III. THE DOMESTIC ECONOMY

i. Real Sector

Mr. Speaker, Sir,

14. For the year ending December 2004, the Gross Domestic Product (GDP) at constant factor cost is estimated to increase significantly by 8 percent. This is, mainly, the result of the expected bumper harvest of all major crops that boosted agricultural growth to 11.9 per cent, and raised its contribution to GDP to 36.7 per cent.

15. The buoyancy in the Agricultural sector resulted from all its sub-sectors. Crop production increased to 13.9 percent, and contributes about 29.1 percent of GDP. Cereal production continues to register growth, and contributes about 19.5 percent of GDP, whilst groundnut production increased by 29.6 percent.

16. The Industry and Service Sectors are estimated to grow by 9.6 percent and 2.8 percent respectively. During the year under review, all economic activities performed, except the Utilities sector, which is estimated to record a decline of about 15.9 percent.

17. The Fishing Industry is provisionally estimated to grow by 10 percent, mainly as a result of increase in economic activity of the inland fishing and processing. Forestry and Livestock sub-sectors are forecasted to grow by 3.0 percent each.

18. The Manufacturing sub-sector is estimated to grow by 5.7 percent as a result of increases of 6 percent and 5 percent growth in large scale and small scale manufacturing respectively. The increase in large-scale manufacturing is due to increase in the production of groundnut oil, soft- drinks, beer and foam-based goods. The growth in small-scale manufacturing is attributed to an increase in construction of intermediate inputs, e.g., metal fabrications.

19. Output of Electricity and Water sectors is estimated to decline by 15.9 per cent in 2004, compared to the previous decline of 7.9 percent in 2003. The decline is mainly the result of low electricity production.

20. The Building and Construction Industry is estimated to grow moderately by 2.0 per cent, due to both private and public construction activities.

21. The Distributive Trade is expected to perform quite weakly, though expanding by 0.3 percent. The positive change is the result of increase in the expected expansion in groundnut trade in the last weeks of 2004. The value added from groundnut trade is anticipated to significantly increase in the 2005 fiscal year as a result of the higher producer price, and the rehabilitation of the marketing infrastructure. Overall distributive trade activities will account for about 8.0 percent of GDP.

22. The Tourism Industry, comprising mainly of Hotels and Restaurant Services, is estimated to increase by 7.4 percent, due to corresponding rise in the number of tourist arrivals.

23. The communication Industry is expected to grow by 6.3 per cent, as a result of expansion in Telecommunication activities, particularly GSM. The Transportation Industry is estimated to grow by a modest 2 percent, due to poor road conditions, and decline in public transportation activities.

24. ‘Real Estate and Business Services’ and Other Service Industries are expected to register marginal growths of 2.0 percent each during the period under review. Public Administrations’ contribution to GDP will remain as that of 2003, as a result of the zero real growth in civil service size.

ii. Fiscal Developments in 2004

Mr. Speaker,

25. Government continues to pursue prudent fiscal policies, in terms of maximizing revenue collections through several revenue reform initiatives, and at the same time, reducing expenditure pressures. On the expenditure front, NEFCOM continues to do an effective job, in rationalising expenditures and helping to institute the necessary controls to ensure that expenditure overruns are avoided. Consequently, Government has neither incurred any extra-budgetary expenditures, nor has it borrowed from the Central Bank during the course of 2004.

26. Total revenue, including grants, as of end-October 2004 stood at D2560.6 million, or 20.6% of GDP. This is already 95.5 percent of the 2004 annual budget target of D2679.5 million, or 21.6% of GDP. Domestic revenue collected by Government in the first ten months of 2004 has reached D2073.5 million, representing about 17% of GDP. This compares favourably with the 2004 budget estimates of D2269.2 million or 18% of GDP. In fact, the actual outturn of revenues so far in 2004 has shown that Government will, this year, reach a record domestic revenue collection level of 20% of GDP. The performance of non-tax revenue has been relatively good, as total non-tax receipts as of end-October 2004 amounts to D196.7 million as against the 2004 budget target of D254.9 million. Grants have also overshot its 2004 budget figure of D410 million with an actual outcome of D487.1 million by end-October 2004, reflecting an improved disbursement of donor project grants.

27. The total expenditure for 2004 is budgeted at D3886.01 million, or 31.3% of GDP. The actual expenditure outturn up to end- October 2004 is D2884.4 million, or 23.3% of GDP. With this rate of spending, total expenditure is expected to contract by 2.4% to D3.5 billion. Recurrent expenditures as of end-October, 2004, has registered an actual outturn of D1660.1million, whilst the actual externally funded capital expenditure outlay for the same period of D738.5 million compares favourably with the 2004 budget figure of D1, 138.8 million. However, debt interest payments of D578.3 million as at end-October 2004, constitute 20 percent of total expenditure. Overall debt service payments is at D925.9 million or 32 percent of total expenditure.

