IV. THE DOMESTIC ECONOMY

i. Real Sector

Mr. Speaker Sir,

26. For the year ending December 2003, the Gross Domestic Product (GDP) at constant market price is estimated to increase significantly by 8.6 percent, resulting mainly from the nationwide bumper harvest in almost all the crops. All industrial activities are also envisaged to record increases except for electricity and water, which are expected to decline by about eight percent.

27. The Agricultural sector, which account for 35.3 percent of the GDP accounts for 65.8 percent of the total changes in the value added with crop production alone accounting for 61.9 percent. Value added from the fishing sub-sector is expected to grow by 10.0 percent, while Forestry and Livestock production are each forecasted to grow moderately by 3.0 percent.

28. Manufacturing is expected to grow by 1.7 percent, with large-scale undertakings recording an increase of about 1.5 percent whilst small-scale activities are estimated to increase by 2.0 percent. The Building and Construction industry is also forecasted to grow by 3.7 percent, due to expansion in private and public construction activities.

29. The Distributive Trade sector is expected to grow by 14.3 percent contributing a total of D97.6 million. Similarly, non-groundnut distributive trade activities are projected to grow by 15.0 percent. Real Estate and Business Service is expected to register a marginal growth of 2.2 percent during the period under review, whilst growth in the Other Services industry is also estimated at 2.0 percent.

30. The Tourism sector, comprising mainly of Hotels and Restaurant Services, are forecasted to increase by 2.16 percent due to corresponding rise in the number of tourist arrivals, estimated at 89102 by end of 2003 compared to 78893 during 2002.The communication sector is also expected to grow moderately by 2.2 percent, due to the expansion in telecommunication and the increase usage of mobile phones.

ii. Fiscal Developments

31. The 2003 total consolidated revenue of D1.87 billion represents 21.3% of GDP and total domestic revenue estimated to end 2003 is expected to be above the D1.5 billion mark, and this is equivalent to 17.8% of GDP. As at end October 2003, total revenue and grants amounted to D1.45 billion with the domestic revenue component taking up D1.24 billion of this total, whilst grants make up D205.9 million. The tax revenue of D1.1 billion collected to end-October already exceeds the 2002 total tax revenue of D1.04 billion.

32. By end 2003, expenditure and net lending is projected to reach D2.49 billion, a significant 33.2% increase from the D1.9 billion total in 2002. Recurrent expenditure constitutes D1.77 billion of this total. The end October 2003 picture reveals that expenditure and net lending has already exceeded D1.7 billion of which recurrent expenditure stand at D1.2 billion.

33. Interest payments, at D424.6m continue to take up a bigger component of current expenditure (35.3%), reflecting the country's rising debt burden. In comparison to our end October 2003 targets in the PRGF program, the biggest component of current expenditure, other charges at D430.9m, was kept below its target of D491.6m largely due to the operations of NEFCOM. Other charges make up 35.7% of current expenditure, whilst wages and salaries at D348.8m makes up 28.9% at end October 2003.

34. The fiscal deficit (excluding grants) is projected to worsen to 9.1% from 8.4% in 2002. Including grants, the 2003 fiscal deficit is estimated at 6.4%, compared to 4.8% in 2002. This development is explained by the increase in the ratio of recurrent expenditure to GDP from 18.6% in 2002 to a projected 20.2% at end 2003, mainly as a consequence of debt service payments.

iii. Monetary Sector Developments

Mr. Speaker Sir,

35. In 2003, monetary policy was conducted in a difficult and volatile economic and financial environment. Liquidity continued to be generated by larger-than-expected fiscal deficit and monetary expansion. As a result, the Dalasi continued to depreciate leading to higher inflationary pressure. Consequently, the Central Bank further tightened monetary policy in order to mop up excess liquidity.

36. In this regard, the Treasury bills discount rate rose from 20.0 per cent at end-2002 to 31.0 per cent by end-September 2003 to encourage, among other things, the holding of Dalasi denominated assets. The Bank further increased the commercial banks' reserve requirement ratio from 14 per cent (of deposit liabilities) to 18.0 per cent during the year to curb the excessive expansion in commercial bank credit and its liquidity implications.

37. The acceleration in money supply was due to developments in both the net foreign assets and net domestic assets of the banking system. However, its rate of expansion abated in the first nine months of 2003 owing to tightened monetary policy stance. Broad money increased by 30.0 per cent from end-December 2002 to end-September 2003, compared to a growth rate of 35.3 per cent in 2002 and indications are that it will further decrease by end-December 2003.

