IMF calls for uplifting of directive on forex

Thursday, October 08, 2015
The International Monetary Fund (IMF) has reiterated its advice and recommendation that the Gambia government rescinds its decision of imposing a directive on foreign exchange operations in the country.

The directive has already damaged the near-term outlook and increased vulnerabilities in the economy, it said.

This advice by the Fund was yesterday re-emphasised by the IMF country representative in The Gambia, Gaston Mpatswe, at a one-day forum held at the Kairaba Beach Hotel, organized by the Gambia Chamber of Commerce and Industry (GCCI) in collaboration with the IMF country office in Banjul.

The forum brought together members of the private sector, including banks, shipping companies, hoteliers, import and export firms, agro-businesses and other enterprises in the country.

In early May 2015, “the President’s office issued a directive imposing an exchange rate overvalued by more than 20 per cent” compared to the prevailing market rates, which the Fund staff assessed to be broadly in equilibrium.

The imposition of the exchange rate directive has “already damaged the near-term outlook and increased vulnerabilities” in the economy of the country, stated the IMF’s latest report on The Gambia after it concluded the Article IV consultation with the country on 18 September this year.

Since mid-April this year, major policy slippages have re-emerged, “worsening considerably” the economic outlook of the country, the report stated.

The directive in fixing forex rates has been counterproductive, said Mr Mpatswe while briefing members of the private sector about the IMF report and the current state of the Gambian economy.

He said the directive has also not brought about any reduction of food prices; rather it has impacted negatively on the forex market and the banking system in the country, to the benefit and expansion of the parallel market.

Furthermore, he noted, international or external budget support had not been forthcoming as a result of the policy slippages over the recent months and year.

He also said the fiscal position too has deteriorated significantly since mid-April, while inflationary pressures and T-bill rates have increased, reflecting the inconsistent macroeconomic policies.

“Furthermore, the gross international reserves’ import coverage is expected to remain below three months until end-2015 even with strong near-term corrective policy actions,” he quoted the IMF report stating, adding that The Gambia’s eroded policy buffers have significantly increased its vulnerability.

“In the event that the directive is not immediately rescinded and the fiscal slippages are left unaddressed, The Gambia’s external viability and fiscal sustainability will be put at grave risk,” the IMF report presented by Mr Mpatswe stated.

In the absence of urgent corrective action, he further noted, the social progress made in recent years would also be “under threat”.

“It is crucial that the recent exchange rate directive is rescinded immediately, and The Gambia returns to a flexible exchange rate policy,” he advised.

The findings and observations on the impacts of the policy directive on forex by the IMF report, as presented by its representative in The Gambia, were largely substantiated by many members of the private sector, who also challenged some aspects of the report.

Some members of the private sector explained how the volume of forex going through the formal system has “dropped significantly”, as well as affected both national and international transactions since the directive was issued.

The IMF report’s position as regards the forex situation in the country is that the recent exchange rate is “rescinded immediately” and The Gambia return to a “flexible exchange rate policy”.

The forum was chaired by the GCCI CEO, Alieu Secka, who stated that GCCI would continue to intensify its engagement with the government, through the Finance and Trade ministries, as well as through public sector institutions such as the Gambia Investment and Export Promotion Agency (GIEPA).

Author: Adam Jobe and Osman Kargbo
Source: Picture: IMF country rep Gaston Mpatswe