Somaliland Central Bank to Set the Exchange Rate

Sunday April 15, 2018
By Liban Ahmad

Policies the Somaliland government has adopted under President Bihi turn analysts’ attention to what Hargeisa looks upon as external threats. Those challenges range from a sovereignty dispute with Mogadishu to a territorial dispute with Puntland.

It is easy to regard the economic policy of Somaliland government as a continuation of the ruling party’s policies under President Silanyo. Inflation poses a challenge to Somaliland economy. The previous government regulated mobile money transactions to deal with inflation.

The current government has taken   a further step to set the exchange rate but has not publicised it. Telesom Managing Director, Abdikarim Mohamed Idd, told BBC that “Somaliland Central Bank will set the daily exchange rate for money changers.” It is not clear whether the monetary policy affects only money changers using the new Telesom mobile exchange platform.

The government-set exchange rate will unlikely make the parallel exchange rate cease to exist. If anything, the new monetary policy shows how President Bihi has turned his back on free market economy. The Somaliland Central Bank does not control the hard currency in circulation in Somaliland. How will the government be able to set the exchange rate for money changers without colluding with some businesses?

There are lessons to learn from the expediently adopted economic policies of the last military government of Somalia. In 1986 the former military regime gave in to IMF pressures, abandoned national development plans to adopt Structural Adjustment Program. The late Somaliland President, Egal, then Chairman of the Chamber of Commerce, argued the IMF initiative could   “sap the Somali economy”.

In January 1986 one hundred   Somali Shillings bought one US Dollar. After the IMF-mandated hard currency auction, 3000 Somali Shillings bought one US dollar. Although the government had introduced economic liberalisation the Ministry of Finance set the price of rice, sugar and wheat flour. The government intervention forced wholesalers to hoard their commodities.

Wholesalers used to buy hard currency in the black market to import goods. There was no way wholesalers could offset shortfall in revenues caused by auctioning of the hard currency. Neither the Central Bank nor Commercial and Savings Bank had hard currency reserves importers could have bought. The only option open to wholesalers was to raise prices of rice, sugar and wheat flour, a move the government opposed. Relaxing of government regulation of businesses led to the creation of new businesses in an environment without fair competition. Economic liberalisation paved the way for crony capitalism. To do something about declining government revenues the government created a Ministry of Revenues. It sent tax bills to businesses for profits made prior years in a country without accounting standards for income or corporate tax.

The Somaliland government might be repeating the economic mismanagement Somalis experienced under a military regime if the Central Bank sets the exchange rate. Somaliland Central Bank authorities haven't explained why the bank usurped the role of the market. Ahmed Saeed Egeh, the BBC stringer in Hargeisa, asked a money changer if money in his Telesom account was “ air money or banknotes”.

The World Bank report, Somaliland’s Private Sector at a Crossroads, lauded Somaliland for resilience and vibrancy but spotlighted threats to the polity thus: “At present, Somaliland’s government is vulnerable to capture by private sector interests, which constrains its ability to take policy actions for the public good. As pressure mounts for passage of key legislation to promote good economic governance, interest groups with a stake in the status quo will work to block reform.”

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