THE GAMBIA: BUDGET 2003

BUDGET SPEECH 2003

PROGRAMME BASED BUDGETING FOR EFFICIENT RESOURCE ALLOCATION AND USE WITH A POVERTY REDUCTION DIMENSION

43. For the year ending December 2002, the Gross Domestic Product (GDP) at constant market prices (1976/77 prices) is estimated to increase by 4% due to a positive growth envisaged in all the other sectors despite a poor crop performance, attributed to low rainfall.

44. The poor crop performance is estimated to result in a drop of 6.8% in total agricultural output, with groundnut production falling by about 12% compared to the figure of last year. Despite the steep fall in crop production, expected to decline by 10.7%, the other sub-sectors of agriculture once again recorded increases. Value Added from the fishing industry is expected to grow by 18% percent while Forestry and Livestock production are forecasted to grow moderately by 4 and 3 percents respectively.

45. Manufacturing is expected to grow marginally by 4.7%, with relatively lower expansion in small-scale undertakings of about 4% compared to 5% growth in large-scale activities. The growth in small-scale manufacturing is attributed mainly to increased demand for construction intermediate inputs, whilst growth in large-scale manufacturing is accounted for by increased production of soap, plastic, soft drink and foam materials.

46. Once again Electricity and Water sector's contribution to the GDP will register a further growth of 6.6%, while the Building and Construction industry is forecasted to maintain its growth of 3.6% from 2001. The Distributive Trade industry is expected to expand by 10% in terms of its annual contribution to GDP.

47. The Tourism functions, comprising mainly of Hotels and Restaurant Services, are forecasted to increase by 8.2%, while the telecommunication industry is expected to grow significantly by 10%. Transportation will also record growth of 7.5% resulting mainly from increase in the national road transportation fleet, especially privately owned commercial vehicles. Real Estate and Business Services are expected to improve from a 2.2% growth in 2001 to 4.2% in 2002 whilst growth in the Other Services industry is also estimated at 4.2%.

Mr Speaker Sir,

48. Fiscal management in 2002 was never going to be easy after the expansionary performance in the latter part of 2001. Although there were further inevitable extra-budgetary expenditures during the course of the year, their effects were dampened by the recent tight fiscal measures we have put in place, such as the operation of a cash budget. These measures will continue in 2003 and are expected to yield a more positive outlook once the process to close down the majority of below the line (BTL) accounts is successfully concluded.

49. The 2002 total consolidated revenue amounted to D1.44 billion with minimal downward adjustment from the approved estimate. This reflects buoyant collections in direct tax and non-tax revenue that offsets the dip in indirect tax revenue. The consolidated revenue out-turn (including grants) for 2002 increased by 26.4% over the actual figure in 2001 of D1125.7m and it represented 20.5% of GDP. Total domestic revenue during 2002 will reach D1 billion for the first time, with the revised projected amount standing at D1.2 billion. It shows an increment of 22.3% over the actual total of D989.9m collected in 2001. Total revenue and grants as at end-October 2002 is slightly above D1.2 billion, which is also higher than the D1.13 billion total for end 2001. Of this end-October total, grants represent D273.4m, whilst the remaining total domestic revenue of D975.8 comprises of D840.6m as tax revenue and D135.2m as non-tax revenue.

50. Expenditure and net lending is projected to rise by 18.7% from D1.6 billion in 2001 to D1.9 billion (26% of GDP) by the end of the year, with current expenditure making up D1.3 billion of this amount. The end-October picture shows expenditure and net lending to have hit D1.7 billion and current expenditure so far this year stands at D1.1 billion, compared to D1.2 billion at end 2001. Of this total, wages and salaries make up 29%, interest payments 23.9%, while Other Charges make up the bulk at 43.5%. The fiscal deficit excluding grants is projected to improve from 8.7% of GDP in 2001 to 7.6%. Including grants, the fiscal deficit for end 2002 is projected at 4.9% of GDP from 7.6% in 2001. Total recurrent expenditure was 20.2% of GDP in 2001 but dropped to a projected 18.7% for end 2002.

