2024-05-13 01:01:19
The independence of the Central Bank allows to the monetary authorities to conduct monetary policy with complete freedom and to engage healthy reforms the slightest political constraint.
Ce concept dindependence is negatively related to money supply growth and inflation; in other words, a high level of independence promotes low average rates of inflation and money supply growth, which results in by greater monetary stability. This means that les actions andLegal and regulatory reforms intended to confer greater independence on the central bank are likely to contain inflation at reasonable levels.
Although in practice no government wishes to grant full and complete independence to its central bank due to the fact that monetary policy would only be a tool of the government’s overall economic policy.However what THE empirical studies ont demonstrateIt is clearly that the independence of the central bank could effectively promote the control of inflation while providing greater monetary stability.
The independence of a central bank covers three essential dimensions, namely: l’managerial independence, l’operational independence and financial independence.
Our country Guinea, has been at a crossroads since September 5, 2021, and the economy occupies a prominent place in che refoundation process initiated by the CNRD.
The Central Bank of the Republic of Guinea (BCRG), responsible for conducting monetary policy, is not on the margins of this proactiveness of our current leaders.
You will remember that last October, to palliate the low level of external financing and limited resources internal, the government had requested the local commercial banks to raise of 5000 billion GNF in order to of finance the projectsinfrastructure under the facilitation of the central bank. TO that time, We have expressed our concerns regarding the perverse effects of such an operation in terms dworsening ofu inflation rate and a risk of liquidity shortage in the banking circuit.
But the most consequence plausible of this operation of fundraising remains the erosion that this could generatesr on the level ofindependence of our central bank.
During this operation, lBCRG found itself in a species of shots crusaders, on the one hand the government who puts pressure to demand membership for the implementation effective of this operation and on the other the Association of Banking Professionals (APB) which forces him to revise downwards the rate mandatory reserve from 15% to 13% and of the key rate from 11.5% to 11%.
It appears clearly what this operation has strongly eroded independence of notre Beven Center it in this sense whatson policy committee monetary was forced to revise the two essential instruments of monetary policy (interest rate et mandatory reserves) without referring to the calibration of the money supply according to the needs of economic agents so as to have stability without inflation or deflation.
behold a few months later, precisely on April 24, we learn, not without sadness, that article 36 of the statutes of the BCRG a been modified to the CNT by making amendments to thex paces scandaleuses.
As a reminder, the outgoing Minister of the Economy and Finance had made an express request through an official letter to the Central Bank to uncapped the Central Bank’s advances to the Treasury, but the current decision-makers of financial and budgetary policy considered that such a measure could discredit the government vis-à-vis international financial partners and derail current programs. The latter used subterfuges to revise the famous article 36, introinducing exemptions which empty it of its substance without fundamentally affecting audit article. This amendment will make it possible in the near future to greatly open the floodgates of liquidity.
Abefore the amendment, Article 36 of the BCRG statutes stipulatesait : « The total amount of assistance that the Central Bank can grant to theÉtat and, where applicable, to public bodies and entities, cannot exceed 5% of the annual average of ordinary public revenues for the last three financial years preceding the current year and for which the accounts are available. Said assistance is repayable within a period which cannot exceed 92 calendar days and is accompanied by the market interest rate in force in the Republic of Guinea. ».
From this article, he was cleverly added and subtlya derogation which empties it of its meaning in these terms “ However, under the terms of this Law, an exemption may be granted by the Central Bank to the State, in extraordinary circumstances such as major economic crises or natural disasters, upon authorization of the Board of Directors, without exceeding the rate of ECOWAS convergence and reimbursable within a period not exceeding 180 days calendars. In this case, the CouncilAadministration sets and approves the financing terms (threshold, duration and applicable interest rate) ».
This amendment voted for by our national advisors took place without fanfare, even incognito, and yet this vote is a weapon of mass destruction for the stability of our macroeconomic framework, in the sense that it greatly pushes back the limits of treasury indebtedness to the BCRG under the pretext of ‘‘extraordinary circumstancesAlso fallacious be they’’. In other words, it will encourage abusive or even outrageous monetary creation commonly callede ticket boards.
Worse, I was stunned to see what It is the Economy Minister et of the Finances in place of the Governor of the BCRG, who s’East strived to defend this measurein front of the CNT advisorsIt is as if the client of a bank tries to defend the opportunity to increase his line of credit in front of the shareholders without the knowledge of employees of said banque.
At this important meeting the governor was conspicuously absent, represented by the vice-governor.
As a reminder, the minister of the Economy and finances is the guarantor of the financial policy of the State, in this capacity he has no capacity to defende lyour choices strategicrelating to monetary policyhe could simply act with the central bank within the framework of the macroeconomic framework.
The interference of Minister of Finances is more noticeable when he asserts in front of the CNT advisors that the use of printing moneys is not on the agenda.
This allegation is an untrue, because the only motivation for such an amendment aims to raise the debt ceiling that central bank pheed consent tol’État through the public treasurycmarking fact the path to abusive, massive and uncontrolledto finance the incompressible expenses of State and infrastructure financing needs.
The legitimate question thate l’on is entitled to to settle down, is to question on the advisability of such a measure. It is true that the State is facing cash flow difficulties, but this measure is a headlong rush, because there are other, more credible alternatives, including increasing the tax rate. which remains one of the weakest in the sub-region (13%) while the average of notre sub-region East of 18%. Note that the increase in tax pressure hardly means an increase in the tax rate, but a broadening of the tax base through greater formalization of companies by ricochet of tax matters in order to reduce the weight of the informal sector.
Failure to respect the cap on advances that thea BCRG pheed to agree to the state through Public Treasury can have significant implications. Here are some consequences:
Inflation : When the Treasury borrows excessively from the central bank, it can lead to an increase in the money supply in circulation. A raise of the money supply without a corresponding increase in terms of production of goods and services can lead to increased inflation.
Financial Dependence : If the Public Treasury relies too much on advances from the central bank, it may become dependent on this source of financing. This can compromise the independence of the central bank and its ability to conduct effective monetary policy.
Budget Imbalance : Failure to comply with the capping pheed reveal structural problems latents in La management of public finances.
Political Tensions : Excessive advances from the central bank to the public treasury can create political tensions in the sense that theGovernments may seek to influence monetary policy for their own interests, which is harmful to economic stability.
Deterioration of Trust : If the financial markets and partners perceive that the ceiling is not respected, this can lead to a loss of confidence in the economic management of the country. This can affect interest rates, foreign investment and overall financial stability.
In summary, the amendment of article 36 of the statutes of the BCRG training non-compliance with the cap on advances from this to Public Treasuryt it may trainrepercussions harmful to inflation, institutional independence, budget balance, political relations and public confidence actors. Maintaining financial discipline is essential to preserve economic stability. As if to say that we cannot not sacrificing monetary orthodoxy on the altar of issues of infrastructure financing.
Abdoulaye GUIRASSY
Economist Political scientist