Impact Of Financial-fuel-food (f3) Crisis On The Gambian Economy

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Impact of the Financial-Fuel-Food (F-3) Crisis On the Gambian Economy

Update 5 October 2009

Institutional Support Project for Economic and Financial Governance (ISPEFG) Ministry of Finance and Economic Affairs (MOFEA) The Republic of Gambia The Quadrangle, Banjul, the Gambia

1

Impact of the Financial-Fuel-Food (F-3) Crisis On the Gambian Economy 1. Global Financial-Food-Fuel Crisis and Economic Slowdown It is well known that the global economy is presently passing through a critical conjecture. It was adversely affected by three worst crises in fuel, food and financial sectors (called F-3 Crisis) in a single year in 2008 - the first massive F-3 crisis in the last 70 years since the great depression in 1930s. Both the advanced and developing countries have adopted various monetary and fiscal stimulus packages (such as cuts in central bank policy interest rates, continued provision of bank liquidity, credit easing, provision of public guarantees, bail outs and bank recapitalization etc.) to boost both investment and consumption, output and employment. In their latest World Economic Outlook (WEO)1 of October 2009, the International Monetary Fund (IMF) concludes that although the global economy has started to pull out of the unprecedented recession, recovery is expected to be weak and slow, and jobless for some time, as financial systems remain impaired, support from public policies will gradually have to be withdrawn, and households that suffered asset price busts will continue to rebuild savings. As per the IMF projections made in the WEO October 2009, global growth is expected to reach about 3 percent in 2010, following a contraction in activity of about 1 percent in 2009 (Table-1.1). During 2010–14, global growth is expected to be just above 4 percent, appreciably less than the 5 percent growth rates in the years just ahead of the crisis. Achieving this turnaround will depend on stepping up efforts by the governments of both developed and developing countries to heal the financial sector, while continuing to support demand with monetary and fiscal easing. In recent years African economies in general experienced an economic boom contributed by two favorable factors: namely (a) rising exports driven by high commodity prices, and (b) increasing inflows of remittances and foreign investment. The ongoing financial crisis and economic slowdown in the developed countries have led to reversal of these positive factors and imposed serious adverse impact on the African economies. Growth projections in Sub-Saharan Africa have been revised downward to 1.3 percent in 2009 while growth projection for 2010 remains unchanged at 4.1 percent. Real GDP growth in Africa as a whole is projected to decline from an average of 6 percent in 2004–08 to 1¾ percent in 2009, before accelerating to 4 percent in 2010. This growth performance, while disappointing in light of the experience of the mid-2000s, is still encouraging given the severity of the external shocks. An important factor behind this outcome has been that many governments in the region have been able to use fiscal balances as shock absorbers, sustaining domestic demand and helping contain employment losses.

1

World Economic Outlook- Sustaining the Recovery, October 2009, IMF Washington D.C.

2

Table-1.1 IMF WEO (Oct 2009) Projections (Annual Growth Rate in Percentage)

Source: World Economic Outlook- Sustaining the recovery, October 2009, International Monetary Fund, Washington D.C.

3

2. Impact on the Gambian economy A crisis of this magnitude in the industrialized countries is bound to have an adverse impact around the world. Gambian economy cannot be an exception to it. Although the Gambia is a small economy, it has strong inter-linkages with the outside world. With an area of 10,380 km² (164th in the world) and population of 1.7 million (150th as per 2007 UN estimate), Gambia is the smallest nation in African continental mainland. It has limited natural resources and low domestic demand. Therefore, its growth depends on its external trade and tourism, and economic growth in the neighboring countries. It has always maintained a relatively open economy for trade and investment and market based exchange rate and interest rate system. Re-exports, tourism, wholesale and retail trade had been traditional drivers of growth. Gambian total trade (exports plus imports) of goods and services as percentage of GDP was as high as 106 percent in 2006 and presently stands at around 74% of GDP. Gross capital flows (inflows plus outflows) amount to 15% of GDP. Gross flows on current and capital account (i.e. total inflows plus outflows on both current and capital account) were as high as 150 percent of GDP in 2006 and now stand at almost 100 percent of GDP. All these statistics indicate that the Gambian economy is closely linked to the developments in the global economy and is likely to be adversely affected by the ongoing global financial crisis and economic slowdown. Table-2: Measures of globalization (as percentage of GDP at current market prices) 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Exports of goods & services