28. This outstanding fiscal performance in 2004 will reduce the overall fiscal deficit, including grants, by the end of 2004 to 3.75% of GDP. This is a marked improvement of 0.75 percentage points of GDP from an overall fiscal deficit level of 4.5 percent in 2003.

iii. Monetary Sector

Mr. Speaker, Sir,

29. In pursuit of macroeconomic stability, The Central Bank of The Gambia continues its restrictive monetary policy stance adopted in the second half of 2003. To enrich the input into the monetary policy decision-making process, and improve coordination with fiscal policy, a Monetary Policy Committee (MPC) comprising senior officials of the Central Bank and the Department of State for Finance and Economic Affairs, was formed in the first quarter of this year, and is charged with the responsibility for setting interest rates.

30. Growth in money supply decelerated to 16.1 per cent as of end-September 2004 from 40.2 per cent in the same period last year. Compared with end-December 2003, money supply would grow by only 5.3 per cent in end-September 2004. The substantial decrease in the growth rate of money supply was mainly due to the restrictive policy stance of the Central Bank.

31. The Net Foreign Assets of the banking system increased by 52.3 per cent to D2.9 billion at end-September 2004 reflecting the combined effects of the increase in the Net Foreign Assets of both the Central Bank and the commercial banks. The Central Bank’s foreign assets or gross official reserves rose to D2.4 billion, up 25.9 per cent, from end-December 2003, while its foreign liabilities declined by 27.0 per cent. Consequently, the Net Foreign Assets of the Central Bank rose by 88.9 per cent to D1.7 billion. Commercial banks’ Net Foreign Assets increased to D1.2 billion, or 19.1 per cent from end-December 2003.

32. The Net Domestic Assets (NDA) of the banking system declined by D740.1 million or 27.3 per cent, reflecting the decrease in claims on both the Government and the private sector. The banking system’s claims on public entities declined by D21.1 million, or 6.1 per cent, while net claims on Government fell by D396.0 million, or 26.5 per cent. The improvement in Government’s position largely reflects the decrease in the fiscal deficit, and Government’s reduced domestic borrowing requirement. Most notably, the Central Bank’s net claim on government declined by D729.9 million, or 86.8 per cent. IV. Financial Sector

33. The banking industry’s gross loans declined by 19.7 per cent to D1.5 billion at end-September 2004. The decline reflects change in policies by both banks and borrowers as a result of the attractive yield on treasury bills, and the high cost of borrowing.

34. The banks continue to reduce their non-performing loans portfolio. Non-performing loans stood at D155.6 million on June 30, 2004, representing 10.6 per cent of gross loans and advances. This compares favourably with the 14.4 per cent and 15.9 per cent at the end of December 2003 and March 2004 respectively. The improvement resulted from the transformation of some major facilities into performing status.

35. Total liquid assets of commercial banks at D2.3 billion at end-September 2004 reflect an improvement by D780.4 million or 50.9 per cent, from the D1.5 billion at the end of the corresponding period last year. At the end of the review period, commercial banks had excess liquidity of D1.3 billion (or 119 per cent) above the statutory requirement, and excess reserves of D818.6 million (or 129 per cent) above the required level, compared to 62 per cent and 76 per cent respectively in the previous year.

v. External Sector

36. The current account deficit, including official transfers, is projected to deteriorate to D581.9 million in 2004, owing largely to the significant drop in the services account. Whilst the factor service balance is expected to worsen by 26.3 per cent as a result of the increase in interest payments, the non-factor service balance is projected to record a surplus of D432.8 million in 2004, compared to D204.9 million in the previous year. The merchandise trade deficit is estimated at D1.6 billion, relative to D1.1 billion in 2003 as imports (especially FDI-related imports) continue to grow faster than exports.

37. The capital account surplus is projected at D1.4 billion underpinned by the surge in private capital inflows, especially foreign direct investment (FDI) as a result of the global recovery. Whilst there are no programme loans expected in 2004, total project related loans are estimated to drop slightly to D738.5 million, as a result of outstanding disbursements expected from the European Union and the Islamic Development Bank respectively.

38. In light of the above, the overall balance of payments is estimated at a surplus of D797.8 million, compared to a deficit of D164.6 million in 2003. This will enable an increase in gross official reserves of D464.8 million, and repayments to the IMF of D333.0 million.

