Impact Of Financial Crisis On The Gambian Economy: Economic Management And Planning Unit, Mofea, The Gambia

Impact of Financial Crisis on the Gambian Economy Economic Management and Planning Unit, MOFEA, The Gambia

Impact of Financial Crisis on Gambia

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Contents of Presentation 1. Global Economic Situation 2. Impact on the Gambian Economy 3. Development Challenges 4. Concluding Observations

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1.1 Fuel-Food-Financial Crisis • World witnessed three severe crises in Fuel, Food and Financial sectors in a single year in 2008- never witnessed before in a single year. • Worst economic crisis in last 70 years since the great depression of 1930s. • As per the IMF WEO Oct 2009, world output growth is projected to be negative (-)1.1% in 2009 and to improve slowly to 3.1% in 2010. • Sub-Saharan Africa expected to achieve a growth rate of only 1.3% in 2009, followed by 4.1% in 2010.. Impact of Financial Crisis on Gambia

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1.2 IMF World Economic Outlook, October 2009   2007 World 5.2 Adv.eco 2.7   USA 2.1   Euro Area 2.7 Developing 8.3 Sub-Sahara 7.0 Gambia China India

6.3 13.0 9.4

2008 3.0 0.6 0.4 0.7 6.0 5.5

2009 -1.1 -3.4 -2.7 -4.2 1.7 1.3

2010 3.1 1.3 1.5 0.3 4.7 4.1

5.9 9.0 7.3

4.0 8.5 5.4

4.4 9.0 6.4

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1.3 Impact on Developing Countries • A crisis of this magnitude in the industrialized countries is bound to have an adverse impact around the world. • It has already affected growth prospects of major developing countries in Asia and Africa. • IMF concludes “although the global economy has started to pull out of the unprecedented recession, global economic recovery is uneven, slow, fragile, sluggish, jobless and painful”. • “Withdrawal from supportive fiscal & monetary policies to boost demand”.

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2.1 Why Gambia has been affected?

• Although the Gambia is a small economy, it

has strong inter-linkages with the world. • Gambia’s total trade (exports plus imports of goods and services) was 106% of GDP in 2006 and presently stands at 74% of GDP. • Total capital flows (inflows plus outflows) amount to 15% of GDP. • Total flows (inflows plus outflows) on current and capital account were 150% of GDP in 2006 and now stand at almost 100% of GDP.

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2.2 Impact on Gambian Economy • Although the initial global financial crisis did not have much adverse impact on the Gambian financial sector, the second round of impact has affected adversely the real sectors of the Gambian economy. • In fact, even in the case of the developed economies, adverse impact has shifted from the financial sectors to the real sectors leading to loss of output and severe unemployment.   Impact of Financial Crisis on Gambia

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2.3 Impact on Gambian Economy • Sharp decline in global growth had adverse impact on Gambia in 2008 leading to decline of Gambian exports, tourism income and remittances and decline of manufacturing production and wholesale and retail trade. • However, thanks to bumper crops, real GDP growth at 2004 market price improved from 6% in 2007 to 6.3% in 2008. • But GR is expected to decelerate to 5% in 2009, aided by a growth of 5.5% in agriculture, 3.5% in industry and 5.7% in services production.

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2.4 Marginal impact on growth, thanks to good performance by agriculture Indicators 1. GDPMP GR (%) (a) Agriculture GR (b) Industry GR (c) Services GR 2. CPI inflation (%)

2006 3.1 -14.3 4.5 10.0 2.1

3. M3 GR (%) 26.2 4. CBG Policy Rate 14 (%)

2007 6.0 -1.9 2.5 8.3 5.4 6.7 15

Impact of Financial Crisis on Gambia

2008 6.3 26.6 -1.2 4.2 4.9

2009 5.0 5.5 3.5 5.7 4.5

19.0 20.0 16 16 9

2.5 Trends of Growth Rates (%)

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2.6 Agriculture is expected to do well in 2009, but due to high base in 2008, growth in 2009 will be moderate.

