Monday, September 16, 2013

Prolonged overvalued exchange rate would damage Gambia’s international competitiveness - IMF warns


The warning came at the back of several Gambia Government directives that downgraded foreign currency exchange rates, impose a moratorium on the shipment of the dollar, suspension of money operators, seizure of financial bureau licences, and arrests and detention of forex bureau staff – amid a continuous decline in value of the local currency, the Dalasi. (Photo Credit: Bloomberg)
Prolonged overvalued exchange rate would risk damaging The Gambia’s international competitiveness, the International Monetary Fund, IMF, warns on Friday.

It noted that recent exchange rate directives have “disrupted the foreign exchange market, encouraged capital flight, and dampened remittances from abroad”.

The warning came at the back of several Gambia Government directives that downgraded foreign currency exchange rates, impose a moratorium on the shipment of the dollar, suspension of money operators, seizure of financial bureau licences, and arrests and detention of forex bureau staff – amid a continuous decline in value of the local currency, the Dalasi.

Now, the IMF urges the authorities to maintain a flexible exchange rate policy, which has served The Gambia well, and to tighten monetary and fiscal policies to ensure stability and preserve adequate reserve levels.

50 dalasi note
50 dalasi note (Photo credit: Wikipedia)
The Executive Board of the Bretton woods institution which concluded its 2013Article IV Consultation with The Gambia on September 11, expressed concern that recent fiscal slippages and inconsistent policies have increased risks and vulnerabilities.

A return to the path envisaged by the government’s Programme for Accelerated Growth and Employment (PAGE) is needed to regain stability and foster inclusive growth, it observed.

The West African country’s economy is still recovering from the 2011 drought that culminated in a food and hunger crisis which has slowly dropped.

Also, the IMF has observed that “large fiscal deficits, financed mostly by domestic borrowing, have added to the government’s heavy debt burden”.

 It noted that interest on debt has consumed a rising share of government resources in recent years, reaching 22½ per cent (%) of government revenues in 2012, most of which was paid on domestic debt – though the PAGE which was launched two years ago aims to gradually reduce the fiscal deficit and ease its heavy debt burden.

Therefore, IMF’s Executive Board is of the view that undertaking the strong fiscal adjustment outlined in the PAGE would reduce domestic borrowing needs and the cost and risks of the heavy public debt burden.

Meanwhile, the IMF noted that despite near-term uncertainties, the medium-term outlook for growth is generally favorable.

5, 10, 25, 50 butut coins
5, 10, 25, 50 butut coins (Photo credit: Wikipedia)
Growth in real Gross Domestic Product, GDP, (the total value of goods and services that a country produces in a year) is expected to increase slightly to 6% in 2013, driven by a further recovery in agriculture.

Inflation has been rising, but is expected to fall back to around 5% a year over the medium term, as the Central Bank of The Gambia exercises monetary restraint, IMF said.

Under Article IV of the IMF's Articles of Agreement, the Fund holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies.


Written by Modou S. Joof
 
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