41.4

35.9

42.5

42.4

46.1

41.9

41.6

37.6

31

31.1

Imports of goods & services

55.6

48.5

59.8

61.3

67.1

59.9

64.3

53.2

43

43.1

Gross Trade (Exports plus imports)

97

84.4

102.3

103.7

113.2

101.8

105.9

90.8

74

74.2

Gross Current Account

112.9

99.9

122.8

122.9

136.8

117.8

123.3

104.3

84.2

84.5

Gross Capital Inflow

15.9

11.3

30.3

20

34.9

16.1

26.4

17.3

12.8

14.5

Gross current + Capital flows

128.8

111.2

153.1

142.9

171.7

133.9

149.7

121.6

97

99

This report summarizes the impact of the global financial-fuel-food crisis on various sectors of the Gambian economy.

4

2.1 Impact on real sector and economic growth 1. 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. 2. The sharp decline in global economic activity had adverse impact on the Gambian economy in 2008 leading to decline of Gambian exports, tourism income and remittances and decline of manufacturing production and wholesale and retail trade. 3. However, thanks to bumper crops contributed by favorable monsoon at home and high international prices of food grains, and very good performance by electricity, telecom and financial sectors, the real GDP growth at constant 2004 market prices improved from 6% in 2007 to 6.3% in 2008 (Table-2.1 and Figure-2.1). 4. As per the Preliminary Estimates of the GBOS, real GDP growth in 2009 at constant market prices is expected to be 5% supported by a growth of 5.5% in agricultural production, 3.5% by industrial production and 5.7% in services production. 5. Share of agriculture increased from 21.6% in 2007 to 25.3% in 2009, while share of industry declined from 14.7% to 13.2% and that of services declined from 63.7% to 61.5% during the same period. Increase of agricultural share was contributed by increase in share of crops, while decline of services share was mainly due to decline of share of wholesale and retail trade, and transport and communications.

GDP Composition(%) in 2009 Others Business 7% 11%

Transport 12% Hotels 4%

Agriculture 26% Mining 2% Manufacturing 6% Utilities 2% Construction

Trade 26%

4%

Figure-2.1: Trends of sectoral growth rates during 2000-2009 (in percentage)

5

30.0 20.0 10.0 0.0 -10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

2009

-20.0 -30.0 GDPMP

Agriculture

Industry

Services

Table-2.1: Sectoral Growth Rates and Shares in GDP in the Gambia in 2005-2009 (in %) Items GDP at 2004 basic price Agriculture and allied

2006 Actual 3.1

Sectoral GDP Growth Rates (in percentage) 2007 2008 2009 2009 Actual Actual Estd. IMF-Proj 6.3 6.3 5.0 3.6

Sectoral Shares in GDP (in percentage) 2006 2007 2008 2009 Actual Actual Actual Estd. 100.0 100.0 100.0 100

