Real exchange rate key to sustainable deficits in Sub-Saharan Africa
Sub-Saharan African countries often have current account deficits due to globalization. A study looked at how the real exchange rate affects the sustainability of these deficits. They found that a lower real exchange rate helps sustain the deficit, depending on the type of exchange rate regime in place. For countries with a floating exchange rate, a rate below 250 is best. For those with an intermediate regime, a rate between 275 and 600 works. And for countries with a fixed exchange rate, a rate above 700 is ideal. Policymakers can use this information to improve the sustainability of current account deficits in these countries.