38. The expansion in the net foreign assets of the banking system was entirely on account of the commercial banks whose net external position at D1022.88 million at end-September 2003 increased by D880.91 million compared to end-2002. The growth in deposit money banks' net foreign assets was mainly attributed to a robust build-up in balances held with banks abroad

39. The net foreign assets of the Central Bank, on the other hand, dropped markedly during the year under review. This was due, in the main, to the paucity of inflows of foreign exchange in the face of mounting external debt payments. Foreign assets or gross official reserves fell by 42.2 per cent from D1530.04 million to D883.67 million, slightly over three months of import cover, at the end of September 2003.

40. The net domestic assets of the banking system increased by about D996.32 million or 48 per cent, reflecting exceptionally strong domestic credit growth during the review period. The strong expansion in credit to public entities was the major source for the increase in net domestic assets. Public enterprises credit grew to D518.33 million on September 30, 2003 from D74.69 million at end-December 2002, reflecting bank financing of vital public sector projects. Reflecting government's recourse to bank financing of the budget deficit, government's indebtedness to the banking system rose from D1097.47 million at end-2002 to D1307.71 million at end-September 2003, or an increase of 19.2 per cent.

41. Private sector credits which, amounted to D1538.92 million at end-September 2003, rose by 3.1 percent over the 2002 figure. A sectoral analysis of commercial banks credit revealed that 35 per cent of total loans went to the Distributive Trade sector. Loans and advances to the Tourism sector captured 5.9 per cent whilst Transportation, Personal Loans and Unclassified Advances accounted for 8.5 per cent, 22.3 per cent and 12.9 per cent respectively

iv. Price Movements

Mr. Speaker Sir,

42. The annual inflation rate is 15 percent as at end-September 2003, compared to the actual figure of 8.6 percent for 2002. The 'Food, Drink and Tobacco' and the Non - foods' division recorded rises in their indices, of 20.5 percent and 9.8 percent respectively. The 'Food, Drink and Tobacco' division accounted for 72.7 percent of rise in the overall index whilst the Non - food division explained 27.3 percent of the overall rise.

43. Within the 'Food, Drink and Tobacco' division, all the categories recorded high increases with the exception of 'Vegetables and Fruit', which has marginally increased by 3.8 percent. The 20.5 percent increase in 'Food, Drink and Tobacco' division is therefore, explained by percentages contributions of Meat, Poultry, Egg and Fish (29.1%), 'Milk and Milk Productions' (17.2 %), 'Other Food' (18.5%), 'Roots, Pulses, Nuts and Seeds' (11.8%) and 'Cereals and Cereal productions' (20.6%). Two other subgroups, namely, 'Beverages, Alcoholic Drinks' and 'Tobacco products' registered significant price increases of 14.2 and 39.3 percent respectively; while the subgroup index for 'Processed Foods' within the 'Other Foods' group also went up by 27.3 percent.

44. In the 'Non-Food' division items classified under the 'Miscellaneous' group accounted for 23.1 percent of the change in the Non-food component. The subgroup within the Miscellaneous item that recorded the most important change is once again 'Transport and Communication', registering a percentages rise of 16.7 per cent over the index for 2002. The cost of recreation and entertainment also rose by 6.8 percent.

v. Financial Sector Developments

45. The review period witnessed the enactment into law of two important bills: the Financial Institutions Act and the Insurance Act. These pieces of legislation will enable the Central Bank to continue regulating and supervising the financial institutions to ensure the soundness and effectiveness of the financial system.

46. The performance of the banking sector has been encouraging. Non- performing loans as a percentage of gross loans declined to 4.0 per cent in 2003 from 7.35 per cent in 2002. This revealed that banks are more aggressive in the loans recovery efforts. Total loans and advances as at end-July 2003 stood at D1.57 billion, against total deposits of D3.09 billion.

47. Commercial banks' average capital adequacy ratio stood at 23.9 per cent as at end-June 2003. This compares favourably with 21.1 per cent by the end of the first quarter. Commercial banks' total liquid assets stood at D1531.74 million by end-September 2003, which is D588.76 million (or 62%) in excess of their statutory requirements.

