Recommendations
Devaluation
How do we deal with devaluation?
➀ Consider additional targeting and programming for import-dependent segments of the population
In short, people who depend the most in their livelihoods on imports will be most affected by the devaluation. Consider in particular the appropriateness and relevance of additional targeting of import-dependent segments of the population and / or market-support programming for key import-dependent value chains such as agricultural value chains. In terms of livelihoods and food security objectives, focus on supporting local food production that can substitute to imports as well as production that has export value (here again, in particular food production).
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➁ Review any contractual payments or programmatic value that is still defined in local currency
Usually, you will know in advance that an official devaluation is about to happen. You will also have signs leading to it such as an increasing discrepancy between the official exchange rate and its market value. As such, you will probably already have put into place mitigation measures related to depreciation. There is not much more than that that you need to worry about. If a planned devaluation is announced by the authorities, simply review any outstanding payments, contracts or programmatic value that would still be defined in local currency (though most of them should be at least pegged in a hard currency at this point). These are the documents that will need to be revised before the devaluation takes effect. You will also want to make sure that at the date of the devaluation (and in the days leading to it), you have as little outstanding balance on your accounts in local currency as possible.
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✚ Make sure you have also considered and adequately put in place the actions in the box below, which are meant to prepare you for devaluation contexts in the first place!
How do we prepare for devaluation?
If you are worried that a devaluation of the currency will happen in your context in the future, consider putting in place some of the following actions as preparedness measures.
➊ Understand key elements of the structure of the economy
If you expect a devaluation, you may want to anticipate who in the population will be most affected and decide whether to adapt your targeting accordingly. This includes understanding the level of import/export dependency of various segments of population (which is indicative of how prices / purchasing power will be affected when devaluation happens).
#programs