ABSTRACT
The exchange rate is one of the key variables in the management of the economy. Many methods are employed in the determination of exchange rate but the simplest one, easy to understand, despite its admitted weaknesses, is the purchasing power parity. Economic management in Africa included stringent trade and exchange control practices such as restrictions on payment for imports, and invisible and capital transfers. Exchange rate distortion can have an impact on incentives especially prices. Policies to improve incentives to the producers of tradeables require that the ratio be kept low by maintaining low costs of production in non-tradeable good sector, reducing trade taxes and increasing trade subsidies. Most Sub-Saharan African countries in the 1970s developed unsustainable financial imbalances in their economies and were compelled to implement macroeconomic policy reforms. Structural policies to stimulate supply generally aimed at improving the efficiency of resource allocation and increasing the level or rate of growth of capacity output in the economy.