48. The commercial banks continued to introduce new facilities and products. These include the Western Union money transfer, electronic banking as well as foreign currency denominated accounts. The banking sector continues to play a pivotal role in socio-economic development of the country. Major contributions of the banking sector, in terms of financial assistance, have focused mainly on youth development, health, education as well as the environment.

vi. External Sector

Mr. Speaker Sir,

49. The overall balance of payments is projected at a surplus of D138 million at end-2003, compared to an estimated surplus of D696 million in 2002. However, the current account balance, excluding official transfers, is projected to deteriorate from a deficit of D1.19 billion in 2002 and D771.8 million a year earlier to a deficit of D1.28 billion in 2003, mainly as a result of large trade deficit. The capital account, on the other hand, is expected to improve from D545.3 million in 2002 to D671.2 million in 2003, mainly as a result of the projected increase in private capital flows.

50. The trade balance is expected to worsen to a deficit of D1.29 billion in 2003, compared to a deficit of D1.26 billion in the preceding year. This is mainly attributed to the projected 26.4 per cent increase in imports to D4.06 billion, compared to expected exports including estimates for unrecorded re-exports of D2.77 billion.

51. By end 2003, imports are valued to reach D4.0 billion whilst exports stand at about D93.7 million. The trade balance deficit is D3.9 billion, although a significant amount of this value makes up the re-export trade. For 2002 the corresponding trade balance deficit stood at D2.8 billion. Total imports CIF for the current calendar year is estimated at D3.96 billion, compared to D3.2 billion in 2002. This is an increase of D744.5 million or 23 percent over last year. The most important component of the imports are "mineral fuels" 10.9% "Cereals"9.1% "Sugars and sugar confectionary" 8.8% "Vehicles" 7.4% "Salt" 6.2% and "Tobacco manufactured tobacco substitutes" 4.3%. The Gambia's principal trading partners are Germany, United Kingdom, Senegal, India, China, France, Belgium, Sierra Leone, Netherlands and Spain.

52. In 2003, exports are valued at D93.7 million. It is gratifying to note that fruits and vegetable registered D21.4 million, accounting for 22.8% of total domestic exports. Groundnut and groundnut products has decreased substantially from D318.7 million in 2002 to D29.7 million in 2003, representing a decrease of D289 million or 90%. This situation is mainly due to serious drought encountered during 2002. Other domestic exports have increased by 73.2% from D5.5 million in 2002 to D9.5 million in 2003.

53. For 2003, the total value of international trade is estimated at around D4.1 billion, compared to the recorded value of about D3.6 billion in 2002. This is an increase of D458.1 million or 12 percent over 2002 calendar year.

vii. Foreign Exchange Developments

Mr. Speaker Sir,

54. The exchange rate of the Dalasi continues to be determined freely within the framework of an inter-bank market. In essence, exchange rate management is guided by the twin objectives of maintaining the external competitiveness of the Dalasi, and to build up adequate reserves.

55. Between end-December 2002 and September 2003 the Dalasi depreciated in nominal terms by about 43 per cent, 50 per cent, and 58 per cent against the US dollar, Pound Sterling, and Euro respectively in the inter-bank market. In the parallel market, the Dalasi depreciated by about 51 per cent, 48 per cent, and 64 per cent against the US dollar, Pound Sterling, and the Euro respectively.

56. Total volume of transactions in the inter-bank market over the nine months ending September 2003 stood at D7.7 billion, with the US Dollar accounting for 56 per cent of the total volume traded. Trading in all the major currencies in the inter-bank foreign exchange market declined in 2003, when compared to 2002.

viii. National Debt

Mr. Speaker Sir,

57. The Gambia's total debt (external and domestic) as of end November 2003, stands at about US$666.06 (m) (D20.03 billion) of which external debt is forecasted to reach about US$576.0m (D17.85 billion) at end December 2003 and domestic debt of about D2.18 billion. There is an increase on the external debt by 15 % in dollar terms from US$490m (D11.27 billion) in 2002 to about US$576m (D17.85 billion) at end 2003. This is as a consequence of increase in development funds to finance new vital projects being implemented by Government, in addition to the IMF and Public sector debt. The ratio of external debt service to GDP stands at about 18.0 % in 2003. The debt burden is still not sustainable, and it is hampering our efforts to alleviate poverty. This is because of the fact that the debt service to budget ratio is relatively high at about 41 %.

58. The bulk of The Gambia's domestic debt is Treasury bills which constitute 82 percent of the total. Bonds make up 8 per cent, while Discount Notes and Development Stocks constitute 4 per cent and 1 per cent respectively. The remaining five (5) percent is made up of Non-Interest Bearing Treasury Notes (NIB notes).

59. Total servicing costs of domestic debt increased from D266.90 million at end 2002 to D297.2m at end October 2003, and it is projected to reach D436.2m at the end of the year. This reflects the increase in outstanding Treasury bills and rising interest rates.

-end.