SIDRA Calls on Mogadishu to Rein in Currency Depreciation in Puntland

[Deeq A.]

Garowe (PP News Desk) — The currency depreciation in Puntland continues to create a headache for the incumbent administration led by Said Abdullahi Deni. A paper published by SIDRA, a Garowe-based think tank, outlines the causes of the monetary problem, its impact on the Somali shilling, and suggests solutions.

SIDRA researchers interviewed 128 respondents. 77% of them said they get paid in dollars; 31% in Somali shilling. The paper did not specify wheteher respondents are public or private sector employees, or labourers in the informal economy.

SIDRA urges the Federal Government to help Puntland effectively deal with currency depreciation.

SIDRA states that Puntland opted out of the pre-1991 Somali shilling system to print its own version of the Somali shilling. President Deni’s predecessor, Dr Abdiweli Mohamed Ali, an economist and a former professor, resumed unfettered money-printing scheme that flooded the market with Somali shilling.

President Deni candidly spoke about challenges facing his government to deal with currency depreciation. “We have instituted a policy to enable citizens to buy dollars but we have heard that money changers can buy dollar but do not sell dollars to customers with the Somali shilling. There are at least four machines used to print money in Puntland” said President Deni to highlight the illegal money printing trend.

Anatomy of inflation in Puntland

The depreciataion of the Somali shilling manifests itself in price increases. Price data based on the Somali shilling collected by SIDRA between August and October 2020 reflects the severity of the inflation in Puntland. The price of a piece of meat increased by 34%; 1 kg of tomatoes rose by 7%; 1 kg of potatoes spiked by 70%; one piece of banana  increased by 120%; 1 littre of edible oil jumped by 30%; 25 kg of wheat flour rose by 29%, and 25 kg of sugar increased by 28%.

The impact of inflation cannot be underestimated given the role of the informal economy. Labourers get paid in Somali shilling. Their purchasing power gets weakened whenever the Somali shilling depreciates against the dollar. A nomad who, before inflation, was able to exchange his Somali shillings for dollars, cannot have the privilege to do so now that money changers do not accept the Somali shilling to sell dollars. The nomadic classes of Puntland, who contribute to the local economy, face hardships while business classes remain oblivious to the sources of meat and meat, and refuse to use the Somali shilling for transactions.

President Deni’s speech on taxation policy and illegal money printing in Puntland.

Inflation in Puntland is partly driven by the exchange rate. When the shilling depreciates traders adjust prices to the corresponding rise in the exchange rate. This type of inflation affects only consumers who use the Somali shilling.

“Commodity prices are pegged to the US dollar in Somalia. We have not seen changes in the commodity prices in US dollars terms. It is safe to say that there is no inflationary pressure in Puntland at the moment and this assertion is supported by the monthly consumer price index (CPI) from Puntland Statistics Department and World Bank Somalia economic projections” Professor Mohamed Said Samantar, Senior Economist and Executive Director of SIDRA, says.

“Somalia’s international partners and international financial institutions such as the World Bank and IMF could support the FGS and Puntland State to stabilise the exchange rate, avert inflation and effectively manage fiscal and monetary policies” writes SIDRA.

President Deni: “There are four machines used to print money in Puntland.”

Any monetary policy of the Federal Government of Somalia will face hurdles in Puntland due to separate monetary policies. The Somali shilling used in other parts of southern Somalia has not comparatively undergone drastic depreciation. Money printing schemes that began during the reign of warlords had come to an end in 2006, just before the former Union of Islamic Courts defeated warlords.

Successive Somali governments have explored the possibility to print Somali shilling but efforts to introduce a new monetary policy have not materialised. There is a a limit to what the Federal Government of Somalia can do about currency depreciation in Puntland as long as political leaders in the Federal Member State remain reluctant to deal with the source of the problem and subsequent inflation.

President Deni had justified his government’s decision to collect import-export duty only in dollars on grounds that “only Puntland Government uses the Somali shilling for transactions” despite instructions to businesses to accept the Somali shilling.

“Puntland Government is preaching what it does not practise  as far as the use of the Somali shilling for transactions is concerned” a businessman in Garowe told Puntland Post.

© Puntland Post, 2020

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