-14.3

-1.9

26.6

5.5

4.0

23.1

21.6

25.3

25.3

-26.3

-15.2

55.2

5.5

4.0

11.8

9.5

13.6

13.7

-- Livestock

2.4

11.9

4.3

4.5

4.0

8.8

9.4

9.0

9.0

-- Forestry

3.0

-4.0

1.0

0.7

3.0

0.7

0.6

0.6

0.5

-- Fishing

7.8

18.0

3.5

11.3

3.0

1.9

2.1

2.0

2.1

4.5 1.2

2.5 -14.1

-1.2 8.8

3.5 8.8

2.6 2.0

15.1 2.4

14.7 1.9

13.4 1.9

13.2 2.0

-- Manufacturing

4.1

3.9

-8.3

0.4

4.0

7.0

7.0

5.9

5.6

-- Electricity, gas, water

8.7

59.1

1.7

10.0

5.0

1.1

1.6

1.5

1.6

-- Construction

6.0

-4.3

5.0

3.0

5.0

4.6

4.2

4.1

4.0

10.0 16.1

8.3 9.7

4.2 -2.3

5.7 1.0

2.4 2.7

61.8 28.2

63.7 29.5

61.3 26.6

61.5 25.5

-- Hotels/ restaurants

15.7

14.3

2.9

3.0

-10.0

3.6

3.9

3.7

3.6

-- Transport / telecom

2.7

7.0

-8.0

8.0

3.5

12.8

13.0

11.0

11.3

-- Financial

5.7

-0.9

28.2

3.0

1.0

7.5

7.0

8.3

8.2

-- Real est., business

-3.9

1.4

0.0

2.5

1.0

3.4

3.3

3.0

3.0

-- Public administration

11.1

12.9

42.1

2.0

5.0

2.6

2.8

3.7

3.6

-- Other service

11.0

17.8

27.0

37.1

3.0

3.7

4.1

4.9

6.3

-- Crops

Industry -- Mining and quarrying

Services -- Wholesale/retail trade

Source: Gambian Bureau of Statistics (GBOS) for the years 2006-2009 and IMF projections for 2009 by the IMF Mission to the Gambia in May 2009.

6

2.2 Consumer Price Index and Inflation 1. As measured by the Consumer Price Index (CPI), annual point-to-point CPI inflation decelerated significantly from 6.3% in Sept 2008 to 2.3% in Sept 2009, while the 12month average inflation rate accelerated to 5.6% in Sept 2009 from 4.3% a year ago. 2. Food and drinks (with weights of 55.2% in overall CPI) recorded an annual point-topoint inflation rate of 2.6% in Sept 2009, down from 8.1% a year ago, and contributed 68.1% to overall inflation in Sept 2009. 3. Non-food items (with weights of 44.8% in overall CPI) recorded annual inflation rate of 1.9% in Sept 2009, down from 4% a year ago and contributed 31.9% to overall inflation. 4. Among other groups in Sept 2009, housing and utilities recorded an annual inflation of 2.4%, restaurants and hotels 2.2% and miscellaneous goods and services 4.7%. Table-2.2 CPI Inflation Rates in September 2009 (in percentage) Weights Sept-2008 Sept-2009 Inflation Contributio Wi (CPIi1 – Wi (%) Index Index (%) CPIi0) n2 (%) Overall 100.0 118.96 121.75 2.3 265.8 100.0 Food 55.2 124.11 127.39 2.6 181.1 68.1 Tobacco 0.7 104.64 106.4 1.7 1.2 0.5 Clothing 11.3 110.46 111.82 1.2 15.3 5.8 Utilities 3.4 119.76 122.64 2.4 9.8 3.7 Furnishing 5.2 113.38 115.7 2.0 12.2 4.6 Health 1.0 101.10 101.8 0.7 0.7 0.3 Transport 4.4 119.97 119.97 0.0 0.0 0.0 Telecom 3.0 101.55 102.02 0.5 1.4 0.5 Recreation 8.0 104.13 105.07 0.9 7.5 2.8 Education 1.5 101.87 102.99 1.1 1.7 0.6 Hotels 0.4 114.52 117.08 2.2 0.9 0.3 Misc. 5.9 121.01 126.75 4.7 34.0 12.8 non-food 44.8 112.68 114.82 1.9 95.9 31.9 Source of basic data: Gambian Bureau of Statistics (GBOS). Items

2

Contribution of an item to overall inflation is estimated by the following formula: Contribution of Item (i) = Wi (CPIi1 – CPIi0) / ∑ Wi (CPIi1 – CPIi0) expressed as a percentage. where CPIi1 = Consumer Price Index for Item (i) in the current period CPIi0 = Consumer Price Index for Item (i) in the previous period Wi = Weights for Item (i) and W = Total weights = Σ Wi For example, contribution of food is estimated as 100 X 181.1 / 265.8 = 68.1%.

