Jagdeo sees further deterioration in exchange rate

Former President Bharrat Jagdeo on Friday warned Guyanese businessmen that issues surrounding the country’s exchange rate are likely to get progressively worse with the cost of US$1 likely to reach as high as $250 or $300.

Delivering the feature address, at the first in a series of planned engagements organised by the Guyana Manufacturing and Services Association (GMSA), Jagdeo said that he does not see Guyana sustaining its balance of payments (BOP) in the long term.

He supported this position by citing a lack of Foreign Direct Investment (FDI) and increased domestic spending which he said has created an increase in the demand for foreign currency that has placed pressure on the local exchange rate.

These realities are compounded by a lack of a clear economic plan from the present government.

“I’m a politician and I tend to be partisan,” Jagdeo told the crowd at the Pegasus Hotel before noting that even those nonpartisan persons he has engaged on the issues are “just as lost about where the country is heading and a clear vision for taking it there cause it just doesn’t exist.”

According to Jagdeo the percentage of national investment financed through domestic expenditure increased from 58% in 2014 to 80% in 2015 and has continued to increase with 90.2% in 2016 and a projected 91.5% in 2017.

“National Investment is being financed from domestic sources and not foreign capital. This means that local savings will deplete leading to an increase in interest rates,” the former head of state contended.

Also likely, he said is a continuing increase in the demand for foreign currency which will put pressure on the BOP and exchange rate.

He stressed that with FDI drying up and net transfers including remittances reducing there is a “real growing pressure on the exchange rate”. This along with a “crisis of confidence” has led to increasing demands for foreign currency for transactional purposes.

“People are concerned. There is no money in the banking system. I know of banks that are selling currency at $230 to 1. Things are going to get progressively worse,” he said.

Businessmen have complained privately that they are now being asked to pay as much as $220 for the US dollar for some transactions at commercial bank branches and that is when there is availability.

Jagdeo further noted that while such depreciation would normally be good for the export sector increased taxes and “silly” regulations on the supply side means Guyanese exporters will not benefit.

Further the high import content of Guyana’s economy means that cost of living will increase as the purchasing power of the currency decreases.

“No amount of talking from the Central Bank, no amount of suasion is going to change the reality of the banking system. The markets are not changing. They can’t bully the banks into keeping the posted rate constant,” Jagdeo stressed.

The Central Bank has insisted that there is sufficient currency in the market to meet the local demand.

On February 2 this year,  it distributed circulars to the bank and non-bank cambios limiting the spread between the buying and selling rates for currency to $3. It also issued one to money transfer agencies.

Each of the circulars said that the Bank of Guyana is taking steps to “improve the efficiency, depth and liquidity of the foreign exchange market and in accordance with section 7 of the Dealers in Foreign Currency (Licensing Act) 1989”.

The circular to commercial banks on the operation of bank cambios stated that they must reduce the spread between the buying and selling rates “to no more than G$3, and no more than G$1.50 in wire transfers”.

Further, the circular said that sales of foreign currency to large importers by commercial bank cambios should only be countenanced upon the presentation of a valid import invoice.

The circular added that credit cards issued by commercial banks are only to be used for the purchase of goods and services for non-commercial purposes and not business activities.

The circular to non-bank cambios stated that they must also reduce the spread between the buying and selling rates to no more than $3 and that the selling rate of all foreign currencies must reflect the board rates displayed by the cambio.

In their circular, money transfer agencies were told that they “shall sell their monthly net inflows to licensed bank cambios with a maximum of 25 percent of such inflows being sold to any one of such cambios”.