By Sanna Camara
The IMF has said that the directive fixing forex rates has worsened the shortage of foreign exchange and its volume of transactions on formal market substantially declined (by about 60%).
According to the IMF Resident Representative in The Gambia, this directive remains in force, despite being counterproductive [to the economy]. “On monthly change basis, food prices going up,” the rep said.
In a briefing on ‘Recent Economic Developments and Outlook Outreach Session’ with the GCCI Membership today, Mr. Gaston K. Mpatswe told members of the country’s private sector that the purpose for which the directive was meant to control have not been realized anyway.
“No reduction of food prices observed. Year-on-year inflation edged down a little bit – but it was because of lower base at same period in 2014. Weekly transactions averaged US$27 million before; now about US$11 million equivalent,” he said.
Because of loss of revenue on foreign currency commissions, and accounting loss from revaluation of its holdings, banks have also been experiencing losses.
The exchange rate of the Dalasi to the US Dollar also grew high at GMD45 to 48 per US$ range, which is high than rate fixed by directive. Forex transactions reportedly increased on the parallel market, albeit volume unknown, the businessmen were told.
Expected budget supports from multilateral partners have not also been forthcoming: “World Bank was finalizing its approval of US$5 million in budget support. This was immediately suspended after the forex directive. African Development Bank also postponed its budget support of US$4.5 million.”
Reserves of the Central Bank were also depleting: Gross international reserves (GIR) stood at US$112 million at end-2014 (3.7 months import coverage). These were slightly below 3 months of next year’s projected imports by early September. Net International Reserves (NIR) at US$38 million as of the week ending September 18, 2015.
“Central Bank of The Gambia was unable to purchase forex to rebuild reserves even when forex was available because of overvalued rates,” Mpatswe said.
The counterproductive impacts extend to the government too: “Loss on import duties because of lower Dalasi value… With donors’ support not forthcoming and continuing fiscal slippages, net domestic borrowing is rising at GMD 1.8 billion as of Sept 18 or 4.7% the projected 2015 GDP.”
The end-year target of 1% committed-to under the 2015 budget, even after adjusting for shortfalls of budget supports, has also gone off-track.
Therefore, the IMF calls for the lifting of the Directive, urging The Gambia government to focus on the fundamentals of the economy.
(Pic Faturadio)