|
Momodou
Denmark
11735 Posts |
 Posted - 18 Jan 2008 : 21:22:17
|
Foroyaa Editorial
Monetary Policy Committee Issues Press Release
Clarification still needed
On the 11 of January, 2008, the Monetary Policy Committee of the Central Bank issued a Press Release. Foroyaa expected the monetary committee to explain the turbulence in the international financial markets and the lesson to be learned for the benefit of the domestic financial market. The committee simply mentioned that there is
lower than expected growth in output which it attributes to a number of factors including “turbulence in the financial markets, surging oil and commodity prices and increasing risks from disorderly unwinding of global imbalances.”
The impact it could assess so far is its claim that “Inflationary pressures rose in many countries driven by rising food and energy prices increasing the risk of imported inflation in The Gambia.”
The Monetary Policy Committee then proceeded to examine the growth rate, money supply, public finances, inflation, the inter bank market, the domestic debt, the reserves of the banks and the exchange rate of the currency.
Foroyaa would like to recall the policy indicated by the secretary of state for finance that: “monetary policy in 2007 focuses primarily at achieving the inflation target of 5 percent by end-December 2007, maintains a viable external position, a stable exchange rate, and also sustains economic growth for increased employment and poverty reduction.”
The Press Release indicated that there was growth averaged at “6.4 per cent in real terms between 2003 and 2006. In 2007, GDP growth is estimated at 6.9 per cent supported by 11.3 per cent increase in value-added of the services sector.”
However the committee made no mention of the statistics which indicate growth in employment or reduction in poverty which should be the resultant of meaningful growth.
We hope the Central bank will do its investigation and give us accurate record on how growth in GDP is impacting on employment and poverty, otherwise we cannot assess the success or failure of Government’s monetary policy on this score.
Secondly, the Committee did deal with inflation. It states that: “according to the National Consumer Price Index, end-period headline inflation was 6.02 per cent at end-December 2007 compared to 0.42 per cent in December 2006. Food price inflation accelerated from 0.25 per cent to 9.46 per cent in December 2007.
Non food prices, on the other hand, increased by only 1.55 per cent. Coreinflation which excludes prices of energy and volatile food items also accelerated from 0.82 per cent in December 2006 to 6.02 per cent at end December 2007.”
The committee could not predict the inflationary trend. It simply acknowledges the risk of imported inflation. Hence the inflationary trend is still hanging on the wings of blind circumstances.
In terms of the exchange rate the Monetary Policy Committee release states:
“As at end-December 2007, the Dalasi appreciated in nominal terms by 19.60 per cent, 9.30 per cent and 17.5 per cent against the Dollar, Euro and Pound Sterling respectively from the corresponding period in 2006. Looking ahead, the Dalasi is forecast to remain stable in the medium-term premised on continued implementation of prudent monetary and fiscal policies, increased foreign currency inflows and the likelihood of reduced demand for foreign exchange by Government in light of the HIPC and MDRI debt relief.”
If the figures given by the monetary committee regarding the appreciation of the Dalasi as end December, 2007 are compared to that of the SOS for finance which covers October 2007 it would appear that the dalasi is depreciating instead of appreciating.
The Monetary Committee needs to clarify. In short, in his budget speech the SOS indicated that “On October, 30, 2007, the Dalasi appreciated to a four-year record high against the US dollar, Pound Sterling, Euro and CFA franc by 30.6 percent, 23.0 percent, 22.9 percent, and 16.2 percent respectively. Looking ahead, the Dalasi is projected to be relatively strong in the medium term. This is based on the continued pursuance of prudent fiscal and monetary policies, increased foreign exchange”
What we expected the Monetary committee to explain are the factors which gave rise to the following remarks by the SOS for finance: “During the recent months of the dalasi appreciation, our commercial banks displayed inconceivable and unimaginable greed, and conducted foreign currency transactions in a manner that is unprofessional, unethical, and unwarranted. The banks have behaved inappropriately, and the inappropriate and unacceptable practices must cease, and must never be repeated again.”
Apparently the public is still in the dark.
Finally what is of major concern to us is the growing volume of Inter bank trade in foreign currency without any visible complementary growth in investment in the productive base of the economy. According to the committee, in terms of trade in foreign currency “ in the year to end-November 2007, transaction volumes
increased to D36.5 billion, or 9.4 per cent from a year ago reflecting strong inflows from inward remittances, travel income, foreign direct investment and re-exports.”
However, investments went as follows: “The industry’s assets rose to D10.0 billion in November 2007, or 3.4 per cent from end-September 2007. Private sector credit increased from D2.5 billion in November 2006 to D2.7 billion in November 2007 representing a modest increase of 5.1 per cent. However, the high ratio of non-performing loans to total loans of 13.1 per cent in September 2007 remains a cause for concern”
Two things should be of major concern to the monetary committee. One of these is the domestic debt. According to the committee, “as at end-November 2007, the stock of domestic debt declined to D5.6 billion, or 3.8 per cent from end September 2007. The maturity structure of Treasury bills, which accounts for 84.7 per cent of the debt stock, continued to move from the short to the long end. At end-November 2007, 364 days bills, 182 days bills and 91 days bills accounted for 87.67 per cent, 25.47 per cent and 81.23 per cent of outstanding Treasury bills. The yield of the 91-day and 182-day bills declined to 10.5 per cent and 11.6 per cent in November 2007 from 11.1 per cent and 12.2 per cent respectively in September 2007. However, the 364-day bill rose slightly to 12.9 per cent from 12.7 per cent in September 2007.”
It means that government has a domestic debt of 5.6 billion. How this money is to be paid and utilised will impact on the monetary system and the economy. It may be converted into foreign exchange and sent abroad for security. It may be utilised to speculate in the currency market. The committee should study and find out how money from the payment of domestic debts is utilised. Is it going to the productive base?
Finally, it is also important to know what banks are relying on to sustain their profitability. Is it simply on the foreign exchange market or do they have other products?
What happens if debt relief leads to reduction of purchase of foreign currency by government? Is the absorptive capacity there for the private sector to keep the market operating? The committee needs to look at the different scenarios to avoid another exchange rate imbalance which stifles investor confidence.
Source: Foroyaa Newspaper Burning Issues
Issue No. 006/2008, 14 – 15 January 2008
|
A clear conscience fears no accusation - proverb from Sierra Leone |
|
Topic Locked
