Mr. Speaker, Sir,

ix. CHALLENGES FACING THE 2006 BUDGET

132) Government faces critical budgetary challenges in 2006, and our success in tackling these challenges will profoundly affect this country's prospects for achieving its medium term economic and social objectives.

133) At the forefront of these challenges is the need to maintain fiscal discipline. This is essential to curb Government's domestic borrowing requirement. Too large a domestic borrowing requirement drives up interest rates, crowds the private sector out of credit markets, and impedes the Central Bank's ability to control money supply growth, which, in turn, jeopardises the control of inflation.

134) It is also essential to curb domestic borrowing, because the interest cost of the domestic debt will consume more than a quarter of total GLF expenditure in 2006. Domestic borrowing in 2005 is projected at around D458 million, which is D183 million higher than the 2005 estimated figure. It is vital that our performance improves in 2006. Accordingly, our domestic borrowing target for 2006 is now set at D200 million, which is less than half of the projected outturn for 2005.

135) Maintaining fiscal discipline is also imperative if The Gambia is to successfully implement a new programme with the IMF. Government has negotiated a six-month (October-March 2005) Staff Monitored Programme (SM) with the IMF which included quarterly targets for the budget deficit and domestic borrowing. Indeed, sound fiscal policies are at the core of the SMP. The 2006 budget is fully consistent with the fiscal targets, which have been negotiated with the IMF.

136) To ensure control over Government expenditures, and direct resources to their optimal use, Government has decided to implement a commitment control system. The Permanent Secretary in each Department of State will be designated its Commitment Control Officer for that Department of State, and shall be personally liable to ensure that the system operates efficiently and effectively in the Department of State. The Commitment Control system has been introduced in six pilot Department of State with effect from 1 October, 2005. Once the brief pilot phase is successfully implemented, Government intends to start a full-fledged Commitment Control System for the entire Government in early 2006. This is expected to control spending, and help direct resources more efficiently and effectively.

137) Implementing sound budgetary policies also means that Government Departments must curb the accumulation of arrears, which arise because expenditure commitments are incurred, even though there are insufficient funds in the budget to pay for them. We have allocated in the 2006 budget D144 million to repay outstanding arrears, which were accumulated in this year, and in previous years, but this is only a fraction of the outstanding expenditure arrears. The accumulation of arrears has become a major threat to the stability of our public finances, and at the very least, it will be necessary, in each of the next few years, to allocate substantial sums in the Budget to clear these arrears. This problem will become far worse, unless we halt the accumulation of new expenditure arrears by all Departments of State.

-end.