The interference in the running of the Gambia’s economy by the executive, especially by the office of the president, is resulting in hard times for the population while messing up the country’s economy, the IMF has warned.
The IMF calls for the lifting of the executive directive on the foreign exchange rates fixing, urging The Gambia government to focus on the fundamentals of the economy that are being destroyed in the process of such meddling.
Such fundamental problems include “issues with the economic structure, compounded by repeated policy slippages”, according to the IMF’s briefing with members of the Gambia Chamber of Commerce and Industry at the Kairaba Hotel on Wednesday.
Imports double exports
The IMF says the country’s structural issues include external transactions in structural deficit. “Exports (and re-export) of goods averaged US$112 million during 2010-2014; Imports of goods averaged US$320 million.”
Services’ balance positive, but not enough to offset deficit on trade of goods, the IMF rep in Banjul said, noting that “Exports of services (including tourism) averaged US$140 million; services imports of US$79million.”
On the Ebola outbreak with its impact on tourism, Gambia’s economy faced added additional challenges. Total impact estimated at US$60 million, Mr. Gaston K. Mpatswe said.
Remittances, estimated at about US$50 million, help to finance the trade deficit too. Official transfers (grants): remains “unpredictable, only received in 2012 (US$9.2 million) and 2014 (US$19.5 million).”
Fiscal deficit at GMD 4.8 billion
Deficit of external transactions, mainly financed by foreign direct and portfolio investments are equally declining for Gambia, the IMF said, noting that it is “the best flows to finance current account deficit.”
Loans (net of amortizations), which averaged US$14 million in 2010-14, represents “a drawdown of Central Bank of The Gambia reserves” when overall balance of payments is in deficit and no financial arrangement with IMF.
High fiscal deficit, which stood at GMD 4.8 billion at end 2014, against a surplus in 2007, “has steadily increased.”
IMF says although it is expected for a low-income country to have deficits, level of the deficit and sustainability of financing matter for macroeconomic management.
Public debt stands at above 100 percent of GDP
“To finance its budget deficit, government either receives external budget grants (which they need to be mobilize, and unfortunately, has not been forthcoming), or borrows externally,” it stated, noting that for such to work, they also have to be mindful of terms and exchange rates.
Other options include borrowing on domestic financial market. This can be done through issuances of Treasury Bills (T-bills), getting the Central Bank advances or overdrafts, or accumulating payment of arrears – which according to the IMF, is “a bad policy, as it means withholding someone else’s money (i.e. suppliers) at zero costs.”
Due to rapidly increasing domestic borrowing by The Gambia’s central government, the country’s public debt which stands at above 100 percent of GDP at end 2014, has reached “unsustainable level due to external public debt (about US$411.2 million at end 2014) but mostly on concessional terms.”
Domestic debt borrowing, which is based on short-term Treasury-bill market, and usually at very high interest costs, is estimated at about GMD16.2 billion at end-2014.
The Dalasi losing value
IMF says that Government is also increasingly borrowing from the Central Bank…. Known as a “monetization of budget deficit”, this means more Dalasi in circulation. And if foreign currency is less available (i.e., less demand for Dalasi) then, Dalasi loses value against them.
Other factors that caused the Dalasi to lose its value include stronger US dollar (or other currencies) on global market. According to government, forex earners were “hoarding” their money (which reduces demand for Dalasi).
Notwithstanding that, when Dalasi loses value costs of servicing of public and private external debts increase, prices for imported commodities increase. On the other hand, other impacts of high domestic borrowing include the substantial increase in treasury-bill rates.
Higher Treasury bill rates reduce banks’ incentives to lend to private businesses, and lead to high lending interest rates.
A decade lost
As a result, almost a decade of consolidation efforts has been lost because of policy slippages during the last 2 years.
Currently, there is less public investment, less lending to private sector, fewer jobs creation and more poverty: “With very high Treasury-bill rates, interest costs increases rapidly, costing the state budget about a third of revenue collected by GRA in 2014.”
This means less resources for priority public investment and other development spending, high interest rates, less lending to private sector, less productive investment by private business, lower economic
