BUDGET SPEECH 2002
PROGRAMME BASED BUDGETING FOR EFFICIENT RESOURCE ALLOCATION
AND USE WITH A POVERTY REDUCTION DIMENSION
III. THE DOMESTIC ECONOMY
i. Real Sector
Mr. Speaker, Sir,
- For the year ending December 2001, real Gross Domestic Product (GDP)
is estimated to grow by 4.6% as a result of growth registered in almost
all the industries
- All the sub-sectors under agriculture, once again recorded increases,
with other crops (comprising of cereals, vegetables and fruits) forecasted
to grow by 11.6% and groundnut by 5%, amounting to a 9.4% rise for all
the crops. Output from Livestock, Forestry and Fishing are also estimated
to grow by 3, 4 and 18 percentage points respectively. Agriculture is
therefore forecasted to grow by 8.6%.
- Manufacturing is expected to grow marginally by 1.7%, with relatively
faster expansion in small-scale undertakings of 2% compared to 1.5%
growth in large-scale activities. Electricity and Water's contribution
to GDP will grow significantly by 17.4% by the turn of the year. Building
and Construction industry is also forecasted to grow by 3.6%.
- It is again projected that the trade sector will register a contraction,
from a total contribution of D78.1 million to D74.9 million, a fall
of 4.1%. This can be explained by the difficulties faced in the groundnut
trade in the past, however the trade situation is expected to improve
by the turn of the year. This activity is forecasted to grow by 0.5
% by end-2001.
- The activities of GAMCEL and AFRICELL, leading to an expansion in
telecommunication and increased mobile phone usage, significantly contributed
to the projected growth of 14.9% in the communication industry, while
transportation is expected to maintain its annual growth rate of 4%.
Real Estate and Business Services is also expected to register a marginal
growth of 2.2% during the period under review whilst growth in the Other
Services industry is estimated at 1.7%. The operations of AFRICELL has
brought about improved competition and reduced prices of mobile phone
ii. Fiscal Developments
- The performance of revenues and expenditure for the current fiscal
year has been mixed. While there has been revenue shortfalls, especially
in the first quarter, as a consequence of lower customs collections
and low payments from the public enterprises, expenditure overruns associated
with the additional payments to Alimenta exerted pressure on the outcome
of 2001 fiscal aggregates. The fiscal authorities stepped in with some
measures to improve revenue collections and tightened spending to contain
the deficit to the targeted level.
- Revenue for the year 2001, according to programmed figures, have been
revised downwards to D1.31 billion which represents a 17% growth from
the actual outturn of D1.1 billion in 2000. However, the total revenue
collected between January to October 2001 totals D874.7 million, and
this represents 77% of expected revenues for the current year. This
revenue outcome recorded up to end-October comprised of D714.9 million
of tax revenue, D109.8 million non-tax revenue and a grant element of
- The total projected expenditure amounted to D1.5 billion of which
about D1.1 billion (70%) has already been spent from January to October
of this year. Out of this amount, about 26% was used to pay wages and
salaries, 23% went to interest payments and the rest is accounted for
by capital expenditure. The overall fiscal deficit excluding grants
is expected to be contained at around 5.9% of GDP. However, this relatively
high level of deficit has taken into cognisance of the on-lent amount
of D77 million to NAWEC for the acquisition of a 6.5MW generator. If
this is excluded, the deficit will narrow down to about 4.6% of GDP.
iii. Monetary Developments
- For the first nine months of 2001, monetary expansion was moderate
in comparison to the growth in the preceding year. During this period,
the liquidity infusion into the economy was partly to finance the borrowing
requirement of Government. The expansionary impact of this was mostly
offset by a decline in net foreign assets of the banking system. Consequently,
broad money supply grew moderately by 3% during the review period.
- Bank financing of Government resulted in a substantial increase in
the net domestic assets of the banking system. Government’s net position
with the banking system deteriorated markedly and reached a deficit
of D448.5 million at the end of September 2001, due mainly to increased
expenditure. The Private sector's net position, on the other hand, declined
by 5.7% to D636.6 million during the same period, as a consequence of
reduced trading activities.
