A shared responsibility

“Why would they take the risk when they can get the money from the Central Bank and make easy money? Why should they also give you loan to open a poultry, a processing plant or a newspaper company? They will not take the risk because they can make easy money by buying treasury bills,” the NRP leader was quoted to have said by a local newspaper report on Friday, 30 January 2015.

The statement also accused the relevant state authorities of excessive borrowing from the banks, leading to huge domestic debts and drying up of banks’ loanable resources to the private sector, especially SMEs, to support business expansion and growth, spur investment and job creation as well as economic bliss for the nation.

We consider these issues raised by the NRP leader as pertinent in the economic and financial landscape of the country, as they are very vital concerns which must be given due consideration.

However, it is also essential to note that there are three sides to the story.

In issues like this, it is good to consider that the government, the commercial banks and the private sector (especially the SMEs) each has a leg to stand on to justify what they do or are calling for, as well as a part to play to ensure a win-win situation for the good of all.

The need for accelerated economic growth and national development has made it an imperative for governments to resort to borrowing, as there is a wide gap between available resources or savings and the investments to be undertaken. Thus borrowing to fill the gap in itself is not undesirable.

However, in the short run, the level of borrowing should be determined in such a way that financial flows, both domestic and foreign, are consistent with internal and external balance. In the long run, the issue is how economic growth, in conjunction with borrowed funds and sound fiscal policy, results in an adequate future stream of real resources to permitthe timely servicing of theliabilities incurred.

It can be detected that the Gambia government itself has realised the problems excessive borrowing from commercial banks can cause.

That is why it has challenged itself to reduce its domestic debt, by anchoring the 2015 budget on limiting Net Domestic Borrowing to 1% of GDP at 31 December 2015.

The commercial banks, on the other hand, are mere financial intermediaries that serve as custodians of people’s money and transfer funds from savings of businesses, institutions and people to those businesses, institutions and entrepreneurs that are in need of funds to invest, expand and grow their businesses.

But if such funds given out as loans are increasingly becoming bad debts – that is loans that are likely not to be repaid – commercial banks would face a lot of problems and financial issues that would affect economic growth in the country.

This situation, coupled with the mopping up of funds from the commercial banks through Treasury bills, make it difficult for banks to give out just any loans needed by members of the private sector such as the SMEs.

However, investment must be encouraged to ensure growth and job creation, and this can be spurred by loans and advances given out to the private sector by commercial banks.

Where this connection is missing, national growth and development is impeded and poverty and hardship reign supreme.

So, all the players in this ballgame should play their sides accordingly. A shared responsibility indeed!

“Every right implies a responsibility; Every opportunity, an obligation, Every possession, a duty.”

John D. Rockefeller