Jun 25, 2014, 10:27 AM
We have been told recently that The Gambia’s Real GDP growth is projected at 7.5 per cent in 2014 predicated on robust expansion of agriculture and services, particularly tourism, which means the country’s economy is somewhat on a fine footing for 2014.
Inflation is also forecast to moderate to within the target of 5.0 per cent by end-December 2014 but this is premised on prudent implementation of monetary and fiscal policies.
This inflationary speculation, according to the Central Bank of The Gambia (CBG), is subject to several upside risks emanating both from the external environment and the domestic economy. The most important risks, it says, are higher-than-expected oil prices and fiscal and exchange rate pressures.
However, in 2013 domestic debt continued to increase by 25.1 per cent from 2012, landing on the region of D13.5 billion (39% of GDP).
This considerable increase of domestic debt is mainly accelerated by the increasing budget deficit the economy continues to grapple with, such as a deficit of D2.7 billion (8.0% of GDP) in 2013, higher than the deficit of D1.3 billion (5.9% of GDP) in 2012, which, to a large extent, is triggered by Government fiscal operations resulting in significant increase in expenditure and lending while revenue and grants continued to go the other way.
An excerpt of the details pertaining to this trend is as follows, according to facts put out by the CBG: “Provisional data on the execution of the 2013 budget show that total revenue and grants amounted to D5.9 billion (17.5 per cent of GDP), below the target of D7.7 billion (20.0 per cent of GDP). Domestic revenue, comprising both tax and non-tax revenue, increased by 10.6 per cent to D5.2 billion, D4.6 billion of which was on account of international trade taxes. Grants, on the other hand, declined significantly from D1.8 billion in 2012 to D725.1 million in 2013.
“Total expenditure and net lending rose to D8.7 billion (25.5 per cent of GDP), or 11.2 per cent from 2012. Current expenditure increased significantly to D6.3 billion, or 22.4 per cent. Of the main components of current expenditure, wages and salaries increased by 15.1 per cent, other charges (37.8 per cent) and interest payments (7.4 per cent). Capital expenditure, in contrast, declined to D2.32 billion from D2.58 billion in 2012.
“The overall budget deficit (including grants) was D2.7 billion (8.0 per cent of GDP) in 2013, higher than the deficit of D1.3 billion (5.9 per cent of GDP) in 2012. The deficit was financed mainly from domestic sources in the amount of D2.2 billion (6.0 per cent of GDP). External financing amounted to D578.8 million and repayments (D172.7 million).
“The domestic debt, mainly short-term debt, totaled D13.5 billion (39 per cent of GDP), an increase of 25.1 from 2012. Treasury bills and Sukuk Al-Salaam, accounting for 81.0 per cent and 2.9 per cent of the debt, increased by 34.5 per cent and 13.6 per cent respectively.”
Studies have shown that increased debt burden induces a decline in investment, creates problems for effective debt management, causes monetary and economic instability, among other effects.
On external sector developments:
While overall balance of payment (BOP) is estimated at a deficit of US$32.9 million in the first nine months of 2013, lower than the deficit of $41.7 million in the corresponding period of 2012, the volume of transactions in the foreign exchange market in the year to end-December 2013 decreased to US$1.31 billion or 17.0 per cent from 2012.
Gross international reserves amounted to US$170.3 million, equivalent to 4.1 months of import cover, down from US$195.8 million a year ago.
It is also stated that although the Dalasi was broadly stable in the first half of 2013, it depreciated significantly in the second half of the year.
The depreciation of the Dalasi, according to the CBG, was partly as a result of reduced foreign exchange receipts, coupled with strong demand owing in part to the high level of liquidity in the economy.
On inflation, the CBG states that while Consumer Price inflation increased to 5.6% in December 2013 compared to the 4.9% recorded in 2012, core inflation accelerated to 6.2% in October 2013 before easing to 5.7% in December 2013.
This brings us back to the prudent forecast of the Central Bank Governor, Amadou Colley, who states that inflation is forecast to moderate to within the target of 5.0 per cent by end-December 2014 ‘premised on prudent implementation of monetary and fiscal policies”.
He says: “The outlook to inflation is subject to several upside risks emanating both from the external environment and the domestic economy. The most important risks are higher-than-expected oil prices and fiscal and exchange rate pressures.”