iii. DOMESTIC ECONOMY
a. Real Sector
9) Real growth rate of the economy is expected to
reach 5 per cent in 2005, due primarily to a good rainy season. Growth
in GDP is mainly due to increases in value added in Agriculture, distributive
Trade, Hotel and Restaurant and Communications. In the course of 2006,
real growth of the economy has been estimated at 4.5 per cent.
10) The Agricultural Industry is expected to grow
by 8.27 percent resulting mainly from increase in crop production. Groundnut
is estimated to grow by 18.0 percent, whilst the other crops, mainly
cereals, are estimated to grow by about 5.0 percent over production
levels of 2004. These statistics will translate to 22.7 percent contribution
of the crop production sub-sector to overall GDp. The livestock, forestry
and fishing industries are also expected to register growth rates of
3, 3, and 10 per cent respectively. In total, the Agricultural sector,
i.e. crop production, livestock, fishing and forestry combined, will
contribute about 30.1 per cent of GDP.
11) The expected growth in "Mining and Quarrying"
and "Manufacturing" industries in 2005 are 3.0 and 5.0 percent
respectively, whilst the Water and Electricity Services, and the Building
and Construction industries are forcasted to register growth rates of
1.0 and 5.3 percent respectively.
12) The Distributive Trade Sector is forcasted to
grow by 7.0 percent in 2005, compared to the higher growth rate of 9.6
percent recorded for 2004. The lower growth rate for the distributive
trade industry in 2005 results from the decline in both groundnut trade
and other trade activities. In total, distributive trade industry contributes
about 14.0 percent of total value added.
13) The Hotel and Restaurant Industry is expected
to grow during 2005 by about 31.0 percent, resulting from the forecasted
increase in tourist arrivals from the 2004 figure of 80,784 to 106,004
for 2005.
14) Over the years, the communcation industry, particularly
telecommunication activities, has been stadily growing. For the year
2005, the communications industry is expected to grow by about 7.0 percent,
and will contribute about 12.3 percent of GDP.
15) Government Services are forecasted to grow by
1.5 percent in 2005, compared to the 2.0 per cent in 2004. At end-2005,
total Government Services will account for about 9.6 per cent of GDP.
Mr. Speaker, Sir. Let me now move on to the Fiscal Outturn
for 2005
b. Fiscal outturns 2005
16) The very stong improvement in public finances
which was achieved in 2004 was not maintained in the current year (2005),
mainly due to weaknesses on the revenue front, where performance was
not as good as has been forcasted. Consequently, the fiscal deficit
was larger than projected by more than two percentage points of GDP,
most of which was funded with domestice borrowing, which, in turn, also
became higher than budgeted by around two percentage points of GDP.
17) Domestic revenues in 2005 are now projected at
2,597 million, which falls short of Budget Estimates by D220 million,
or 8 per cent. The projected outturn is only 3 percent higher than that
of 2004. Whereas projected direct taxs have largely met their 2005 Budget
targets, indirect taxes on international trade, and non tax revenues,
have suffered major shortfalls by D163 million and D111 million respectively.
The impressive gains recorded from non-fuel custom duties in 2004 have
largely dissipated this year, and this tax item has suffered the largest
shorfall relative to the budget than any other tax item. Consequently,
the Department of State for Finance and Economic Affairs and the Customs
and Excise Department are intensifying their efforts to identify the
causes of the poor performance, and prevent any further slippages in
2006.
18) The main shortfalls in non-tax revenues have
arisen because of the failure of certain public enterprises to serve
their loan obligations to Government. Whereas over D200 million was
paid from the Budget to service the external loans of public enterprises
in 2005, Government will only recover D56 million of this amount from
the public enterprises. The budget projections for some fees and licenses,
such as those for Aliens ID cards, and fishing licenses, proved to be
far too optimistic. in addition, capital revenue from land sales has
generated only fraction of the D40 million budgeted in 2005.
