Puntland President Seeks Advice on Inflation

Garowe (PP News Analysis) — Puntland State President Said Abdullahi Deni faces the first test of his economic policies. Exchange rate-driven inflation whose source Puntland Government has yet to identify is contributing to  an usually higher cost of living.

In 2017 when Puntland State Government printed Somali ShillingS, money released into the market had not caused inflation.  Former Puntland President Abdiweli Mohamed Ali, a trained economist and former economics professor, put his expertise to an expedient use to manage Puntland’s third experiment with an unauthorised money printing initiative. The  administration of Abdiweli managed to persuade local businesses to accept Puntland-printed Somali Shillings as a legal tender.  Monetary policy was complemented by the coercive power of the government to dissuade traders from using price hikes in dollar terms in response to a possible higher exchange rate for importers.

Deni might need to approach his predecessor, Abdiweli M. Ali (right), for a bit of advice on reining in the inflation.

President Deni’s government is dealing with run-away inflation in Puntland-controlled territories. 100 dollars is exchanged for 4,000, 000 Shillings compared with South Galka’yo under Galmudug where 2,500, 000 Shillings buys one hundred dollars.  In 2008 inflation caused by money printed by Puntland Government resulted in demonstrations.  Similar demonstrations might erupt inPuntland.  Puntland Finance Minister Hassan Shire last week told the local media that experts would look into the causes of the inflation but made what one analyst described as “a wild speculation that businesses outside Puntland were partly responsible for the inflation”.

Nomads sorely feel the impact of low economic activity in Bosaso, the commercial city of Puntland, coupled with inflation. A nomad who sold a goat in Somali Shillings one month ago cannot do the same to exchange his Somali Shillings for enough dollars to buy food and sundries due to the inflation caused by a higher exchange rate.  Food prices have risen on a par with the exchange rate in Puntland.    

Puntland-printed Somali Shilling is worth less than Mogadishu-printed Somali Shilling, as exposed by the exchange-rate driven inflation in Puntland.

“President Deni understands that inflation threatens stability in Puntland. Businesses have two options: to increase prices of commodities or hoard their wares if the Puntland Government uses powers to set prices.  Puntland importers need assurances that the exchange rate will return to the pre-crisis level” says a Bosaso-based economist.

The exchange rate crisis in Puntland is a unique economics case study in a country whose diverse and opposing economic policies hinge on dollarisation and unfettered powers to print money. It is an economic problem whose solution President Deni fervently seeks.                                                     

 © Puntland Post, 2020