Gambia’s economic growth slows down

The growth of The Gambia’s economy is projected to slow down from 6.1% in 2010 to 5.5% in 2011, according to the Central Bank of The Gambia.

The Gambia economy is experiencing increasing budget deficit as the government continues to spend more than its revenue. 

CBG Governor, Amadou Colley

According to the latest quarterly monetary report of the Central Bank of The Gambia (CBG), the deficit of the government has increased by almost D200 million.   CBG Governor Amadou Kolley said the overall budget balance, including grants, on commitment basis was a deficit of D714.50 million.  This is equivalent to 2.2 per cent of the country’s Gross Domestic Product (GDP) and it is higher than a deficit of D530 equivalent to 1.8% of GDP in the corresponding year in 2010.

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.

“As at end-September 2011, the domestic debt increased to D9.2 billion, 29.5 per cent of GDP, compared to D7.8 billion, 27.4 per cent of GDP, in September 2010,” Governor Colley said at the quarterly press briefing of the Monetary Policy Committee (MPC) of the Central Bank held on 28 October 2011.

The Gambia’s pays almost 25% of the annual national budget to interest on domestic debt. Tax revenue of the country also decreased to D2.7 billion, or 2.3 per cent. Non-tax revenue, on the other hand, increased to D404.9 million, or 14.3 per cent. Total expenditure and net lending rose to D4.6 billion, or 6.3 per cent.

According to data on government fiscal operations, the total revenue and grants of the country in the first nine months of 2011 increased to D3.9 billion from D3.8 billion in the corresponding period in 2010.

Governor Colley said: “Broad money growth has decelerated by 11.5 per cent in the year to end-September 2011 compared to 20.1 per cent a year ago.”

Both components of money supply increased, but narrow money grew at a faster pace of 15.3 per cent than quasi money (8.6 per cent).  Reserve money rose by 13.0 per cent, lower than the 20.8 per cent a year ago. Although the net domestic assets (NDA) of the CBG increased by 128.9 per cent, the net foreign assets (NFA) contracted by 5.1 per cent.

Treasury bills and Sukuk Al-Salaam yields continue to decline. The 91-day Treasury bill and Sukuk Al-Salaam yields declined to 7.98 per cent and 8.15 per cent in September 2011 from 9.57 per cent and 10.08 per cent respectively in September 2010.

Similarly, the yield on the 182-day and 364-day bills decreased to 8.7 per cent and 10.01 per cent from 10.24 per cent and 13.37 per cent respectively in September 2010. The volume of transactions in the foreign exchange market contracted to US$1.56 billion in the year to end-September 2011 compared to US$1.68 billion a year earlier

Data on the distribution of Treasury bills by maturity indicate that the 364-day bill, 182-day bill and 91-day bill accounted for 69.31 per cent, 20.51 per cent and 10.18 per cent of the outstanding bills compared to 65.64 per cent, 21.0 per cent and 13.36 per cent respectively in September 2010.

The Dalasi depreciation

“The Dalasi continues to weaken against all major currencies,” Governor Colley remarked. “Year-on year to end-September 2011, the Dalasi depreciated against the US Dollar by 4.7 per cent, Euro (6.6 per cent) and Pound Sterling (0.95 per cent). In nominal effective exchange rate terms, the Dalasi depreciated by about 5 per cent.  Preliminary balance of payments estimates indicated an overall surplus of US$39.29 million in the first half of 2011 compared to US$39.94 million in the corresponding period of 2010.”

According to the readings of the forward-looking business sentiment survey, the vast majority of respondents expect economic and business activity to be higher in the fourth quarter of 2011 compared to the third quarter of 2011. Also, the majority of respondents reported that current prices are higher, but expect inflation to be lower in the fourth quarter of 2011.

Inflation decreases

End-period inflation, measured by the National Consumer Price Index (NCPI) has decreased to 4.1 percent at end-September 2011, from 6.2 percent in September 2010. Consumer food inflation decelerated from 8.4 percent in September 2010 to 5.5 percent in September 2011. Non-food inflation also declined to 2.2 percent from 2.9 percent in September 2010.  Core inflation, which excludes prices of energy, utilities and volatile food items, decreased to 4.2 percent in September 2011 from 6.2 percent in September 2010.

However, the CBG report states that average inflation, 12-month moving average, increased to 5.2 percent in the year to end-September 2011 compared to 4.2 percent a year earlier.

“Inflation is projected to be within the target of 6.0 per cent in the remainder of the year premised on the continuous decline in global food and energy prices, expected increase in domestic food production and the prudent stance of monetary policy,” CBG projected.  “There are, however, upside risks to the outlook mainly emanating from exogenous price shocks and the stance of fiscal policy.”

Taking the above developments into consideration, Governor Colley said, including the risks to the inflation outlook, the MPC has decided to reduce the rediscount rate by 1 percentage point to 14.0 per cent.