19) Grants are projected at D220 million, a shortfall
of D26 million, which is attributable to the fact that HIPC grants provided
for interim debt relief had been exhausted by the end of the first quarter
of 2005.
Mr. Speaker, Sir.
20) Total expenditure and net lending for 2005 is
now projected at D3,720 million. Although, this is only slightly higher
than the 2005 budget figure of D3,687 million, the aggregate total masks
large deviations between the projected outturn, and the 2005 Budget
Estimates, in several categories of expenditure. In particular, interest
payments exceeded the budget estimates by D194 million, largely on account
of the higher than budgeted domestic interest payments. To offset the
overspending on some items, it became necessary to severely restrict
cash releases for departmental discretionary spending from the start
of the second quarter of 2005. Releases for discretionary expenditure
were cut by 22 per cent on average. As a result, expenditure on current
other charges, and GLF capital expenditure for 2005, is projected to
be reduced by D157 million and D87 million respectively.
21) The overall budget deficit for 2005 is now projected
at D855.4 million, which is equivalent to 6.5 per cent of GDP, compared
to the 2005 Budget document which estimated the fiscal deficit at D662.6
million or 4.5 per cent of GDP. The larger than budgeted fiscal deficit
is mainly attributable to the domestic revenue shortfalls, which have
already been highlighted. The projected 2005 fiscal deficit is financed
with net external borrowing of D446 million, and net domestic borrowing
requirement of D271 million in the 2005 Budget Estimates.
Mr. Speaker , Sir, On Money Developments in 2005
c. Monetary Developments
22) Monetary policy in 2005 followed a prudent course
to ensure sustained deceleration in inflationary pressures, entrench
exchange rate stability, and support Government's economic poilcy. Growth
in money supply accelerated to 20.1 per cent in 2005, compared to 16.1
per cent in 2004. The growth in money supply is atrributed to the increase
in both net foreign assests (NFA), and the net domestic assets (NDA)
of the banking system.
23) In the year to end-September 2005, net foreign
assests of the banking system rose to D3.2 billion, or 8.8 per cent
from 2004. This was mainly on account of the 20.9 percent increase in
the net foreign assets of the Central Bank to D2.0 billion. Gross official
reserves rose to D2.6 billion, representing 4.5 months of import cover,
while foreign liabilities decreased to 0.6 billion, or 21.0 percent.
24) Deposit money banks' foreign assets decreased
to D1.1 billion, or 9.4 percent. Their foreign liabilities also fell
by 38.3 percent to D37.1 million. Accordingly, deposit money banks'
net external position declined to D1.1 billiom, or 8.0 percent over
the 2004 year.
25) Net domestic assets of the banking system rose
to 2.7 billion in the year to end-September 2005, or 36.6 percent, from
the previous year. This was on account of 16.5 per cent and 28.4 per
cent increase in domestic credit, and other items (net) respectively.
Credit to the private sector rose to D1.9 billion, or 30.7 per cent,
while claims on public entities fell significantly by 36.3 per cent
to D204.9 million. The banking system's net claims on the Government
rose by 9.2 percent to 1.2 billion, nothwithstanding the 42.0 percent
increase in Government deposits.
26) Reserve money grew by 24.1 percent, higher than
the growth rate of 17.3 percent in the previous year. However, reserve
money rose by only 6.4 percent from end-December 2004, lower than the
end-september programmed growth target of 11.0 percent.
d. Foreign Exchange Developments
27) The Dalasi appreciated against all the major
currencies in the first nine (9) months of 2005. Compared to end-December
2004, the Dalasi appreciated against the Pound Sterling, Euro and Dollar
by 7.1 per cent, 5.5 per cent and 6.1 per cent respectively. The volume
of transactions of foreign currencies in the inter-bank market increased
slightly to D15.97 billion in the first nine months of 2005, compared
to D12.40 billion over the same period in 2004.
28) The U.S. dollar continued to dominate the inter-bank
market, accounting for 51.4 per cent of the volume of transactions,
followed by the Pound Sterling (27.1 per cent) and the Euro (19.7 per
cent).