51. At sectoral levels, the social sectors of Health, Education and Agriculture took up D348.7 million of total expenditure, which is equivalent to 38.1% of total approved estimate excluding debt service charges.

52. Once again, the Education sector received the largest share of the budget funds in 2002 reflecting Government's priority in the medium term as outlined in the PRSP. During 2002, budgetary allocation to the education sector from central Government amounted to over D177 m for recurrent expenditure and D7 million for development or project related expenditure. These allocations, together with D70 million from external grants, D78 million from external loans and D20 million from the Heavily Indebted Poor Countries (HIPC) Initiative continue to finance the cost of implementing the Education sector's nine priority programme areas.

53. The health sector's share of the recurrent budget was the second biggest sector allocation at D133.6m, which translates to nearly 10% of the total recurrent budget. Youth and sport development rose to D7.4 m from D6.8, whilst Agriculture received D30.1m although a significant 13% of total development funds at D123.4 million went to the sector. It is worth emphasising that projected interim HIPC funds during 2002 amounted to over D130m, the biggest during the 3-year interim debt relief initiative, with the bulk of it used on poverty reducing expenditures and the social sectors. Indeed there are questions on whether some of these sectors, such as agriculture have the absorptive capacity to utilise these funds in effective programmes. It is for this reason that we continue to stress on the importance of public expenditure review and program based budgeting.

Mr Speaker Sir,

54. Preliminary data show a slight improvement in the overall balance of payments. The overall balance is projected at a deficit of D223.5m in 2002, compared to a deficit of D230.9m in 2001. However, the deficit may worsen once the decline in agricultural production and exports owing to unusual dry spells at the beginning of the rainy season is fully accounted for. The most important component of the imports are "vehicles and accessories" 8.93%, "mineral fuels and lubricants" 6.9%, "Sugar and sugar confectionery "6.2%, and "Cereals" mainly rice at 5.7%.

55. Owing to the projected improvement in private and official transfers, the current account balance is estimated at a deficit of D341.76m at end- 2002, compared to a deficit of D444.2m in 2001. Although the trade balance is expected to deteriorate to a deficit of D1.6 billion in 2002, from D1.4 billion in 2001, private and official transfers are projected to increase from last year by 38.6% and 20.3% respectively.

56. The capital account balance is projected to deteriorate from a surplus of D213.2m in 2001 to a surplus of D118.3m in 2002. Net official inflows are expected to increase from a net repayment of D133.3m in 2001 to net inflows of D481.1 m in 2002. Net inflows of foreign direct investment are also projected to rise to D139.3m in 2002.

57. For 2002, imports are provisionally valued at around D2, 947.6 million, whilst exports stand at about D 417.5million. The trade balance deficit is D2.5 billion. For 2001 the corresponding trade balance deficit was D2.0 billion. Total imports CIF for the current fiscal year is estimated at D2.9 billion compared to D2. 1 billion in 2001 and D2.4 billion for 2000 fiscal year. This is an increase of D840.7million or 39 percent over the year 2001. These statistics reflects the increase in the volume of imports and appreciation of international currencies against the Dalasi.

58. Total exports are provisionally valued at D417.5million, with groundnut and groundnut products accounting for 70.1 percent of the total exports. Fish and fish preparations exports increased by about 7.6 percent whilst exports of fruits and vegetables remained at the same level as that of last year. United Kingdom, Germany, Brazil, France, China, United States, Cote d'Ivoire, Senegal and India are our main trading partners. It should be noted that the total re-export trade amount is captured within total imports

Mr Speaker Sir,

59. Monetary policy is aimed at achieving price and exchange rate stability. To this end, the Central Bank continued to rely principally on treasury bills as an instrument to achieve its policy goals. Monetary developments during the 10 months ending October 2002 were quite expansionary. Money supply grew by 19.9% from end-December 2001. The growth in broad money stemmed from both domestic and external factors.

