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.
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| 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.
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.
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| 5, 10, 25, 50 butut coins (Photo credit: Wikipedia) |
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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