It’s been a while since I have updated you on the main economic indicators of the DRC. I guess I was expecting to come back to you with good news at some point but while I am still waiting for it to happen let’s have a look at the actual performance.
Let’s start with one of my favorites because of its impact on the other indicators, the exchange rate. Since the beginning of the year the local currency has lost 19% of its value against the US dollar! Since January the 1st, 2016 the currency has depreciated by 56% (while it was stable for 4 straight years before that)!!!
They are so many reasons that can explain this horrendous performance (commodities prices decrease, budget deficit, money creation, etc).
However, one of the reasons used last year by the former Prime Minister is not one of them! Indeed, the latter said last year that the main reason he has instructed the Central Bank of Congo (BCC) to stop refinancing the then 3rd largest bank of the country (leading to its quasi bankruptcy) was that this operation led to a depreciation of … 3%!
He was a bright man, therefore, all things being equal, you would expect that his decision would have had a positive impact of some sort on the exchange rate but since that decision and the resolution to put that bank under the control of the BCC, the Congolese Franc has lost 51%!!! Therefore, I am struggling to see the correlation between the BCC lending to BIAC and the depreciation J. It would be like saying that the supervision of BIAC by the BCC led to a 51% depreciation of the local currency but this is a shortcut I am not ready to take contrary to the previous Prime Minister.
Anyway, we could debate all day on who/what is responsible for this situation but there is something more important. The impact it has on people lives. The country is importing almost everything he is consuming. Therefore, the CDF depreciation led to an important inflation of good and services (+31%) reducing drastically the purchasing power of anybody paid in the local currency (mainly civil servants), as their salaries have not been adjusted for inflation.
As an example, a civil servant with a monthly salary in CDF equivalent of USD 100 (please note that this salary is not fictive) last year barely earns USD 65 today! I was already struggling to understand how one (with a full time job) could survive with USD 100 but now…
The FOREX reserves dropped to USD 718m representing only 3 weeks of goods and services importations. As a result, we cannot expect any impactful intervention from the BCC anytime soon…
But we have a good new! We finally have the 2017 budget!!! Youhou! It is USD 3billion bigger than the one presented by the former Prime Minister (that did not stay long enough on the job to implement it). I can’t wait to have more details to understand how they intend to finance this budget increase based on the economic situation of the country…
1 comment:
thanks for your analysis wait and see what will happen with that budget and hoping that our economic situation and purchasing power will increase soon!
Post a Comment