guinea devaluation (mamadi kourouma).docx

guinea devaluation (mamadi kourouma).docx - Chapter 2...

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Chapter 2 Literature Review Background Analysis 16 countries in Africa celebrated 50 years of independence in 2017. Critics, however, argue that neocolonialism has led to these countries lingering with little or no degree of autonomy. CFA franc which is a general name for currencies in West African states are still guaranteed by France and the French Treasury ( Fourie, 2016). State currencies devalue because of numerous reasons including, but not limited to, economic downturn which creates a deficit in the balance of payment coupled with inflation. A sequence of economic turmoil’s as has been seen in Guinea due to instabilities in politics and the Ebola outbreak decreased the GDP. Devaluation was used by the government in commodity market increase the purchasing power of the country and trigger exports ( Bausch & Schwarz, 2014). The failing credit conditions and incorrectly organized monetary policies have been seen to relate to poor fiscal controls by their central bank ( Traore & Watanabe, 2017). In 2016, a report by IMF on extended credit reviewed the economy of Guinea. Though the board agreed to increase the disbursement of $25.6 million more on top of existing amounts and the lack of observance in performance criterion, the decision was influenced on the declaration of the nation is free of Ebola. In currency rating, GNF, which stands for Guinean Franc is the world forth weakest currency to date. One U.S dollar is equivalent to 9055GNF. In 2011, the government of Guinea Conakry reported that it had shut down a number of foreign exchanges bureaus. The government argued that it was limiting trade to 30 bureaus as a form of reducing black-market speculations. These trades were apparently fueling inflation and depreciation of the local currency. Leading to a closure of 137 bureaus of exchange.
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Causal Relationship between Currency Devaluation and Wages To understand the relationship between devaluation and the wage bill in guides, a cross- examination of the country will lead the paper to reasons and necessity of devaluation. The economy of Guinea is emerging from the Ebola outbreak, the crisis season was characterized by low commodity prices. The GDP however grew at 6.6% in 2016 which is driven by mining of gold and Bauxite. Agriculture too plays a vital role in the economy. Comparing 2016 and 2015, the economy is on an improvement rate/ the fiscal deficit reduced from 8.1% to 1.4% according to the World Bank report. Government revenues with the exclusion of grants increased by 15%. Guinea economy depends on mining, however, there is little information available on nominal earnings making it difficult to compare with any other country in that region. Kester (2015) argues that the complexity of salary structure for civil servants in Guinea as calculated by Coulibaly et al., show a monthly salary of 45,000 GNF which equal to $3 per day supports a family of five and most times larger. With that amount, one can buy three kilos of rice or a bottle of milk. The rapid depreciation of the currency, high inflation levels and tighter IMF conditions
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