First Deputy Governor of the Bank of Ghana (BoG), Dr Zakari Mumuni, has said that global liquidity matters because it is the connective tissue of the world economy.
He says it determines how easily capital moves across borders, how governments finance development, how firms access credit, and how financial systems absorb shocks.
In today’s highly interconnected world, he said, liquidity conditions in one part of the global economy are rapidly transmitted across markets and jurisdictions.
For emerging and frontier economies, he said, these developments carry important implications.
Dr Zakari Mumuni said that global liquidity cycles directly affect exchange rates, reserve adequacy, debt sustainability, refinancing conditions, and financial stability.
When liquidity conditions are favourable, he said, capital flows into emerging markets increase. But when conditions tighten, those same flows can reverse abruptly, often with significant macroeconomic consequences.
“This reality highlights one important lesson: emerging markets must not only attract capital during favourable periods but must also build the resilience necessary to withstand periods of financial tightening and external shocks.
“The challenge for emerging economies today is no longer simply about access to external financing. The more important challenge is ensuring that our institutions, markets, and policy frameworks are strong enough to absorb volatility when global conditions deteriorate,” he said during the ACI FMA Congress in Accra.
He added “This is particularly important because the nature of external financing to emerging economies has evolved considerably over time. Beyond traditional bank lending, financing now increasingly comes through portfolio flows, bond markets, foreign direct investment, remittances, and non-bank financial institutions.”
He further while this diversification creates opportunities, it also increases exposure to external vulnerabilities.
Portfolio flows and short-term investments can reverse quickly during periods of uncertainty.
At the same time, global financial markets have become increasingly sensitive to geopolitical developments and shifts in investor sentiment, he said.
Source:3news.com