Items 2006 2007 2008 2009 (GR in %) Actual Actual Actual Proj. Agriculture -14.3 -1.9 26.6 5.5 -- Crops

-26.3

-15.2

55.2

5.5

-- Livestock

2.4

11.9

4.3

4.5

-- Forestry

3.0

-4.0

1.0

0.7

-- Fishing

7.8

18.0

3.5

11.3

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2.7 Industry is expected to recover to some extent in 2009 Items 2006 2007 2008 2009 (GR in %) Actual Actual Actual Proj. Industry 4.5 2.5 -1.2 3.5 Mining and 1.2 -14.1 8.8 8.8 quarrying Manufacturin 4.1 3.9 -8.3 0.4 g Electricity, 8.7 59.1 1.7 10.0 gas, water Construction 6.0 -4.3 5.0 3.0 Impact of Financial Crisis on Gambia

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2.8 Within services, trade and hotel are not doing well. Construction is doing well due to revival of EU funds.

Items (GR in %)

2006 2007 2008 2009 Actual Actual Actual Proj.

Services

10.0

8.3

4.2

5.7

Wholesale/ retail trade Hotels/ restaurants Transport / telecom

16.1

9.7

-2.3

1.0

15.7

14.3

2.9

-3.0

2.7

7.0

-8.0

8.0

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2.9 Within services, telecom and financial services are doing very well. Due to donors commitment, social sectors are also performing well. Items (GR in %)

2006 2007 2008 2009 Actual Actual Actual Proj.

Financial Real est., business

5.7 -3.9

-0.9 1.4

28.2 0.0

3.0 2.5

Public admn.

11.1

12.9

42.1

2.0

Other service 11.0

17.8

27.0

37.1

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2.10 Overall Fiscal Balance and debt situation deteriorated to some extent Items (% of GDP) 2006 2007 2008 2009Prj. 1. Rev. and grants

18.1 17.9 16.1

2. Exp. and NL 23.8 17.8 18.3 3. Overall -5.7 0.1 -2.2 Balance 4. Public Debt 131 58 57 (a) External debt 105 36 31 (b) Domestic debt

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22

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17.6 21.0 -3.4 59 35 2416

2.11 Fiscal performance in Jan-Sep 2009 is better than in Jan-Sep 2008, but Govt finance is still under pressure Items (Million Dalasi)

JanJan- % ch. % ch. Sep Sep In In 2008 2009 2008 2009

Rev & grants 2811 3250 -0.5 Dom. Rev. 2690 3074 -2.1 Tax Revenue 2397 2783 0.3 Nontax Rev. 293 291 -18.2 Grants 120 176 58.0 Impact of Financial Crisis on Gambia

15.6 14.3 16.1 -0.9 46.2 17

2.12 Expenditure growth in Jan-Sep 2009 is better than Jan-Sep 2008 Items JanJan- % ch. % ch. (Million Dalasi) Sep Sep In In 2008 2009 2008 2009 Exp & NL Curr. Expend. Salaries Other Charges Interest

2920 3571 2262 2556 682 788 1033 1182 547

587

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10.4 18.7 39.7 32.5

22.3 13.0 15.5 14.4

-14.3

7.2 18

2.13 Capital Expenditure and net lending rising at a faster speed in 2009 Items Ja-Sp Ja-Sp % ch. % ch. (Million Dalasi) 2008 2009 2008 2009 Cap Exp & NL 657 Capital Exp. 586 Net Lending Overall Balance

71 -109

1015 -11.1 906 -11.7 109

-6.1

54.4 54.5 53.5

-321 -161.2 194.6

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2.14 Despite decline of exports, Balance of Payments remained manageable Items (% of GDP) 2006 2007 2008 1.Exports of GS 41.6 37.6 31.0 2.Imports of GS 64.3 53.2 43.0 3. Net services 4.0 10.3 7.4 4. Net incomes -7.4 -6.9 -4.2 5. Transfers 17.3 13.5 10.2 6.CAB -12.8 -8.9 -6.1 7.FE Res.($ ml) 129 159 125 8.Months of imp 6.3 6.4 5.0 Impact of Financial Crisis on Gambia

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2.15 BOP estimates for Jan-June 2009 Million Dalasi Balance on Jan-Jun 2008 Jan-Jun 2009 diff. Accounts Goods A/C -1400 1100 Current A/C

-276

164

Capital and Financial A/C

-100

-512

Overall BOP

-376

-348

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2.16 Foreign Exchange Reserves • Gross official reserves, including Special Drawing Rights (SDR) allocation from the International Monetary Fund (IMF), at end-Sep stood at US$141.3 million, equivalent to 6.0 months of import cover, down from US$170.3 million equivalent to 6.8 months imports cover at the endSep 2008. Impact of Financial Crisis on Gambia

