Madam Speaker, Let me turn to the Domestic Economy

DOMESTIC ECONOMY

Real Sector

10. During 2006, real Gross Domestic Product (GDP) grew by 7.7 percent. This is a formidable performance of the economy, compared to the previous years. The growth in value added is the result of growth in all sectors of the economy. However, the prime movers of growth in 2006 are a booming Building and Construction industry, a strong rebound in telecommunications, considerable growth in Agricultural output, and a substantial increase in the operations of Hotels and Restaurants resulting in growth rates of 40 percent, 18 percent, 6.5 percent and 6 percent respectively. In terms of percentage shares, Agriculture, Industry and the Services Sectors contribute 29.8 percent, 10.9 percent, and 56 percent of total value added respectively.

11. The growth in the Agriculture Sector results from increases in value added of Crop Production, Livestock, and Forestry and Fishing activities. The value added for Crop Production increased by 7 percent, Livestock by 3 percent, while Forestry and Fishing activities increased by 3 percent and 10 percent respectively. The 8.8 percent growth in Industry is the result of increases in productivity in Mining and Quarrying activities (15 percent), Manufacturing (7.2 percent), Electricity and Water (6 percent), and Building and Construction (40 percent). This unprecedented growth in the Building and Construction Industry results from Construction activities in Road and other Public Civil Works related to the hosting of the African Union Summit. Private Construction relating to Housing and Housing amenities were also buoyant during 2006.

12. The Services Sector also enjoyed buoyancy during the year. The growth in the sector is the result of development in Distributive Trade, Hotels and Restaurants, Transport, Communication and Real Estate and Business Services. All these activities in the Services Sector registered growth. The Communications Industry registered the highest growth of about 18 percent. The growth in communication is attributed to expansion of Telecommunications activities, and the rapid internalization of ICT activities nation wide. National policies will continue to facilitate development within the ICT Sector to ensure faster socio-economic development, and optimize benefits from globalization. The contribution of the Public Service to overall GDP remains at about the same level as in 2005.

 

Madam Speaker, Let us now consider the 2006 Fiscal Outturn

2006 Fiscal Outturn

13. At the start of 2006, Government was faced with the daunting fiscal challenge, in the form of the mid-year hosting of the African Union Summit, and the Presidential Elections, and the expenditures associated with these events. However, the storm was weathered admirably due to prudent fiscal management, and timely assistance from The Gambia's special friends. The fiscal outturn was, thus, surprisingly much more favourable in 2006 than in 2005. The overall fiscal deficit (including grants) will be substantially reduced from the 8.6 percent in 2005 to 4.7 percent for end 2006.

14. Total revenue is projected to reach D3.08 billion for end 2006 from D2.6 billion in 2005. This represents an 18.3 percent growth rate, a significant improvement from the 3 percent growth in 2005 from 2004. Tax on international trade form the largest component of this total at D1.4 billion, although it was slightly below the 2006 budget projection of D1.5 billion, and over D200 million above the 2005 actual of D1.2 billion. Adding the D466 million collected as Domestic Tax on Goods and Services will give a total indirect tax that exceeds D2 billion. This is quite an achievement, considering that total revenue in 2003 was around D1.6 billion. Direct Tax is projected to rise to D813 million, above the 2006 budget estimate of D737.8 million, and 19.2 percent above the D682 million at end 2005. Non-tax revenue is expected to be within the Budget estimate at D400 million for 2006, from D340 million in 2005.

 

Madam Speaker,

15. Expenditure and net lending for 2006 is projected to fall slightly to D3. 86 billion from D3. 96 billion at end 2005. In terms of the breakdown, Current expenditure will increase by 11.2 percent to D 2.69 billion from D2. 42 billion in 2005, mainly reflecting the one-off expenditures during 2006 for the hosting of the African Union Summit, and conducting Presidential Election. These expenditures were taken from the Other Charges component of the budget, hence the jump in Other Charges from D736 million to D1. 06 billion, registering 43 percent increase. Some savings were made in total interest payments, which dropped to D934 million from D1. 13 billion at end 2005. The savings reflected the effect of a stable dalasi on external debt servicing during 2006, whilst the fall in Central Bank interest rates impacted positively on the level of domestic debt interest payments.

 

16. In terms of financing, the net borrowing will be virtually at the same level as in 2005, around D440 million, although the budget target of D200 million will be exceeded. Overall, public expenditure management was a success during 2006 in the face of expansionary fiscal pressures. The tightened fiscal stance meant that the various sectors of Government are generally squeezed due to the cash rationing on discretionary expenditures.

 

Madam Speaker, On Monetary Developments in 2006

Monetary Developments

 

17. Monetary policy in 2006 continues to focus on sustaining the disinflationary process, maintaining exchange rate stability, and a viable external position. The policy was conducted in a highly stable domestic environment of subdued inflation, and stable exchange rate, which caused monetary policy to be relaxed to permit a further reduction in interest rates. The policy rate (rediscount rate) was reduced by one percentage point to 14.0 percent at the October, 2006 sitting of the Monetary Policy Committee. The Committee also reduced the Required Reserve Ratio by two percentage points to 16.0 percent.

18. During the twelve months ending September, 2006, money supply grew by 20.7 percent, compared to 20.1 percent in the corresponding period in 2005. However, broad money increased by 14.1 percent, when compared to end-December 2005. The growth in money supply is attributable to the increase in both the net foreign assets and net domestic assets of the banking system.

