Collective responsibility and accountability, crucial in rebuilding the economy | 23 May 2020
It is important that the economy remains disciplined in all aspects to ensure a stable exchange rate, thus preventing constant rise in the daily cost of living, while fundamental changes in consumers’ behaviour is also crucial in the process.
Governor of the Central Bank of Seychelles (CBS), Caroline Abel, made the statement yesterday during her weekly press conference to update the public on the foreign exchange reserves policy and strategy vis-à-vis the COVID-19 pandemic.
Governor Abel noted that the whole situation will require collective responsibility and accountability, including reduction in consumption and moderate expenditure, even if the impact will not be equally felt.
She explained that despite the resumption of commercial flights on June 1, we should remain realistic that it is very unlikely that the travel industry, notably tourism which is our main source of foreign exchange, will bounce back quickly and it is therefore important that the country has sufficient resources to support itself for the coming months, even years.
The consolidated exchange rate as at May 21 shows that the USD and EUR are at its highest since the pandemic started, with the EUR at 19.91 and the USD at 18.15.
As compared to May 14, this represents a 0.4 percent change or 0.7 cents in term of value in the rate of the USD and 1.6 percent change, or 32 cents in terms of EUR.
It was however noted that there has been a change in inflow of foreign exchange which stood at USD 6.1 million for the week commencing May 14 and ending May 20. Demand for foreign exchange during the same period was at USD 6.8 million, considerably lower than the previous week.
As for the international reserves, as at May 21 the Gross International Reserves (GIR) stands at 613 million USD and the Net International Reserves (NIR) at 462 million USD. The change in the NIR reflects the credit line of 31.2 million USD received from the International Monetary Fund (IMF) last week and other foreign exchange receipts to date. Based on the CBS strategy to ensure the coverage of essential imports for the longest time possible due to the uncertainty pertaining to how long COVID-19 is expected to impact the economy, the reserves are expected to last the country around 19 months.
For now the country is in no position to know what the future will bring given the high uncertainty in view of the supply chain challenges, food and energy prices that are on the increase, travel policies and cost that will have a direct and adverse impact on the tourism industry and cargo services worldwide, the possible second wave events of COVID-19 and the impact it will have globally all of which will have a significant impact on our economy.
It is not expected that there will be an immediate improvement in our economy and inevitably our disposable income will be significantly affected as a result of the depreciation of the Rupee.
Prices of commodity/rental will increase as a result of pricing adjustment, profit margins and service cost thus affecting our purchasing power.
As explained by Governor Abel, we all have to take collective responsibility and be accountable for our action to help bring the economy back to where it was in 2019.
In terms of short-term impacts, Governor Abel mentioned various factors that can affect local consumers, including cut in wages, depreciation of the Seychelles Rupee, increase in transaction costs and reduced trade efficiency, dampened impact due to domestic stock effects, pricing adjustments, profit margins and service costs, gradual effects on the private sector employees, developments in rental market and expectations, as well as reduction in the choice of goods.
When it comes to supply chain challenges, the COVID-19 pandemic has hit global trade and investment at an unprecedented speed and scale.
Multinational companies faced an initial supply shock, and a demand shock as more and more countries ordered people to stay at home.
Governments, businesses and individual consumers suddenly struggled to procure basic products and materials, and were forced to confront the fragility of the modern supply chain, while the urgent need to design smarter, stronger and more diverse supply chains has been one of the main lessons of this crisis.
As for travel policies and cost, one topic that has been put forth is the possible operation of flights that adhere to the guidelines around personal space, meaning essentially that planes may operate at a severely reduced capacity.