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2.17 Exchange Rate • The Gambian Dalasi depreciated by 7.9% on the overall nominal exchange rate index of currencies compared to an appreciation of 1.6% in the preceding year. • From December 2008 to end-September 2009, the Dalasi depreciated against the British Pound by 7.1%, US Dollar by 17.5%, CFA Franc by 9.4% and euro by 8.2%. Impact of Financial Crisis on Gambia

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2.18 Inflation in 2008-2009 • Govt responded to rising food prices by reducing sales tax on rice imports from 15% to 5% in July 2007 and to nil in May 2008. • Despite rise of international prices of fuel and food, average CPI inflation moderated to 4.5% in 2008, compared to 5.4% in 2007. • Inflation ran high at 7% in Jan-Feb 2009, but started declining since March 2009. • Annual point-to-point CPI inflation decelerated significantly to 2.3% (food 2.6% and non-food 1.9%) in Sep 2009, from 6.3% (food 8.1% and nonfood 4%) a year ago.

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2.19 External Debt

• Following HIPC and MDRI debt relief, stock of external debt as % of GDP declined substantially from 133% at end-2006 to 46% at end-2007 and further to 39% at end-2008. •  Presently, MOFEA is engaged in formulating a debt management strategy. As per the latest compilation, the outstanding external debt is estimated to be US$328 million (39% of GDP) at the end of 2008. •  Ministry has set up a separate Directorate for the Project Management and Aid Coordination, which has already prepared a report.

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2.20 Gambian Banks Remain Healthy • Gambian banks were not adversely affected by global financial crisis as they do not have large exposure to foreign assets or foreign liabilities. • Presently, banks’ foreign assets constitute only 7.5% of total assets and external liabilities constitute only 1.5% of total liabilities. • Banking sector total assets increased by 21% from D11.3 billion at end-Sep 2008 to D13.7 billion at end-Sep 2009. However, banks’ Return on Assets (ROA) declined from 2.10% in March 2008 to 0.49% in Sept 2009.

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2.21 Performance of Banks • Banking sector has sufficient capital and liquidity. The industry’s risk-weighted capital adequacy ratio stood at 33.22% in Sept 2009, significantly above the statutory requirement of 8%. • Non-performing loans rose from 7.3% in Sep 2008 to 9.5% in Dec 2008, but declined to 7% in Sept 2009 and were adequately provisioned in compliance with the statutory norms. .

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3.1 Development Challenges • In recent years, Gambian economy has achieved high growth rates with moderate inflation and favorable fiscal situation. • But, the high growth has not led to reduction of poverty which is still as high as 58 percent. • The country also remains off-track for achieving many MDG targets. • This implies that trickle down effects of growth had been delayed, slow and uneven. • Recent global crisis has further exacerbated the economic situation in Gambia.

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3.2 Development Challenges • These trends have led to various development challenges such as how to sustain growth with fiscal prudence, equity, and reduction of poverty, hunger and disease at a faster speed; • How to create enabling environment for publicprivate partnership for delivery of basic public goods and services. • If all Gambians are healthy, educated, skilled and live longer, they can participate more, contribute more and gain more from the development process.

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3.3 Role of MOFEA • Although the concerned ministries have the major responsibilities for achieving MDG targets, the MOFEA, being the nodal Ministry for Budget preparation and implementation, has special responsibilities to provide advice and directions to other ministries. • In consultation with the multi-stakeholders and donors, the Ministry of Finance and Economic Affairs is presently engaged for formulation of reforms agenda for the ministry and the government for increasing efficiency and productivity and to impart dynamism to the overall growth process.

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3.4 Reforms Agenda of the MOFEA

A. Preparation of strategic plan for MOFEA; B. Preparation of Medium Term Expenditure Framework (MTEF); C. Finalization of Public Finance Reforms; D. Rationalization of taxes and duties for development of the private sector; E. To improve tax administration and fiscal decentralization; F. To operationalize the Credit Rating and Information Bureau; and G. Helping Public Services Reforms and other reforms of other ministries Impact of Financial Crisis on Gambia

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4. Concluding Observations • If all these reforms are carried to their logical ends, Gambia would emerge as one of the most dynamic economies in West Africa in the medium term. • All of you are welcome to participate in that exciting process of development in the Republic of Gambia.

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Thank you Have a Good Day

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