CHANGES IN 1!!K8 EXCHANGE RATE KAHAGEXEHT
56. As stated earlier, under an economic and monetary union there would be total and irreversible convertibility of Community currencies at fixed rates, or more probably a single Community currency. It is possible to assume that a common European currency (ECU) would initially appreciate against currencies outside the European Monetary system, especially the united States dollar and the Japanese yen. An assumption which is based on the belief that the ECU may gain ground as a reserve currency, and a currency for international transactions. We can simulate the impact of an appreciation of a common European currency (against currencies outside the EMS), ranging from 5 to 15 percent, might have on the external debt of African countries. The exercise is purely illustrative. (see Tables I, 2, and 3)
57. A number of African countries debt is not only owed to countries of the EEC but significantly denominated in currencies of the EEC (Pound Sterling, Deutchemark, French Franc, Italian Lira etc.) and the ECU. Accordingly I the creation of a common European currency unit will have an impact on the debt outstanding of African countries. At a simplistic level we have assumed that fifty percent of the debt outstanding at the end of 1988 of the twenty countries covered by this study is denominated in EEC currencies (approximated by the ECU). This amount is equivalent to US$64.1 billion and converted into ECU at exchange rates prevaling at the end of 1991, amounts to nearly 55.2 billion.
58. On the assumption that the European currency unit (ECU) appreciates by nearly 5 percent against major currencies outside the EMS after 1992, the ECU-denominated debt of the tweny African countries would in us dollar terms increase and total debt outstanding of these countries would rise purely due exchange rate variations from U8$128.3 billion to US$131.5 billion (or 2.5 percent). Similarly, an appreciation of the ECU by 10 percent would increase the debt stock from US$128.3 billion to US$134.7 billion (5 percent). A 15 percent appreciation would result in a rise in the debt outstanding of these countries of 7.5 percent, from US$128.3 billion to US$137.9 billion (see Tables 1,2, and 3), Thus purely on the basis of exchange rates of the ECU vis-a-vis exchange rates of major currencies outside the EMS I Africa' s external debt burden could be aggravated by developments in the EMS.
59. This simple example demonstrates that through the creation of a common currency in the EEC, if it resulted in an initial appreciation of the BCU, the debt burden of African countries could be aggravated. At a national level, the analysis would have to be conducted in greater detail. It would have to involve analy~ing
the currencies in which a country's debt is denominated and the currencies in which it is serviced, the amount of interest changes on such debt, and the percentage of the debt which is denominated in BEC currencies and the European currency unit.
E/ECA/TRADE/91/29 Page 22
VII, CONCLUSIONS
60. Some conclussions can be drawn with respect to the effects on the economies of Anglophone countries as a result of the process of achieving greater integration of the European Monetary system.
First, it is safe to assume that a common European CUrrency would be at least as good or even stronger than individual currencies of the EEC. In this respect, it could provide an alternative to other convertible currencies and as a reserve currency. Second, as the completion of an internal market is achieved, each country will be less and less shielded from developments elsewhere in the community. Nonetheless, a number of obstacles still exist in the process of achieving an EMS. For instance, not all EEC states are members of the EMS and therefore the effects can not be predicted in totality as the situation may change in the long run.
Similarly, the fiscal policies of EEC members need to converge even closer for them to decide how to deal with third parties.
Finally, a European Monetary Fund has not yet been established.
It is difficult to pass judgement on how it will accomodate the current non-CFA zone African countries as oppossed to those in the CFA zone.
61. However, what can not be disproved 1s the fact that the above developments in the European Monetary System will have an impact on most African economies irrespect of their present status.
Developments in the EMS will affect Anglophone African countries in the determination of exchange rate regimes, the debt service capacity through its effects on interest rates, the conduct of monetary policy and the flow of international capital.
62. consequently, and given the rapid developments taking place in the EEC, and other regions of the world, Africa should also attempt to proceed in tandem with efforts at market and monetary integration rather than merely reacting to developments in the EEC's market and monetary integration process.
