Contribution to Book
Managing Volatile Capital Flows: Experiences and Lessons for Sub-Saharan African Frontier Markets
Regional Economic Outlook: Sub-Saharan Africa. Keeping the Pace
(2013)
Abstract
This chapter examines the evolution of portfolio and cross-border bank flows in sub-Saharan African frontier markets since 2010 and discusses the various policies these countries have designed and implemented to reduce risks stemming from the inherent volatility of these flows. The analysis finds that in the past three years, foreign portfolio flows to sub-Saharan Africa’s frontier economies have grown considerably, and the current bout of global financial market turbulence has so far left most of these countries relatively unscathed. This muted impact reflects, in part, strong fundamentals and prospects in these economies, but it may also reflect their relatively small and illiquid financial markets. As frontier economies in the region become more integrated with global financial markets, they will also become increasingly vulnerable to global financial shocks. If the global turmoil persists, risks of contagion and possible reversals may increase. The chapter recommends that frontier markets in the region strengthen policy frameworks to ensure that access to capital markets is beneficial, with the appropriate combination of policies depending on country-specific circumstances. Among the key policy recommendations are the following: (i) enhance monitoring by improving data; (ii) enhance macroeconomic and financial policies to provide policy room in case of capital flow surges or reversals; (iii) improve capacity to effectively use macroprudential policies to prevent systemic financial sector risks that may arise from volatile capital flows; and (iv) reinforce the toolkit of capital flow management measures.
Keywords
- Capital Flows
Disciplines
Publication Date
October, 2013
Publisher
International Monetary Fund
Series
World economic and financial surveys
ISBN
9781475553413
Citation Information
International Monetary Fund (2013), "Managing Volatile Capital Flows: Experiences and Lessons for Sub-Saharan African Frontier Markets," Chapter 3 in Regional Economic Outlook: Sub-Saharan Africa. Keeping the Pace, October 2013, Washington DC: International Monetary Fund, pp. 55-75.