Emerging Markets Record $30.1bn Outflow In Q2 2022
Between the month of March and June this year, Emerging Markets across the world recorded an unprecedented outflow of funds to the tune of $30.1 billion, putting pressure on currencies around the world, including the Nigerian Naira, the deputy governor of the Central Bank of Nigeria (CBN), Kingsley Obiora, has said.
In May alone, Emerging Market securities suffered an outflow of $4.9 billion, according to estimates from the Institute of International Finance (IIF).
The massive outflow of funds, according to Obiora, triggered global rates hike by central banks of various jurisdictions by as much as cumulative 8,190 basis points this year alone as a result of the global financial crisis and the attendant pressure.
Speaking at the 2022 Convocation and 74th Foundation Day Ceremonies of the University of Ibadan on Thursday, Obiora who is also an alumnus of the institution blamed the situation on the outflow of funds away from emerging markets.
He disclosed that Central Banks overseeing eight of the ten most heavily traded currencies delivered 550 basis points of rate hikes in September, bringing the total volume of rate hikes in 2022 from the G10 central banks to 1,925 basis points.
“Similarly, emerging market central banks have raised interest rates by a total of 6,340 bps year-to-date, more than double the 2,745 bps for the whole of 2021, calculations show. Taken together, developed and emerging market central banks have hiked interest rates by 8,190 bps in 2022; fastest pace, and largest scale in two decades,” said the CBN deputy governor.
Citing a report by Financial Times, Obiora stated that the return delivered by emerging market (EM) sovereign bonds was around minus 15 percent for 2022, the worst since 1994, stressing that the principal factor driving this trend was the exit of foreign fund managers and investors from emerging markets assets.
Data from the US Treasury department also confirmed that foreign holdings of Treasuries in September dropped to their lowest level since May 2021, led by Japan and China.
Analysts believe the foreign holdings of Treasuries will continue to decline as the recession risks have generated huge selloffs recently.
But beyond the turmoil in Emerging Markets’ financial markets that have put the exchange rate in Nigeria and economies under pressure, Obiora pointed out that a sizable amount of the foreign exchange request Nigerian banks receive is for school fees for primary and secondary school education, some of which are for neighbouring African countries.
“In light of the above, it is no wonder that foreign education cost the country a whopping sum of US$28.65 billion between 2010 and 2020, according to the CBN’s Balance of Payments Statistics,” Obiora stated.
According to data from UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this number had risen to 96,702 students, according to the World Bank.
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