially the non-oil sector exports. This can be achieved through value addition to both the agriculture and manufacturing sub-sectors output. There should be stable exchange rate management policy that avoids over-valuation or excessive depreciation of their currencies and ensures international competitiveness of tradable goods, relative price stability as well as avoiding inconsistent fiscal policies.