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November currency review

ECA International has just published its September 2018 Cost of Living Survey. Used by employers across the world to protect purchasing power of international staff, our surveys delve deep into the issues affecting expatriate cost of living, often revealing the real extent of difficulties which governments might prefer to keep hidden.

Turkmenistan provides a perfect example. It is a secretive country, with an autocratic government facing no real opposition and little press intrusion. A major gas supplier, its economy is inefficient, dominated by a narrow export base, and largely planned by an excessively controlling state.

According to the government, the only manat exchange rates to be countenanced are official ones, including against the dollar at roughly USD 1 / TMT 3.5. Official rates vary a little from day to day but essentially they are fixed. Despite denials, though, an illegal black market for foreign currencies also clearly exists, and is even occasionally mentioned in the press. However, it can be hard, especially for outsiders such as global mobility teams, to get a clear picture of black-market exchange rates and to know the extent to which they might be used by Turkmenistan's importers. The more importers have to rely on unofficial sources for their hard currencies, the more prices of imported goods (which expats tend to buy a lot of) will reflect the exchange rates they offer.

The cost of living picture is further clouded by a lack of official information about inflation. The Turkmenistan government, fearful no doubt of provoking dissatisfaction, only publishes inflation rates once a year. Its latest reported annual figure was 6.5%, but that came many months ago at the end of 2017. Even the IMF, usually a good source of general economic data, has been unable to publish its latest staff report on Turkmenistan after the government there refused to give its consent. The IMF's estimated inflation rate is 9.5% for 2018 but is almost certainly based on state guidance and seems way off the mark according to our information. 

It is very difficult to fairly review the pay of international workers if you have insufficient information on either inflation or relevant exchange rates. To be without both makes it a near impossibility; but help is at hand.

In 1971, when globalisation was taking off and expatriation of personnel was growing fast, ECA was launched out of a realisation that good information was extremely hard to find about many countries. Nearly 50 years later, despite technological advances such as the internet, that remains the same and the need for accurate data continues to grow. Among other methods to ensure we can provide it, ECA puts actual boots on the ground, worn by our unique team of International Data Researchers (IDRs).

Regularly visiting nearly every country in the world, our IDRs' fact-finding trips are always invaluable, but really come into their own with more secretive countries like Turkmenistan. There, collecting data for the September survey, our IDR discovered that black-market exchange rates were around USD 1 / TMT 19, far above not only the official rate of TMT 3.5 but also black-market rates of a year ago, which had been below TMT 8. Such rates of divergence only occur when there is great demand for hard currencies that isn't being met by official channels. So it was obvious that rumours of foreign-exchange shortages were correct (caused mainly by a drop in gas exports) and importers were indeed mainly using the black market. Furthermore, the halving of the manat's street value in less than 12 months suggested that inflation (especially of imported items) might be very high. Indeed, the prices collected by our IDR, when compared to those recorded a year before, confirmed this, showing a 50%-plus average increase (with most of the inflation coming in the last six months).

It isn't just weaker exchange rates stoking inflation, but also growing shortages of goods, including some staple foods, as noted again by our IDR. If importers can't get their hands on the currencies needed to purchase the goods, then gaps soon start to appear on shop shelves.

The upshot is that Turkmenistan is now the most expensive country in the world according to our latest cost of living rankings, having leapt 146 places higher this year. If the Ashgabat government has read our survey, it may just keep it to itself.

Countries experiencing largest currency losses in November
Country
Currency code Movement v EUR
5 Nov - 3 Dec 2018 (%)
Inflation
(%)
Argentina ARS -5 45.9
Brazil BRL -4 4.6

Having been two of the highest climbers in October, our old friends the Argentinian peso and Brazilian real returned to form this month and were the world's weakest currencies in November (see table above).

Countries experiencing largest currency gains in November
Country
Currency code Movement v EUR
5 Nov - 3 Dec 2018 (%)
Inflation
(%)
India INR +5 3.8
Indonesia IDR +5 2.9
Nepal NPR +5 4.7
South Africa (Lesotho, Namibia, Swaziland) ZAR +5 5.1
Turkey TRY +5 25.2

In recent blog posts we've highlighted significant developments which are creating cashless economies in countries experiencing particular difficulties, such as Venezuela and Zimbabwe. However, it isn't just developing countries where this is happening. South Korea has been planning since 2016 to become a cashless society by 2020, and reports from Sweden suggest that it is already nearly there. There are big advantages, but big issues too, explored here

The cost of living is set to rise in the new year in Bahrain, which has confirmed it will launch sales tax (VAT) at 5% in stages from 1 January 2019. It had originally planned to do this a year earlier alongside Saudi Arabia and United Arab Emirates. Kuwait, Oman and Qatar still expect to launch VAT later in 2019.

Finally, here is this month's selected currency movements table:

Selected currency movements (v EUR)
Country Currency code % movement to 3 December 2018 v EUR since: Latest official annual inflation (%)
    5/11/18
(1 month)
3/9/18
(3 months)
4/6/18
(6 months)
4/12/17
(12 months)
 
Argentina ARS -5 +4 -32 -52 45.9
Australia AUD +2 +4 -1 +1 1.9
Brazil BRL -4 +9 0 -13 4.6
Canada CAD -1 0 0 +1 2.2
Chile CLP +3 +4 -3 +1 2.9
China CNY 0 +1 -5 0 2.5
Egypt EGP 0 +2 +3 +3 17.7
India INR +5 +4 -1 -3 3.8
Indonesia IDR +5 +6 0 -1 2.9
Japan JPY 0 0 -1 +4 1.2
Kenya KES 0 +1 +2 +5 5.5
Korea Republic KRW 0 +2 -2 +1 1.9
Mexico MXN -1 -4 +1 -4 4.8
Nigeria NGN 0 +2 +2 +3 11.6
Norway NOK -2 0 -2 +1 3.1
Philippines PHP +2 +4 +3 +1 6.6
Poland PLN +1 0 0 -2 1.8
Russia RUB -1 +4 -4 -8 3.5
Singapore SGD +1 +2 0 +3 0.7
South Africa ZAR +5 +9 -6 +4 5.1
Sweden SEK 0 +3 0 -4 2.3
Switzerland CHF +1 -1 +2 +3 1.1
Turkey TRY +5 +23 -10 -26 25.2
United Kingdom GBP -1 +1 -1 -1 2.4
United States of America USD 0 +2 +3 +5 2.5
Venezuela VES -25 -27 -99 -99 833997
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