IMF: Gambian currency may be overvalued
http://www.africanews.com/site/IMF_Gambian_currency_may_be_overvalued/list_messages/41132

Posted on Monday 20 February 2012 -
10:28<http://www.africanews.com/site/list_message/37237#m37237>
Madi Njie, AfricaNews reporter in Serekunda, Gambia
*The International Monetary Fund has indicates that the local currency, the
Gambian Dalasi, may be overvalued by 17 percent. According to IMF report,
"a number of complementary approaches were adopted to assess whether the
Gambia's exchange rate is aligned with fundamentals.*

These alternative approaches proposed by the IMF Consultative Group on
Exchange Rate issues include the macroeconomic balance approach, the
external sustainability approach and equilibrium real exchange rate
approach.”

According to the report, the purchasing power parity approach was also
involved in the assessment, pointing out that these alternative approaches
produce somewhat different results.

“The macroeconomic balance approach suggests that the Dalasi may be
overvalued by 17 percent. The country’s underlying current account deficit
is 12 Percent of Gross Domestic Product (GDP). The underlying fundamental
driving this result is the large fiscal deficits in recent years.

Temporary factors such as Government’s financial external payments for a
large telecommunications project also played a role. With an estimated
current account norm of about 2 percent, roughly in line with estimates in
past assessments, a depreciation of 17 per cent would be needed to restore
sustainability.”

The report outlined that the external sustainability approach indicates an
overvaluation of 8½ percent.

The report published by Gambia local newspaper- Foroyaa, adds, “With an
underlying current account balance of 12 Percent of GDP, The Gambia’s long
run net foreign assets would be unsustainable at about -138 percent of GDP
in order to bring the NFA to a sustainable level of -70 percent of GDP,
that the exchange rate would require a depreciation of 8 ½ percent with a
corresponding current account deficit of 6 ½ percent of GDP”, the report
states.


-- 
-Laye
==============================
"With fair speech thou might have thy will,
With it thou might thy self spoil."
--The R.M


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