60. The net foreign assets (NFA) of the banking system increased by D328.54 million or 36.6% compared to end-December 2001. While the net foreign assets of the monetary authorities increased by 22.9%, that of the deposit money banks rose by 233.8%. Gross official reserves grew by 11.8% to D1.7 billion or 5.2 months of import cover. The net domestic assets of the banking system rose by 9.7% to D1.6 billion at end-October 2002. The expansion was accounted for mainly by the substantial increase in net claims on Government and private sector credit.

61. Reserve Money increased by 11.3% or D96.14 million from the end-December 2001 level, largely as a result of a 14% increase in currency issued and 2.3% rise in commercial banks' deposits with the Central Bank. Overall, the reserves of the commercial banks were below the statutory requirements. At end-October 2002, commercial banks were below their reserve requirement by D27.9 million or 10.6%.

62. The combined stock of outstanding Treasury and Central Bank Bills increased by 15.2% to D2.3 billion from end-December 2001. Both Treasury and Central Bank Bills registered an increase. Outstanding Treasury Bills rose by 14.2% to D2.2 billion while Central Bank Bills increased by 42.5% to D93.8 million. Bills held by both bank and non-bank recorded an increase of 13.7% and 17.3% respectively.

Mr Speaker Sir,

63. An analysis of The Consumer Price Index (base year 1974) for the low-income population in Banjul and Kombo St. Mary shows a projected annual inflation rate of 7% by end 2002 compared to the corresponding figure of 4.5% for 2001. The 'Food, Drink and Tobacco' division accounted for 89.7% of the rise in the overall index, whilst the 'Non - Food' division accounted for 10.3% of the overall rise.

64. The 'Meat, Poultry, Egg and Fish' sub-group went up by 29%. Two other subgroups, namely, 'Beverages, Alcoholic Drinks' and 'Tobacco and Tobacco Products' registered significant price increases of 20.3 and 21% respectively. The subgroup that recorded the most significant change was 'Transport and Communication', registering a percentage rise of 14.1 over the index for 2001. This subgroup alone accounts for over a third (35.8%) of the change within the Non-food Division. Items classed under the 'Miscellaneous' sub-group jointly accounted for 57.7% of the change in the Non-food Division.

65. In order to dampen inflationary pressures and enhance the attractiveness of Dalasi denominated assets, the Discount Rate, which is the policy rate, was increased to 17% in August, 2002 and to 18% in September, 2002 and currently stands at 20%. Consequently, Commercial banks also raised their deposit and lending rates in line with the tightening policy stance.

Mr Speaker Sir,

66. At end-October 2002, the financial sector comprised the Central Bank of The Gambia, seven commercial banks, eleven foreign exchange bureaux, eleven insurance companies, sixty Village Savings and Credit Associations (VISACAs) and numerous informal savings and credit clubs.

67. The banking sector continues to overwhelmingly dominate the financial system. Total banking sector assets stood at D4.0 billion at end-October 2002, a 60.0% increase from end-December 2001. Total loans, however, stood at D1.1 billion or 27.5 per cent of total assets indicating continued preference for liquid and low-risk assets. The largest portion of banks' assets was in Treasury and Central Bank Bills. As a result, banks are highly liquid. Commercial banks' total liquid assets stood at D1.2 billion at end-October 2002, declining by 16.7% from end-December 2001. On average, banks were in excess of their liquidity requirement by 121%.

68. Even though the banking system as a whole is well capitalized and provisioned, Continent Bank was put under seizure by the Central Bank in January 2002 under Section 43 of the Financial Institutions Act, 1992. The Central Bank has been providing the necessary support to arrest the bank's deteriorating position and stemming any possible negative systemic impact on the confidence of the banking sector.