- The net foreign assets of the banking system at D894.7 million at
the end of September 2001 reflected a substantial decline of 30.7% compared
to end-December 2000. The net foreign assets of the Central Bank went
down 12.1% reflecting the D234.6 million drawdown in gross official
reserves. The drop in the external reserves of the Bank was due to the
heavy debt service payments and Central Bank’s intervention to sell
foreign exchange in the inter-bank market in order to reverse the build-up
in commercial bank arrears.
- The Consumer Price Index for the low-income population in Banjul and
Kombo St. Mary is estimated to reach 4.3% between January and December
2001 compared to 0.8% recorded in 2000. This relatively high inflation
rate resulted from a culmination of factors that generally worsened
the economic environment including higher oil prices as well as the
depreciation in the value of the Dalasi.
- The ‘Food, Drink and Tobacco’ and the ‘Non – Foods’ divisions both
recorded rises in their indices, of 4% and 4.7% respectively. The ‘Food,
Drink and Tobacco’ category accounted for 55.5% of the rise in the overall
index whilst the ‘Non – Food’ division explained 45.5% of the overall
- Monetary policy implementation was mainly pursued through open market
operations. To combat the rising inflationary pressures and also mitigate
volatility of the exchange rate, the Central Bank intensified its efforts
and diversified the instruments at its disposal to mop up excess liquidity
in the system. A 364-day Treasury bill was introduced in this regard,
in September 2001.
iv. External Sector
Mr. Speaker, Sir
- The preliminary estimates for the overall balance of payments showed
a deficit of D258 million representing 4.2% of GDP in 2001. Developments
in the current account excluding official transfers were mostly related
to deterioration in both the trade balance and net factor services balance.
The former deteriorated due to the higher increase in imports by 8.4%
in real terms whereas exports went up by only 5% as a consequence of
plunging terms of trade among other factors.
- The factor service balance turned negative reflecting poor performance
in the tourism sector coupled with out-payments for freight and insurance
in respect of imports. Including official transfers, the current account
balance however, improved marginally to represent a deficit of only
0.6% of GDP in 2001. The capital account, on the other hand, turned
negative at an estimated value of D125.8million. Net Official Loans
showed a marked decline, due mostly to a surge in amortizations reflecting
un-programmed payments to Alimenta. The significant drop in short-term
capital also reflects investor pessimism in the domestic economy.
a. Exchange Rate
- Although the level of tourism activities during 2001 was below expectations,
the foreign exchange market was quite vibrant as transaction volumes,
measured by aggregate sales and purchases of foreign currency in the
inter-bank market, rose by 18% to D6.8 billion by end-September.
- The Dalasis came under a lot of pressure losing considerable ground
against the major international currencies recording an overall depreciation
of 8.4% in nominal terms against the composite basket of currencies
by end-September 2001 compared to end-December 2000.
- The Dalasi fell by 12.4% against the US Dollar and 5% against the
Pound Sterling. The depreciation of the Dalasi was more pronounced in
the parallel market where it fell against the Dollar and the Pound by
13.1% and 13.7% respectively. Thus the premium between the parallel
and inter-bank markets widened especially in the case of the Pound from
3.4% at end-December 2000 to 10.8% at the end of September 2001 whilst
in the case of the dollar, the movement was from 7.2% to 7.8%.
- The pressure on the Dalasi could be attributed to the poor performance
of the tourist industry, reduced cross border trade and serious difficulties
in the marketing of groundnuts. This was also coupled with the strengthening
of the dollar in the international markets.
- Despite these problems however, we remained steadfast in our commitment
to the liberal exchange and payment system. Therefore the Central Bank’s
interventions in the foreign exchange market continued to be guided
by the need to maintain relative stability in the market as well as
to build up the foreign reserves in order to meet performance targets.
