Nigeria’s money and capital markets still lack the depth of lifting  the economy out of the doldrums, the International Monetary Fund (IMF) has said.

Also in the league of markets with shallow profit, according to IMF are most of the other sub-Saharan African countries, despite reports of reforms in the respective economies.

IMF, in a recently released report, noted that the domestic money and capital markets in Nigeria and most sub-Saharan African countries remain underdeveloped and shallow offering mostly short term instruments.

According, stock market capitalisation remains low, while private securities markets are largely underdeveloped.

The IMF stated that the shallowness and lack of versality of hedging instruments in African financial markets likely accentuated short-term exchange rate movements.

Therefore, foreign exchange markets offers a limited array of forward hedging instruments, reflecting a part the concentration of foreign exchange receipts in the hands of the public sector, through aid or commodity exports.

Nabil Ben Ltaifa, Stella Kaendera and Shiv Dixit of the African Development IMF, in their submission, “Impact of the Global Financial Crisis on Exchange Rates and Policies in Sub-Saharan Africa” observed that the currencies of many sub-Saharan African countries, like those of many emerging and developing economies, offered large depreciation with onset of the global financial crisis.

Nigeria’s currency, as one of the countries under study, was said to depreciate by at least 20 per cent between June and March 2009.

After April 1, 2009, while some currencies reversed their depreciating trend with respect to the United States dollar, the Nigerian Naira continued almost unchanged.

Although, while in most countries above-trend inflation mitigated the real effect of nominal depreciation, Nigeria registered a significant (over five per cent) real depreciation in its currency over the whole period.

The trio observed that exchange rate volatility increased significantly compared to the pre-crisis period.

Volatility was generally higher with respect to the United States dollar but broadly less vis-à-vis the euro. The naira experienced significant increases in the volatility with respect to the three major currencies.

In contrast, the Rwandan and Tanzanian currencies displayed similar or lesser volatility before the crisis with respect to the U.S. dollar.

Talking about the factors that affected the value of exchange rates, the experts noted that the first factors were external, reflecting the transmission of the global crisis through the trade and financial channels as well as the volatility of the U.S, the main international reserve currency.

“The impact was commensurate with the extent and nature of each country’s exposure to trade and global financial markets. At the same time, domestic policies played a role in shaping the nature and magnitude of the impact,” they said.

Concerning the external environment, the IMF officials observed that trade had, as expected, an adverse impact on the region’s currencies, but that the magnitude of this impact seems to have varied significantly across countries.

According to them terms-of-trade movements were likely the main factor underlying movements in the exchange rates of Nigeria and Zambia, the two large commodity exporters in the sample.

Conversely, the rebound in copper and oil prices in the later part of the period supported the recovery of the Zambian Kwacha and a stabilisation of the naira.

The IMF officials also attributed policy choices of countries to the depreciation of their currencies.

Nigeria operated a managed floating system, which tended to depreciate more, the economy consequently, registered large depreciation, reflecting the limit of currency management in the face of large charges in the external environment.

It was observed that the domestic policy mix adopted in response to the external crisis also played a role in explaining exchange rate dynamics.

According to them, most countries in the sample intervened in their foreign exchange markets in an effort to stem the shock to their currencies.

\however, they said, managed floating regime like Nigeria intervened in a more regular and extensive manner to halt the depreciation.

“As a result, nominal exchange rates in these countries have tended to be more stable. But intervention by the Nigeria’s Central Bank was however, unsuccessful in preventing a large step depreciation of the currency by the end of 2008, in the large turnaround in trade and capital flows.