39. In 2005, the overall balance of payments surplus is projected at a reduced surplus of D27.3 million. Whilst the capital account is expected to maintain the significant improvement recorded in 2004, the current account deficit is estimated to widen further to D1.6 billion, largely as a result of increased interest payments. Overall, Gross official reserves are projected to increase by D234.3 million in 2005.

vi. Foreign Exchange Developments

40. The foreign exchange market was quite vibrant during the first nine months of 2004. The volume of transactions, as measured by aggregate purchases and sales of foreign currency in the inter-bank market, rose by a staggering 76.8 per cent from D7.7 billion for the first nine months of 2003 to D13.6 billion in the same period this year. This increase is not only attributable to a rise in inflows of foreign exchange from re-exports, private transfers, foreign direct investments and groundnut exports, but to a significant decline in the level of black market transactions.

41. The US Dollar continued to be the dominant currency accounting for 60.7 per cent of the total volume of transactions, followed by the Pound Sterling (22.6 per cent), and the Euro (13.3 per cent). With regards to exchange rate movements, the Dalasi depreciated, in nominal terms, by 2.0 per cent and 6.0 per cent against the Pound Sterling and Swedish Kroner respectively. The Dalasi, however, strengthened against the US Dollar, the Euro and CFA franc by 10.2 per cent, 2.9 per cent and 1.4 per cent respectively during the twelve months to end-September 2004. It is worth mentioning that the Dalasi has been quite stable over the past nine months.

vii. Price Movements

42. The inflation rate, as measured by the consumer price index, declined from 17.9 percent in September 2003 to 12.3 percent (point to point) at end-September 2004. A further reduction to 10.5 percent is anticipated by the close of the year.

43.‘Food, Drink and Tobacco’ and ‘Non – Food’ component recorded rises in their indices of 16.1 percent and 10.2 percent respectively. The corresponding statistics for end-2003 were 20.4 and 10.4 respectively. These figures imply de-acceleration in price movements. The ‘Food, Drink and Tobacco’ component accounted for 60.6 per cent of the rise in the overall index, whilst the ‘Non – Food’ component accounts for 39.4 per cent of the overall rise.

44. Within the ‘Food, Drink and Tobacco’ component, all the groups’ recorded high increases, with the exception of ‘Vegetables and Fruits’, which have marginally increased by 5.25 per cent. The 16.1 per cent increase in ‘Food, Drink and Tobacco’ division is explained by percentage contributions of ‘Cereals and Cereal Products (26.2%), ‘Milk and Milk Products’ (14.9%), ‘Other Food’ (22.8%), ‘Roots, Pulses, Nuts and Seeds’ (9.9 %) and ‘Meat, Poultry, Egg and Fish’ (13.3%).

45. The ‘Cereals and Cereal Products’ group went up by 26.2 percent. Two other subgroups, namely, ‘Beverages, Alcoholic Drinks’ and ‘Tobacco and Tobacco Products’ registered significant price increases of 20.9 percent and 21.5 percent respectively. The subgroup index for ‘Processed Foods’ within the ‘Other Foods’ group also went up by 30.6 percent.

46. The ‘Non-Food’ division index also rose up by 10.24 percent, and accounts for 39.4 percent of the overall rise. Items classified under the ‘Miscellaneous’ group jointly accounted for 14.5 percent of the change in the Non-food Division. The subgroup within the miscellaneous items that recorded the most important change was ‘Education’, registering a percentage rise of 17.1 over the index for 2003. This subgroup alone accounts for almost a third (42.7%) of the change within the miscellaneous items. The cost of Transport and Communication also rose by 10.07 percent.

viii. National Debt

47. As at end 2003, the National debt stood at US$666.06 million, and it is estimated to reach about US$764.0 million at end-December, 2004, of which the domestic debt is about US$142.0 million.

48. The Gambia currently has nine multilateral creditors. Our multilateral debt constitutes 71% in net present value terms of our external debt stock. Our two biggest multilateral creditors are the World Bank and The African Development Bank with 46.5% and 28.3% respectively of the total multilateral debt.

49. Most of The Gambia’s Domestic Debt is Treasury Bills, which constitute 72 percent of the total. Bonds make up 24.5 percent, while Discount Notes and Development Stock constitute 3 percent and 0.5 percent, respectively. The remaining, which are interest free debt, are Government Non Interest Bearing (NIB) Treasury Notes and Central Bank over draft to Government accounting for 3 percent and 4.5 percent of the total debt stock respectively.

50. Total interest cost of domestic debt increased from D443.63 million at end 2003 to a projected D588.12 million at end December 2004. This reflects the increase in outstanding Treasury Bills, and the high interest rates.

51. Among the strategies and measures put in place to tackle the domestic debt issue include the setting up of a Domestic Debt Committee, which will look into the possibility of restructuring the debt. Furthermore, a Domestic Debt Unit within the Department of State for Finance and Economic Affairs has already been set up to coordinate domestic debt issues.

 

-end.