|Mr Sabally, Director of Budget, Ministry of Finance|
The Gambia economy is experiencing increasing budget deficit as the government continues to spend more than its revenue. The country’s deficit has increased from D58.3 million in the first quarter of this year to D708.5 million in the second quarter.
The Central Bank of The Gambia says the government has registered a deficit of D708.5 million, excluding grants, in the first half of 2011.
However, when grants, monies given by other governments and institutions to the Gambia Government, are added to the budget, the deficit reduced to D90 million. This shows that the government received (a total grant of) D618.5 million during the period under review.
The total fiscal deficit of The Gambia for 2011 is estimated at D466.36 million or 1.47 per cent of GDP. The government says this deficit would be financed by foreign and domestic borrowing amounting to D833.82 million and D120.00 million respectively.
The Gambia’s fiscal (or financial) performance continues to be challenged by higher-than-projected expenditures by the government that is unmatched by revenue performance of the economy.
The Governor of the Central Bank of The Gambia (CBG), Amadou Colley, says the 2011 projection of the country’s Balance of Payments (BoP) - which is the difference between the export and import of goods and services - indicate an overall deficit of US$3.70 million, which is more than D100 million, compared to a deficit of US$15.20 million more than D400.0 million, in 2010.
While speaking at the quarterly Monetary Policy Committee press briefing held recently at the CBG in Banjul, Governor Colley said The Gambia’s total revenue and grants amounted to D2.79 billion compared to D2.55 billion in the corresponding period in 2010.
He said domestic revenue, which comprises tax and non-tax revenue, rose to D2.17 billion, or 2.9 percent. Total expenditure and net lending, on the other hand, decreased to D2.88 billion, or 2.6 percent.
As at end June 2011, the domestic debt increased to D9.7 billion, or 26.0 per cent year-on-year. Outstanding treasury bills, accounting for 65.7 percent of debt stock, rose by 22.0 percent. The yield on the 91-day, 182-day and 364-day bills declined to 8.93 per cent, 9.65 per cent and 11.50 per cent in June 2011 from 9.58 per cent, 10.49 per cent and 13.03 per cent respectively in June 2010.
GDP growth decelerated
Growth in the country’s Gross Domestic Product has slowdown as revised estimates from the Gambia Bureau of Statistics indicate that real GDP growth was 6.1 per cent in 2010 compared to 6.3 per cent in 2009.
GDP is the total monetary value of all goods and services produced domestically in the country over a specified period. The growth of GDP from one period to another is an indication of how healthy the country's economy is.
The Central Bank Governor explained the rationale behind the slow growth of the country’s economy: “The slowdown was attributed mainly to the decrease in value-added of agriculture and services, particularly tourism and wholesale and retail trade.
“In 2011, real GDP growth is projected at 5.5 per cent premised on gradual recovery of the tourism sector and agriculture.”
The impact of the global economic crisis is still felt in The Gambia, particularly in sectors like tourism as the volume of transactions, measured by aggregate sales and purchases of foreign currency in the domestic market, contracted to US$1.58 billion in the year to end-June 2011 from US$1.68 billion a year ago.
Value of Dalasi drops
Owing mainly to reduced foreign currency inflows and increased demand for it, the Dalasi depreciated in nominal effective rate terms by 8 per cent in June 2011 compared to a depreciation of 1.9 percent in June 2010.
In relation to individual currencies, the Dalasi depreciated by 4.9 per cent against the US Dollar, 8.40 per cent the Pound Sterling, 12.97 per cent the Euro and 7.56 per cent the CFA.
Money supply, which is a measure of the total money in circulation, decelerated to 13.4 per cent in the year to end-June 2011, significantly lower than the 21.0 per cent a year ago.
However, Governor Colley said government’s fiscal operations in the first half of 2011 showed an improved position compared to the same period last year.
According to the key financial soundness indicators, Gambian banks remain sound. Capital and reserves increased to D2.6 billion in June 2011 compared to D1.6 billion in June 2010.
“The banking industry’s total assets continue to increase,” Hon. Colley said. “It rose to D18.24 billion in June 2011 or 16.7 per cent from June 2010. Credit to the private sector increased to D5.4 billion or 10.2 per cent. The ratio of non-performing loans to gross loans declined from 14.0 per cent in March 2011 to 12.7 per cent in June 2011, attributed to robust loan recovery efforts.”
Deposit liabilities increased strongly to D11.88 billion in June 2011, or 14.3 per cent from June 2010. However, the loan to deposit ratio fell slightly from 46.5 per cent in June 2010 to 45.4 per cent in June 2011. The liquidity ratio of the industry rose from 63.9 per cent in June 2010 to 68.1 per cent in June 2011 and above the minimum requirement of 30 per cent.
Latest readings from the private sector business sentiment survey indicate that the majority of respondents reported higher economic and business activity in the second quarter of 2011 compared to the preceding quarter.
The Central Bank says the majority of respondents indicated that current prices are higher and expect inflation to be elevated in the third quarter. End-period inflation, measured by the National Consumer Price Index (NCPI), rose to 5.4 per cent at end-June 2011 relative to 4.5 per cent a year earlier. Similarly, average inflation rate increased to 5.7 per cent from 3.4 per cent.
Food price inflation rose to 7.4 per cent in June 2011 compared to 5.4 per cent in June 2010. Non-food inflation, on the other hand, decelerated to 2.1 per cent in June 2011, lower than the 2.8 per cent in June 2010. Core inflation, which excludes the prices of energy, utilities and volatile food items, accelerated to 5.4 per cent in June 2011 compared to 4.3 per cent in June 2010.
Inflation is projected to remain within the target of 6 per cent for the remainder of 2011 consistent with deceleration in the growth of the key monetary aggregates. However, acceleration in food and energy prices as well as a higher-than-expected fiscal deficit are risks to the outlook or projection.
Taking the risks to the inflation outlook among others in consideration, The MPC has decided to maintain the rediscount rate at 15.0 per cent.