Hence official exchange reserves as at end-September 2001 stood at D1.6
billion, equivalent to 5.2 months of import cover.
v. Financial Sector Developments
- In accordance with the licensing procedures stipulated in the Financial
Institutions Act 1992, approval was granted in principle to Guarantee
Trust Bank Gambia Ltd during the year, to conduct business in the country.
This will bring the total number of commercial banks in the country
- Overall, the performance of the banking sector has been very encouraging.
Total deposit accumulation went up by 7% during the period reflecting
customer confidence in the banking system. Non-performing loans as a
percentage of gross loans also declined to 10.7% in June 2001, from
13.6% at the same period last year while the total value of non-performing
loans declined by 25.1%. A number of banks have maintained a tight lending
policy, with gross loans decreasing by 4.4%.
- As part of Government’s efforts towards deepening the financial sector,
commercial banks have been authorised to operate Foreign Currency Denominated
accounts from the first week of December 2001. Only banks that meet
the strict criteria were allowed to introduce the new product. It should
be noted that Foreign Currency Deposits facilitate the accumulation
of the much-needed hard currency for the financing of international
trade. All commercial enterprises, particularly big businesses and individuals
are thus urged to take advantage of this scheme. The Central Bank is
developing new guidelines for the supervision and monitoring of financial
institutions that will be operating Foreign Currency-Denominated Deposits.
- With the registration of a new Life and Health Assurance Company coupled
with another company presently under consideration, the total number
of insurance companies now stands at eleven. The Insurance Act of 1974
was recently amended into a new bill that is almost ready for enactment.
The bill provides an updated and more comprehensive framework for achieving
soundness and security to ensure a more transparent and efficient insurance
industry for the protection of the insuring public.
vi. National Debt
- The Gambia’s external debt rose from a peak of US$ 362 million in
1994 to an alarming amount in 2000, of US$ 401.8 million. This steep
rise reflects the increased development funds to finance new projects.
Thus The Gambia’s external debt rose by 11% in just five years. The
External Debt is estimated to reach US$378m in 2001, registering a decline
of 5.7% from US$401.8m in the preceding year. However, the above figures
include PEs stock of debt.
- The Gambia’s debt is mainly long-term debts of original maturity of
more than one year. The bulk of our debt is Multilateral Debt constituting
77% of total external debt while the remaining 23% is from Bilateral
Creditors. It is the World Bank and the African Development Bank (ADB),
which are our main Multilateral Creditors.
- The ratio of external debt service to GDP stood at 5% in 2001. This
picture is more dismal when viewed in terms of external debt as a ratio
of export of goods and services. The debt burden is no longer sustainable,
and is hampering our efforts to alleviate poverty proven by the debt
service to budget ratio, which at present stands at 30%. To minimize
the debt problem the Gambia qualifies and continues to benefit from
the HIPC Initiative. Government is also about to benefit from Paris
Club (bilateral) to complement HIPC resources.
- The domestic debt burden has been increasing at an alarming rate and
is now of utmost concern as it negatively impact on interest rates and
subsequently lowers investment from the private sector. The stock now
stands at D1.7 billion. Concerted efforts are underway to bring down
II. THE WORLD ECONOMY
III. THE DOMESTIC ECONOMY
IV. CO-OPERATION AND INTEGRATION
V. OUTTURN OF THE 2001 BUDGET
VI. POVERTY ALLEVIATION AND THE SOCIAL SECTOR STRATEGY
VII. POVERTY REDUCTION THROUGH INCREASED PRODUCTIVITY
VIII. POVERTY REDUCTION THROUGH INFRASTRUCTURAL DEVELOPEMENT
IX. ENVIRONMENTAL ISSUES
X. GOVERNANCE ISSUES
XI. NON-GOVERNMENTAL ORGANISATIONS (NGOs)
XII. PUBLIC ENTERPRISES (PEs)
XIII. FISCAL PROJECTION FOR 2002