Article 14 Section 7 of the Constitution requires that, “A minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.”
But what constitutes essential import? Salt, shoes, sicnidizole – surely they are “essential”. But what about construction material, like, say, CGI? And raw material for industries? Are they essential? And how about arms and ammunition? I think they are essential, very essential.
It’s important to have a proper definition of what, in our context, constitutes essential import. It’s important because that definition will determine the “minimum foreign currency reserve” that must be maintained by the government at any time.
We don’t have a clear definition. But last year, when the government sold US$ 200 million from our foreign currency reserves, they told us that we still had US$ 702 million in our reserves, and that that would finance 13 months of essential import.
Divide US$ 702 million by 13 and multiply that by 12 and we quickly get US$ 648 million, the amount that, by the government’s own reckoning, is required to finance one year’s essential import.
That was in December last year. But yesterday, just four months later, the prime minister announced, on BBS TV, that our foreign currency reserves stand at US$ 716 million, and that that can finance 36 months – that’s three years – of essential import. So basically, the prime minister is now telling us that US$ 239 million is enough to finance one year’s worth of essential import.
Between 648 million and 239 million lies huge difference. And that difference points to two conclusions. One, the government is getting ready to sell even more foreign currency from our reserves. And two we need a clear definition of “essential import”.
The prime minister has proven that the government – this government, and others in the future – cannot be trusted to provide an honest and consistent definition of what constitutes “essential import”. Governments will define, and redefine it, to yield to immediate temptations of selling off our foreign currency reserves.
We need a better way of defining “essential import” and, by extension, of calculating the “minimum foreign currency reserve” that governments must maintain. One way would be to form an independent authority whose duty it would be to decide, without bias and from time to time, what constitutes “essential import”. But for that to work, the authority must have broad-based representation including members from the government, RMA, judiciary, private sector, and His Majesty the King’s secretariat.