Mr. Speaker, Sir, On Price Movements in the Economy
e. Price Movements
29) During the year under review (2005), inflation is on a downward
trend. The current year inflation is estimated at around 4 per cent,
compared to the corresponding figures of 17.6 and 8.0 per cent as at
end 2003 and 2004 respectively. Almost all groups and their sub-groups
indices experienced decrease om their rates of change.
30) Food, drink and tobacco group registered an inflation
rate of 3.2 per cent, compared to the non-food group that shows an inflation
rate of about 2.4 per cent.
31) The sub-group indices that contributed most to
the 3.2 per cent inflation in the food, drink and tobacco group are
"beverages and alcoholic drinks" (6.5%), "cereal and
cereal products" (5.1%0, "tobacco and tobacco products"
(3.6%), "oils and fats" (3.2%), "milk and milk products"
(3.0%), "meat, poultry, eggs and fish" (2.2%).
32) For non-food group, the "transport and communication"
sub-group recorded a rise of 5.4 per cent, whilst the recreation and
entertainment", and the personal care and services" sub-groups,
increased by 7.0 per cent and 5.9 per cent respectively.
f. Balance of Payments
33) The revised balance of payments (BOP) estimated
for 2005 indicated that the overall balance would be higher than earlier
projected. This is mainly because of increase in workers' remittances,
tourism and private capital inflows.
34) The aggregate value of exports is estimated to
decrease to D3.6 billion, or 2.3 per cent, relative to the previous
year, reflecting lower exports of groundnuts. Groundnut exports are
valued at $11.3 million, or a decline of 33.0 per cent from 2004, attributed
to inadequate marketing arrangements. Other domestic exports, including
fish and fish products, and horticultural exports, are projected to
increase to D282.7 million, against D269.0 million in 2004. Re-export
are estimated at D2.9 billion, compared to D3.0 billion in 2004.
35) The value of imports is estimated to increase
to D6.3 billion, or by 7.4 percent from 2004. Food products, manufactured
goods, machinery and transport equipment top the list of imports. The
value of oil imports is estimated at $40.3 million, compared to $29.5
million and $14.0 million in 2004 and 2003 respectively, reflecting
the sharp rise in oil prices. About 70.4 per cent of imports are classified
as imports for domestic consumption, and the balance for re-export.
36) Travel income is estimated to increase to D2.2
billion, or 29.4 percent over 2004, owing to the projected 9.4 percent
increase in tourist arrivals.
37) Private remittances are estimated to constitute
the second largest source of foreign exchange for the economy, after
foreign direct investment. Flows of workers' remittances have grown
steadily over the years, reflecting principally the increase in the
number of Gambians living and working abroad. Remittances are projected
at D856.3 million, compared to D569.9 million and D346.2 million in
2004 and 2003 respectively. Private unrequited transfers should amount
to D117.3 million, a slight decline of 0.2 percent over last year.
38) The current account balance, excluding official
transfers, is estimated at D2.6 billion, an improvement of 1.8 percent
over 2004. Current account balance ( including official transfers) is
projected to increase to D1.7 billion, or 21.9 percent from 2004.
39) Medium and long term capital inflows continued
to contribute significantly to the overall surplus in the capital account.
Official loans (net) are project at D489.2 million, reflecting higher
inflows from project-related loans, estimated at D119.4 million, compared
to D1177.4 million in 2004.
40) Amortization is estimated at D422.2 million, slightly
lower than the D431.0 million recorded in 2004. Foreign direct investment
(net) is estimated at D1.3 billion, compared to D1.5 billion in 2004.
Tourism continues to attract the bulk of the FDI inflows.
41) Reflecting these developments, the overall balance
of payments is estimated at a surplus of D320.9 million, but lower than
the D988.3 million in 2004. As a result, official reserves are projected
to increase by D277.2 million. Repayments to the IMF are estimated at
D43.8 million, while exeptional financing is projected at zero.
-end.