69. To deepen the banking sector, the Central Bank has allowed four banks to operate foreign currency accounts. To ensure that banks are not exposed to foreign exchange operational risks, the Central Bank introduced several rules on commercial banks' foreign exchange activity. These include overnight foreign exposure limits, limits on individual currencies, criteria for lending in foreign currency, risk management systems and internal controls and criteria for the placement of foreign currency deposits.

Mr Speaker Sir,

70. The Dalasi continued to depreciate against all the major currencies traded in the inter-bank market during the first 10 months of 2002. The Dalasi depreciated in nominal terms on average by 10.9% against the Pound Sterling, US Dollar, Swedish Kronner (100), CFA and the EURO during the period under review. The depreciation of the Dalasi could be attributed to a composite of factors, including expansionary monetary and fiscal policies and the less-than-expected inflows from tourism, re-exports and groundnuts exports.

71. The US Dollar continued to be the most traded currency in the inter-bank market accounting for 47.2% of market share as at end-October 2002. However, this was slightly lower than the 50.2% market share recorded at end-December 2001. The decline in the market share of the Dollar was due to increased transactions in the Euro, which replaced most European currencies, including the French Franc and Deutsche Mark on January 1, 2002. In a bid to arrest speculation in foreign currencies, the Central Bank has taken the stance to narrow the spread between the Parallel market and the Inter bank exchange rates and also call on all foreign currency dealers (formal and informal) to register with them.

72. The British Pound accounted for 13.2% of total transaction volumes, compared to 8.8% at end-December 2001. The Euro, Swedish Kronner and CFA accounted for 36.0%, 0.9% and 1.8% of market share respectively. Unclassified currencies' market share dropped from 15.9% at end-December 2001 to 0.6% at end-October 2002.

73. Volume of transactions, as measured by total purchase and sale of foreign currencies in the inter-bank market was D9.2 billion as at end-October 2002 compared to D7.8 billion during the same period in 2001, or a nominal increase of 17.9%. The increase in the volume of transactions was primarily due to the depreciation of the Dalasi.

Mr Speaker Sir,

74. The Gambia's National debt as of date stands at about US$601.0 million of which external debt is forecasted to reach about US$490 million at end December 2002. The increase on the external debt from US$437.50million, in 2001 to about US$490.0 million at end 2002 representing a rise of 12 %, reflects an increased inflow of development funds to finance new vitally important projects being implemented by Government.

75. The Gambia's External debt is mainly long-term with original maturity of more than one year. Multilateral Debt constitutes 77% of total external debt. This august Assembly is to be informed that, in keeping with its Debt Sustainability strategy, Government continues to refrain from contracting commercial credits to fund its development programme.

76. The ratio of external debt service to GDP stands at 3 % in 2002 while the debt service to budget ratio at present stands at 36 %. The preparation of a full PRSP will hopefully trigger our completion point, at which time more debt relief from our other bilateral and multilateral partners including the Paris Club (Bilateral partners) will be forthcoming to complement HIPC resources. This august Assembly is to be informed that in keeping with its debt sustainability strategy, government continues to refrain from contracting commercial credits to fund its development programme.

77. The Gambia's Domestic debt rose from D2.6 billion at end 2001 to D2.9 billion at end October 2002. This increase of 14 % per cent reflects domestic financing of the budget deficit and use of Treasury bills to mop up excess liquidity. The bulk of domestic debt consists of Treasury bills, which constitute 82%, Bonds make up 8%, while Discount Notes and Development Stocks constitute 4% and 1% respectively. The remaining five 5% is made up of Non-Interest Bearing Treasury Notes.

78. Total servicing costs of domestic debt increased from D224.6m at end 2001 to a projected D286.5 million at end 2002. This mainly reflects an increase in outstanding Treasury bills and rising interest rates. Government will endeavour to achieve a reduction in the outstanding domestic stock in order to minimise the long-term borrowing cost. We will try to do this whilst ensuring consistency with our monetary policy objective.
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