Country
EXTERNAL DEST OUTSTANDING Of SELECTED AfRICAN COUNTRIES AND SIMULATED ~ESUlTS Of AM AP?REC1ATIQH ~N THE
49,970.00 24,985.00 21,490.62 26,234.25
2,978.00 1,489.00 1,280.75 1,563.45
327.00 163.50 140.63 171.68
3,099.00 1,549.50 1,332.79 1,626.98
5,888.00 2,944.00 2,532.26 3,091.20
281.30 140.65 120.98 147.68
1,632.00 816.00 701.88 856.80
1,349.00 671.,.50 580.17 708.23
861.00 430.50 370.29 452.03
30,718.00 15,359.00 13,210.91 16,126.95
727.00 363.50 312.66 381.68
2,035.00 1,017.50 875.19 1,068.38
11,853.00 5,926.50 5,097.63 6,222.83
264.80 132.40 113.88 139.02
4,729.00 2,364.50 <,033.80 2,482.73
1,925.00 962.50 827.89 1,010.63
6,498.00 3,249.00 2,794.60 3,411.45
2,659.00 1,329.50 1,11,3.56 1,395.98
128,293.20 64,146.60 55,175.12 67,353.93
Total Oebt
E/ECA/TRADE/91/29
EXTERNAL DEBT OUTSTANDING OF SELECTED AFRICAN COUNTRIES AND SIMULATED RESULTS OF AN APPRECIATION IN TKE
49,970.00 24t985~OO 21,490.61 27,=.50
2,978.00 1,489.00 1,280.75 1,637.90
327.00 163.50 140.63 179.85
3,099.00 1,549.50 1,332.79 1,704.45
5,888.00 2,944.00 2,532.26 3,238.40
281.30 140.65 '20.98 154.72
1,632.00 816.00 701.88 897.60
1,349.00 674.50 580.17 741.95
861.00 430.50 370.29 473.55
30,718.00 15,359.CO 13,210.91 16,894.90
727.00 363.50 312.66 399.85
2,035.00 1,017.50 875.19 1,119.2S
11,853.00 5,926.50 5,097.63 6,519.15
264.80 132.40 113.88 145.64
4,729.00 2,364.50 2,033.80 2,600.95
1,925,00 962.50 827.89 1,058.75
6,498.00 3,249.00 2,794.60 3,5T.l.90
2,659.00 1,329.50 1,143.56 ',462.45
Totels 128,293.20 64,146.60 55,175.12 70,561.26 1341101.86
1/ The rate used to convert USS values to ECU is that which prevailed on August 2, 1991. 1 ECU = 1.626 USS
C04..l)try
EXTERNAL DEBT OUTSTANDING Of SElEcTED AfRICAN COUNTRIES ANO SIMULATEO RESULTS OF AH APPRECIATION IN THE
49,970.00 24,965.00 21,490.62 28,732.75
2,978.00 1,4&9.00 1,280.7"5 1,712.35
327.00 163.50 140.63 188.03
3,099.00 1,549.50 1,332.79 1,781.93
5,6Il8.00 2,944.00 2,532.26 3,385.60
281.30 140.65 120.98 161.7'1
1,632.00 816.00 701.88 938.40
1,349.00 674.50 580.17 m.67
861.00 430,50 370.29 495.08
30,718.00 15,359.00 13,210.91 17,662.85
n7.00 363.50 312.66 418.03
2,035.00 1,017.50 87"5.19 1,170.12
11,853.00 5,926.50 5,097.63 6,815.4&
264.80 132.40 113.88 152.26
4,729.00 2,36'<.50 2.033.80 2,719.18
1,925.00 %2.50 827.89 1,H16.88
6,498.00 3,249.00 2,794.60 3,736.35
2,659.00 1,329.50 1,143.56 1,528.93
Total Debt
Totels 128,293.20 64,146.60 55,17"5.12 1'3,768.59 137,915.19
1/ The rate used to convert US$ values to ECU is that which prev81led on August 2, 1991. 1 ECU = 1.626 US$