19. The Net Foreign Assets (NFA) of the banking system rose to D3.5 billion, or 12.1 percent from end-2005. This was on account of the increase in the Net Foreign Assets of the Central Bank and deposit money banks by 13.0 percent to D2.3 billion, and 11.7 percent to D1.2 billion respectively. The Central Bank's foreign assets (gross official reserves) rose to D2.8 billion, or 5.6 per cent, while foreign liabilities decreased to D0.5 billion or 18.2 percent. Deposit money banks' foreign assets increased to D1.3 billion, or 14.5 percent, while their foreign liabilities grew to D73.8 million, or 99.1 percent.

20. The Net Domestic Assets of the banking system rose to D3.4 billion at end-September, 2006, or 16.2 percent, reflecting a strong domestic credit growth during the 9 months ending September, 2006. Domestic credit increased to D4.2 billion, or 20.0 percent, of which credit to the private sector grew by 27.1 percent to D2.2 billion at end-September, 2006.

21. A sectoral analysis of the distribution of commercial banks credit revealed that 23.3 percent of the total loans went to the distributive trade sector. Loans and advances to the agricultural sector captured 19.9 percent, whilst personal loans accounted for 17.6 percent of outstanding credit. The banking system's net claims on Government increased to D1.3 billion or 66.1 percent, largely reflecting Government's recourse to bank financing of the deficit.

Foreign Exchange Developments

22. Reflecting strong macroeconomic fundamentals and increased inflows, the Dalasi remain stable and the inter-bank foreign exchange market continued to function smoothly during the nine months, ending September, 2006. Volume of transactions, that is total purchases and sales of foreign currencies in the inter-bank market, totalled D23.9 billion in the first nine months of 2006, compared to D16.0 billion in the corresponding period of 2005. Total purchases increased to D12.6 billion from D8.0 billion, while sales rose to D11.4 billion from D8.0 billion.

 

23. The dollar continued to be the dominant currency in the inter-bank foreign exchange market, with a market share of 63.5 percent, followed by the Euro with 23.5 percent, and the Pound Sterling with 11.4 percent. During the period under review, the Dalasi depreciated against all the major currencies in the inter-bank market relative to end-December 2005. The Dalasi weakened against the Euro, Pound Sterling, Swedish Kroner and CFA franc by 3.80 percent, 4.2 percent, 2.15 percent and 5.98 percent respectively, but strengthened against the U.S dollar by 0.53 percent. Owing to improved economic fundamentals, increased foreign inflows, adequate reserve cover, as well as implementation of prudent monetary policies, the Dalasi is forecast to remain stable in 2007.

 

Madam Speaker, On Price Movements in the Economy

Price Movements

24. For three consecutive years, inflation has been on the decline. The 12 months moving average of the low Income Consumer Price index for the Greater Banjul Area as at end October 2006 recorded an inflation rate of 1.52 percent. As at end December, 2005, the rate of inflation was 3.17 percent, compared to the corresponding statistics of 14.2 and 17.0 percent for 2004 and 2003 respectively.

25. The index for the Food, Drinks and Tobacco Group remained stable during the period, November 2005 to October 2006, whilst the index for the Non-food group registered an increase of 4.7 percent. In terms of percentage shares, Food, Drinks and Tobacco items contributed about 48.9 percent of the overall rise in the rate of inflation, whilst Non-food item were responsible for the remaining 51.5 percent of the change in the inflation rate.

26. The retail prices of basic food items remained stable during 2006. The retail price of rice increase by 1 percent, millet 1.2 percent, bread 2 percent, smoked bonga 9.1 percent, catfish 7.7 percent, and fresh barracuda 17.5 percent. For the Non-food items in the consumer price basket, the housing index registered an increase of 16 percent, whilst the Clothing, Textile and Footwear, and the miscellaneous indices remained stable.

 

External Sector

27. To further integrate the Gambian economy into the global economy, as well as to enhance competitiveness, Government continues to maintain a conducive investment environment, and rationalize tax policies in relation to capital flows.

28. Revised balance of payments data projected an overall balance of payments surplus of D804.46 million ($29.97 million) in 2006, compared to a surplus of D1.7 billion ($61.74 million) in 2005. The drop in the balance of payments surplus is due entirely to the decline in the capital and financial account surplus.

29. Owing to the projected improvement in the trade balance, travel income and remittances, the current account balance (including transfers) is expected to narrow to a deficit of D0.9 billion from a deficit of D1.3 billion in 2005. The trade balance is projected to improve to a deficit of D3.2 billion in 2006 from a deficit of D3.4 billion in 2005, due largely to the projected increase in exports, including re-exports. Exports are estimated at D3.0 billion, compared to D2.7 billion in 2005. Re-exports are estimated to increase to D2.6 billion ($94.5 million), or 2 percent, relative to 2005.

30. The total value of imports is estimated to increase to D6.5 billion, or 2 percent, from 2005. About 65 percent of imports are classified as imports for domestic consumption, and the balance for re-exports. Food products, manufactured goods, machinery and transport equipment top the list of imports.

31. Tourism and private remittances continue to be a major source of foreign exchange for the Gambian economy. The value of travel income is estimated to increase to D1.8 billion in 2006, compared to D1.5 billion in 2005, reflecting projected increase in tourist arrivals, and revised average daily out of pocket expenditure.

32. Private remittances are estimated to constitute the second largest source of foreign exchange for the Gambian 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 estimated at D1.8 billion in 2006, compared to D1.7 billion in 2005.

33. The capital and financial account balance is projected to deteriorate from a surplus of D3 billion in 2005 to D1.7 billion in 2006, largely on account of the decline in foreign liabilities, reflecting lower-than-projected drawings on new loans.

34. Government drawings on new loans are expected to decline from D1.7 billion in 2005 to D0.9 billion in 2006. Total loan repayments increased to D653.81 million in 2006 from D465.35 million in 2005. Foreign direct investment (equity capital) decreased marginally from D1.3 billion in 2005 to D1.2 billion in 2006.

-end.