Mr. Speaker, Sir.

I beg to move that "The Bill entitled the Act to provide for the services of The Gambia for the period 1st January, 2006 to 31st December, 2006 (both dates inclusive)" be read a second time.

Mr. Speaker, Sir.

1) The primary objective of the 2006 Budget is to improve public expenditure management, boost domestic revenues, sustain macroeconomic stability, reduce poverty, and lay a solid foundation for a new Poverty Reduction and Growth Facility Program (PRGF) with the International Monetary Fund (IMF), which will enable The Gambia reach the HIPC Initiative Completion Point.

i. INTRODUCTION

Mr. Speaker, Sir.

2) Although our economy has faced certain difficulties in recent years, Government has taken firm measures to tackle these difficulties, and has already made significant progress in improving the economy by reducing inflation and interest rates, and stabilizing the exchange rate. Inflation has fallen from 8 per cent at the end of 2004 to 1.1 per cent as of end-September this year. The exchange rate has stabilized, and has appreciated against major international currencies; interest rates are falling, and there is modest build-up in gross official reserves. Nevertheless, some major difficulties continue to impede our progress in making significant inroads in addressing poverty. The burden of public debt and the huge interest costs on the domestic debt are major constraints that pose threat to our poverty reduction efforts. Until our debt burden is substantially reduced either through debt relief or susbstantial debt cancellation, our public finances will remain very fragile, and present a threat to the future growth and stability of the economy. Therefore, measures to tackle the public debt form an integral part of this Budget.

3) As a measure to tackle Government arrears on commitment basis, Government will, in 2006, introduce a commitment control system on pilot basis, with the view to extending the system to all Government Departments later this year. The Department of State for Finance and Economic Affairs (DOSFEA) is quite conscious of its fiduciary responsibility in the management and use of public finances. As such, The Department of State for Finance and Economic Affairs will continue to strengthen control measures on expenditures, and, at the same time tackle the public debt burden from and integral part of this Budget.

Mr. Speaker, Sir.

4) Reaching the Completion Point of the Enhanced HIPC Initiative (HIPC) is central to our efforts to tackle the country's debt burden, because this will provide debt relief or substantial debt cancellation from our external creditors, which will reduce The Gambia's external public debt to levels which can be comfortably sustained by the budget. External debt relief or debt cancellation will provide substantial additional budgetary resources that will be used to fund basic poverty reducing public services, such as primary education, and primary health care. A precondition for reaching the Enhanced HIPC Completion Point is that The Gambia implements satisfactorily an IMF supported Poverty Reduction Growth Facility (PRGF) Programme. Therefore, the 2006 Budget has been formulated, and will be implemented, with the intention of preparing the ground to start a PRGF Programme in 2006. Government has already negotiated a six-month Staff Monitored Program (SMP) with the IMF, which is a precursor to a PRGF programme, and the 2006 budget has been drawn up to meet the fiscal targets, which agreed with the IMF for the Staff Monitored Programme.

Mr. Speaker, Sir.

5) In addition to the external debt burden, Government also faces a very high domestic debt burden, and a build-up of domestic arrears. The 2006 Budget contains measures to tackle both problems. The restriction of Government's domestic borrowing requirement to D200 million will ensure that the nominal value of domestic debt will grow at a slower rate than GDP, thereby allowing a fall in domestic debt as a share of GDP. Government has also allocated D144 million in the 2006 Budget to clear a part of the outstanding stock of domestic arrears, and will begin implementing a commitment control system to curb the accumulation of new arrears by the Department of State. The commitment control system will be introduced on a pilot basis in some Departments, and extended to all Government Departments later in the year.

6) Government will face major expenditure pressures in the course of 2006, of which the largest are the holding of Elections, and the prospective African Union Summit. Furthermore, because of the debt burden, Government will devote more than a third of the GLF budget to paying the interest on the Government debt, while personnel costs will consume a quarter of the GLF budget. Consequently, the budgetary resources available for the Departmental discretionary expenditures will be severely constrained in 2006, and, in most cases, bugetary allocations will be lower than those in 2005 Budget Estimates. Unfortunately, this cannot be avoided if Government is to fund its priority and statutory expenditures, while at the same time curbing its borrowing requirments.

-end.