General Economic Condition of the Republic of Somaliland
The Somaliland Shilling Appreciates 15%, and the Annual Headline Inflation Rate Declined To 7.7% on January and February
According to the article 4 of the Central Bank act 54/2012: the primary responsibility of the Bank of Somaliland is to curb the inflation, and to maintain the stability of Somaliland Shilling (the legal tender). This press release is to share some recent information about the economic condition of the country as a whole, and in particular the two main economic variables: foreign exchange and inflation rates whose changes affect the economic stability, and hence the livelihood of our citizens with the General public.
- THE SOMALILAND SHILLING APPRECIATES 15%.
The exchange rate of the Somaliland Shillings interms of US Dollar during the month of February 2019 declined to SLSH 9,050 per USD 1 from SLSH 10,700 of the same month (February) one year ago (2018), which is equivalent to 15% appreciation of the Somaliland Shilling. The main beneficiaries of this strengthened value of the Somaliland shilling are the Civil Servants and the Small-Scale businesses who get their income in Somaliland shilling
The reasons for the increase of the value of the Somaliland Shilling were included:
1) The Central Bank has successfully controlled the amount of money in circulation and has collected the excess supply from the market to the central reserve of the bank.
2) Central Bank regulates the foreign exchange dealers in the foreign exchange market, sets and shares a weighted foreign exchange rate on a daily basis to the market, and the general public. Any foreign exchange dealer who violates the daily foreign exchange rate of the market as set by the Bank, and increases the rate by more than 2% of the official rate (Central Bank weighted average rate), the Central Bank revokes the license and ceases him/her from the use of mobile money Forex facility provided by the local telecommunications companies.
3) The Central Government stopped the unnecessary operating expenditures, except those useful for the national service and development programs.
4) The last year government restrictions imposed on the mobile money service providers: ZAAD and E-Dahab, and the ban of less than $ 100 transactions along with the expansion of Somaliland shilling via the mobile money service has positively affected the value of Somaliland shilling.
5) During the last two months, January & February, 2019, there has been substantial increase of the trade activities in main the port of Berbera, a major source of tax revenue for the government a head of the forthcoming holly month of Ramadan. For paying taxes the importers always buy SLSH from the markets and increase its demand.
- The Annual Headline Inflation Rate Declined to 7.7%.
The highest inflation rate in Somaliland was recorded during February 2018, which was 19.1%. After one-year January 31, 2019, the rate of inflation declined to 7.7%. This decline of the inflation rate has been reflected in markets that which are now stable. On the other hand, if we compare the inflation rate of Somaliland to some other African countries, it is clear that Somaliland is in a good position. For example, current inflations rates of Sudan is 43%; Angola 18%; Egypt 13%; Nigeria 11.3%; Ethiopia 11%, Congo 10%; Somaliland is 7.7%.
- Although the value of the US Dollar depreciated, and the Somaliland shilling appreciated to SLSH 9,050 per 1 USD as mentioned above, the price of the goods and services is still as little bit high as it was when value of the Somaliland shilling was SLSH10, 000 per 1 USD, because the business men are reluctant to reduce the prices. Thus, Somaliland’s Central Bank considers the use of this higher exchange rate by the traders to be unfair and burden to the public, and urges the traders to look after their customers and should adopt the official exchange rate for all of their business exchanges.
- Considering both of the two groups of citizens who get their income in Somaliland shilling, and US Dollar, and to encourage the investment of diaspora to their home country, the Central Bank of Somaliland has set a foreign exchange rate target of SLSH 8,500 per 1 USD. If the exchange rate falls below that level, the Central Bank of Somaliland will make the appropriate market interventions.
- If the inflation rate reaches or falls below “Zero”, it may lead the country to face a difficult economic conditions, such as increased unemployment, and decrease of trade activities. To avoid these situations, the Central Bank has set an inflation rate target of 5-7%. If the inflation rate reaches or falls below 5%, the Central Bank will intervene and take the appropriate measures. But while we look at development initiatives and projects that will be implemented in Somaliland in the near future, we are expecting that the inflation rate will not fall below 5%. These projects mainly; the building of the Berbera Corridor, and the expansion of Berbera Port, were valued about $ 560 Million and will lead to job creation and strong economic activities.
Ali Ibrahim Jama