The First Deputy Governor of the Bank of Ghana, Dr. Zakari Mumuni, has cautioned that fluctuations in global liquidity remain a major source of vulnerability for emerging and frontier economies, stressing the need for stronger institutions and resilient policy frameworks to withstand external financial shocks.
Speaking at the ACI FMA Congress in Accra, Dr. Mumuni described global liquidity as the “connective tissue” of the world economy, influencing the movement of capital across borders, governments’ ability to finance development projects, businesses’ access to credit, and the capacity of financial systems to absorb economic shocks.
According to him, the increasing interconnectedness of global financial markets means that liquidity conditions in one part of the world can quickly affect economies elsewhere, creating both opportunities and risks for developing countries.
He noted that changes in global liquidity cycles have direct implications for exchange rates, foreign reserve levels, debt sustainability, refinancing conditions and overall financial stability in emerging markets.
“When global liquidity conditions are favourable, capital inflows into emerging economies tend to increase, supporting investment and growth.
However, when financial conditions tighten, those same capital flows can reverse abruptly, often triggering significant macroeconomic challenges,” he said.
Dr. Mumuni emphasised that attracting foreign capital alone is no longer sufficient for emerging economies seeking sustainable growth.
Instead, governments must focus on strengthening economic institutions and building resilience against periods of financial stress.
“One of the key lessons from recent global financial developments is that countries must prepare not only to benefit from periods of abundant liquidity but also to withstand episodes of tightening financial conditions and external shocks,” he stated.
He explained that the challenge confronting emerging economies today extends beyond securing access to international financing.
More importantly, policymakers must ensure that domestic institutions, financial markets and regulatory frameworks are capable of managing volatility when global economic conditions deteriorate.
Dr. Mumuni further observed that the sources of external financing available to developing economies have evolved significantly over the years.
While traditional bank lending remains important, countries now increasingly rely on portfolio investments, international bond markets, foreign direct investment, remittance inflows and financing from non-bank financial institutions.
He said this diversification has expanded financing opportunities for governments and businesses, but it has also heightened exposure to external vulnerabilities.
“Portfolio flows and short-term investments can leave as quickly as they arrive during periods of uncertainty, creating pressure on exchange rates, reserves and domestic financial markets,” he noted.
The Deputy Governor also pointed to rising geopolitical tensions and shifts in global investor sentiment as factors that have made international financial markets more sensitive and unpredictable.
He warned that sudden changes in investor confidence can amplify the impact of global liquidity shocks, making it more difficult for emerging economies to maintain financial stability and sustain economic growth.
Dr. Mumuni therefore called for stronger macroeconomic management, prudent debt policies and deeper domestic financial markets to help reduce exposure to external risks and improve resilience in an increasingly volatile global financial environment.
He stressed that building robust institutions and maintaining sound economic policies would be critical for emerging economies seeking to navigate future liquidity cycles and safeguard long-term development objectives.
