XII. FISCAL PROJECTION FOR 2002

i. Background

Mr Speaker Sir,

241. The 2003 budget has been formulated to continue to support and reinforce the achievement of the poverty reduction objective of Government. In this regard robust GDP growth in a stable macroeconomic environment is a prerequisite to achieving sustainable poverty reduction. Once again, the budget assumes a 6% real GDP growth for 2003 with an inflation target of 7% and a budget deficit (excluding grants) programmed at 4.3% of GDP. Although the deficit including grants is expected to fall below 2% of GDP, the overall deficit that accommodates poverty and social sectors related expenditure from interim HIPC debt relief is estimated at 5% of GDP for end 2003.

ii. Revenue

242. Within this background of the macroeconomic projections, the 2003 budget makes provision for total consolidated revenue of D1.73 billion (22.8 percent of GDP) representing an increase of 21% over D 1.42 billion in 2002. The 2003 budget projects for total tax revenue of D1.2 billion, which is 15.6% of GDP. Of this amount, taxes on international trade accounts for D467.2m (39.2%), taxes on goods and services D416.4m (34.9%) and taxes on income D309m (25.9%). Non-tax revenue is estimated at D540.9m, with D325m coming from non-project grants and D112.9m from Government Services Charges.

iii. Recurrent Expenditure

243. The Budget for 2003 makes provision for an expenditure ceiling of D2.2 billion (including net lending). The recurrent expenditure component for 2003 rises by 37.4% from the 2002 approved estimate and stands at D1.7 billion A broad analysis of the main recurrent expenditure components shows that Debt Service charges accounts for D539.9m, Personal Emoluments (including pensions) D406.7m, Other Purchases of Goods and Services D271.4m and Subsidies and Current Transfers account for D371.3m. Hence 90% of estimated total expenditure is distributed among the four major components: debt service charges accounts for 31.6%, Personal emoluments for 21.5%, other charges for 15.9% and subsidies and current transfers for 21.8%. The other components of recurrent expenditure make up 9.2% of the total.

244. D34m is budgeted for under recurrent capital expenditure whilst D66m is transferred to the development budget as Government's counterpart funding for projects. The projection for recurrent expenditure as a percentage of GDP in 2003 is 18%, slightly lower than the 18.7% revised projection for end 2002. It is hoped that the expenditure management reforms that are scheduled for now to the first half of 2003 will help contain the recent high expenditure. The level of recurrent expenditure agreed with IMF ensures that the budget deficit (excluding grants) is contained at 4.3% of GDP in 2003.

245. It is very crucial that the expenditure during 2003 is restricted to the budgetary allocation. This will not only ensure macroeconomic stability but also help to bring down the domestic debt stock to below 28% of GDP from the current rate of 32.5%. The 2003 budget must be implemented whilst bearing in mind that it is the year when completion point is reached under the HIPC initiative. Gambians are to be informed that at completion point, HIPC debt relief amounting to US$ 90.0 million will be received from donors in support of the PRSP.

iv. Development Expenditure

Mr Speaker Sir,

246. The estimate for total development expenditure rises by 12.9% from the approved 2002 total of D1079.2m to D1217.9m. The bulk of this increase is a result of a marked increase in external loans, by 35% from the D567.9m approved in 2002 to D770.0m. The transferred funds from the recurrent budget as Government's contribution to the development budget (GLF) virtually remained unchanged at D66m in both 2002 and 2003 while the external grants total falls to D309.7m. External loans make up 63.2% of the total development budget, Grants consist of 25% with GLF representing 5.5%. The remaining 6% comes from HIPC allocation.

v. HIPC Fund

247. The 2003 budget also incorporates the use of interim HIPC debt relief resources, which for the third consecutive year will be a source of finance for poverty reduction related expenditure. The total estimated HIPC resources for 2003 is D110.0m, of which D71.8m is going to the development budget, representing 65.3% of total HIPC funds and D38.2 is allocated to the same sectors under recurrent expenditure. The major allocations fall under 4 sectors: 36% to Health and Social Welfare (D39.9m), 12% to Education (D13m), 13% to Public Works (Transport, Construction and Public Utilities) (D13.9m) and 14% to Agriculture and Natural Resources (D15.3m). These sectors take up over 75% of the total, fully reflecting Government's commitment to social development and poverty reduction. A number of sectors are lumped under General Public Services (Finance, SPACO, Office of the Vice President), which includes D10 million as Contingency to take care of pledges made during the Round Table Conference.

248. The 2003 budget will therefore continue the trend of tying the bulk of all resources in the budget to the social sectors as well as the other sectors that have properly prioritise their objectives and submitted their expenditure requirements in the form of programmes. This is even more essential for 2003 when the initial steps for the development of the Medium Term Expenditure Framework will be put in place with the initiation of Public Expenditure Reviews to two more sectors and a reclassification of the budget codes.

-end.