Hyper-inflationary economies at 31 December 2022

David Baur Partner and Leader Corporate Reporting Services, PwC Switzerland 03 Jan 2023

What is the issue?

The IMF World Economic Outlook (‘WEO’) report released in October 2022 provides updated data in respect of current and projected levels of inflation. The most significant changes from the updates provided in April and October 2022 relate to:

Ethiopia, which has become hyper-inflationary in 2022; and
Sri Lanka, which although it is not hyper-inflationary in 2022, should be kept under review.

What is the impact and for whom?

Hyper-inflationary economies

The IMF WEO report shows that entities with the currency of the following countries as their functional currency should apply IAS 29 as at 31 December 2022:

Argentina
Ethiopia (new in 2022)
Iran
Lebanonⁱ
South Sudan
Sudan
Suriname
Turkey (new in 2022)
Venezuela
Yemen
Zimbabwe

All economies that were hyper-inflationary in 2021, continued to be hyper-inflationary in 2022. With the exception of South Sudan, the projected three-year cumulative inflation of these economies is expected to continue to exceed 100% during 2023.

In addition, Turkey was considered to be a hyper-inflationary economy from 30 June 2022 and Ethiopia from 31 December 2022.

South Sudan

The IMF WEO Report from October 2022 shows that three-year cumulative inflation is expected to continue to exceed 100% at 31 December 2022 but is expected to decrease significantly below that threshold in 2023. South Sudan continues to remain a hyper-inflationary economy in 2022 but entities with the currency of South Sudan as their functional currency should closely monitor developments of inflation during 2023 to confirm whether it remains hyper-inflationary in 2023.

Turkey

The IMF WEO Report and the Turkish Statistical Institute (TURKSTAT) confirmed that the projected three-year cumulative inflation exceeded 100% at 30 June 2022, and that it is expected to increase to over 200% in 2023. Entities with the currency of Turkey as their functional currency should apply IAS 29 for periods ending on or after 30 June 2022 as if the economy had always been hyper-inflationary.

Ethiopia

The IMF WEO Report confirmed that the three-year cumulative inflation will be 100% by 31 December 2022 and is expected to increase to 126% by the end of 2023. Local actual data (provided by the Central Statistics Agencyⁱⁱ⁾shows that the three-year cumulative inflation is 109% at 30 September 2022. Given the high level of inflation during 2022 and that the three-year cumulative inflation rate exceeds 100% in 2022, entities with the currency of Ethiopia as a functional currency should apply IAS 29 for periods ending on or after 31 December 2022.

To be kept under review in 2023

The following economies are not hyper-inflationary, but they should be kept under review in 2023:

Angola;
Ghana (new in 2022);
Haiti;
Moldova (new in 2022);
Sierra Leone (new in 2022); and
Sri Lanka (new in 2022).

For all countries other than Sri Lanka, IMF data shows the three-year cumulative inflation for these economies to be between 49% and 86% in the current year. The projections indicate that the three-year cumulative inflation will not exceed 90% for any of these economies in 2023.

Sri Lanka

IMF data shows that three-year cumulative inflation is expected to be below 100% in 2022. Local data provided by the Central Bank of Sri Lanka shows that the three-year cumulative inflation is 85.68% for Colombo CPI and 94.77% for National CPI (both as of 31 October 2022) and will not exceed 100% by the end of 2022. The local data also shows a decreasing trend in inflation since July 2022 and negative Colombo CPI in October 2022.

Based on these projections and trends, as well as consideration of the qualitative factors in IAS 29, Sri Lanka is not considered to be a hyper-inflationary economy in 2022. Given that inflation remains high, entities with the currency of Sri Lanka as their functional currency should monitor developments in inflation during 2023.

Other potentially hyper-inflationary economies (lack of reliable information)

Consistent and reliable inflation data is not available for the following countries:

Afghanistan;
Syrian Arab Republic; and
Ukraine.

Afghanistan

Since August 2021, Afghanistan has experienced a significant economic crisis. The October 2022 IMF WEO Report did not provide any estimates for 2021 and beyond. Consistent and reliable inflation data for Afghanistan is not available at 31 December 2022. Entities with the currency of Afghanistan as their functional currency should consider the information available at 31 December 2022 and, thereafter, determine whether IAS 29 is applicable.

Syrian Arab Republic

Consistent and reliable inflation data for Syria is not available. However, European Union and United Nations trade sanctions remain in force. The information that is available, including some local data, suggests that Syria might be a hyper-inflationary economy in 2022. Entities with the currency of Syria as their functional currency should consider the information available at 31 December 2022, to determine whether IAS 29 is applicable.

Ukraine

The level of inflation projections for 2023–2027 are omitted in the October 2022 IMF WEO Report due to an unusually high degree of uncertainty. Local data is provided by the National Bank of Ukraineⁱⁱⁱ⁾ . Entities with the currency of Ukraine as their functional currency should consider the information available at the reporting date, to determine whether IAS 29 is applicable.

When does it apply?

Paragraph 4 of IAS 29 states that it is preferable for all entities that report in the currency of a hyper-inflationary economy to apply the standard at the same date; and the standard should be applied as if the economy had always been hyper-inflationary.

^{i) Although inflation projections are no longer published by the IMF, the recent local actual data at August 2022 (provided by the Central Administration of Statistics, www.cas.gov.lb) shows that three-year cumulative inflation is expected to remain significantly above 100% at 31 December 2022.}_{ii) Central Statistics Agency. www.statsethiopia.gov.et.

iii) National Bank of Ukraine, https://bank.gov.ua/.}

Contact us

David Baur

Partner and Leader Corporate Reporting Services, PwC Switzerland

Tel: +41 58 792 26 54