Impact of exchange rate fluctuation on food security in Rwanda

Abstract

This study investigates the impact of exchange rate fluctuations on food security in Rwanda, focusing on the short-term and long-term effects on key food security indicators, including unemployment and interest rates. Using panel data analysis from 1990 to 2022, the research reveals that exchange rate volatility significantly influences food security, particularly through its effects on unemployment and interest rates. The findings highlight that a depreciating exchange rate exacerbates food insecurity by increasing the cost of food imports, raising interest rates, and reducing household purchasing power due to higher unemployment. The analysis underscores the need for policy interventions to stabilize the exchange rate, enhance domestic agricultural production, and strengthen the resilience of the financial sector. Recommendations include maintaining exchange rate stability through targeted monetary and fiscal policies, investing in agricultural infrastructure to boost domestic food production, and implementing social protection programs to mitigate the adverse effects of unemployment on food security. Additionally, the study advocates for ongoing research and monitoring to inform policy decisions and adapt to evolving economic conditions. By addressing these critical areas, Rwanda can mitigate the negative impacts of exchange rate fluctuations on food security, ensuring a more stable and secure food supply for its population. The study contributes to the broader understanding of the complex relationship between macroeconomic variables and food security in developing countries, offering practical solutions for policymakers to enhance food security in the context of exchange rate volatility.