7

Sub-group wise inflation in Sept 2009 (%) Misc. Education Telecom Health

Series1

Utilities Tobacco Overall 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Contributionto Inflationin Sept 2009 (%) Recreation 3% Furnishing 4% Utilities

Others 15%

4% Clothing 6%

Food 68%

25.0 20.0 15.0 10.0 5.0 0.0

Food

Non -Food

All

8

2.3 Government Fiscal Performance in Jan-Sept 2009 • Columns (4), (5) and (6) of Table-2.3.1 present major item-wise revenue realization and expenditure of the government in the first three quarters (i.e. Jan-Sep) of 2007, 2008 and 2009 respectively. Column (8) indicates annual percentage changes of major items of revenues and expenditure in Jan-Sep 2009 over those in Jan-Sept 2008 (column 7). • It may be observed from the table that, the government’s fiscal performance has been mixed in Jan-Sep 2009 compared to Jan-Sep 2008, and it is still under pressure. In Jan-Sep 2008 total revenues and grants declined by 0.5%, as tax revenues increased marginally by 0.3% while non-tax revenues declined by 18.2% over Jan-Sep 2007. On contrast, Jan-Sep 2009 has witnessed an increase in total revenue and grants by 15.6% aided by 16.1% increase in taxes, marginal decline by 0.9% in non-tax revenues and 46.2% increase in grants. • During Jan- Sep 2009, total expenditures and net lending has increased by 22.3% over Jan- Sep 2008 due to 13% increase in current expenditure and 54.4% increase of capital expenditure and net lending over Jan- Sep 2008. • Overall, there is a fiscal deficit of D321 million, and basic deficit of D8.5 million in Jan-Sep 2009, compared to a lower fiscal deficit of D109 million and basic surplus of D143.6 million in Jan- Sep 2008. Table-2.3.1 Govt Financial Performance in Jan-Sep 2009 compared with Jan-Sep 2008 Items

(1) Revenue and grants Domestic Revenue Tax Revenue Nontax Revenue Grants Exp & Net Lending Current Expenditure Personnel Emoluments Other Charges Interest External Domestic Cap Exp & Net Lending Capital Expenditure Net Lending Overall Bal Inc. grants Basic balance Basic Primary Bal Nominal GDP (GBOS)

2008 Actual Mln Dal.

2009 Budget Estimate Mln. Dal.

2007 Jan-Sep Actual Mln Dal.

2008 Jan-Sep Actual Mln Dal.

2009 Jan-Sep Actual Mln Dal.

(2) 3645 3479 3161 318 166 4135 3011 906 1398 708 154 555 1123 1017 107 -490 -156 553

(3) 4582 3771 3391 380 811 5363 3838 1035 1958 845 147 698 1525 1468 57 -781 -268 577 25023

(4) 2823.9 2747.7 2389.3 358.4 76.2 2645.8 1906.1 488.0 779.7 638.4 202.1 436.3 739.7 664.1 75.7 178.2 687.2 1325.5 20413

(5) 2810.7 2690.3 2397.2 293.1 120.4 2919.7 2262.4 681.9 1033.3 547.2 111.6 435.5 657.3 586.2 71.1 -109.0 143.6 690.8

(6) 3249.8 3073.8 2783.3 290.5 176.0 3571.0 2556.1 787.7 1181.9 586.5 126.7 459.8 1014.9 905.8 109.1 -321.2 -8.5 578.0 25023

22590

22590

% change In JanSep 2008 over JanSep 2007 (7) -0.5 -2.1 0.3 -18.2 58.0 10.4 18.7 39.7 32.5 -14.3 -44.8 -0.2 -11.1 -11.7 -6.1 -161.2 -79.1 -47.9 10.7

% change In JanSep 2009 over JanSep 2008 (8) 15.6 14.3 16.1 -0.9 46.2 22.3 13.0 15.5 14.4 7.2 13.5 5.6 54.4 54.5 53.5 194.6 -105.9 -16.3 10.8

Notes: (1) Overall balance= (Revenue and grants) minus (expenditure and net lending). (2) Basic balance= Domestic revenue minus (expenditure and net lending) plus externally financed capital expenditure; (3) Basic primary balance= Basic balance plus interest payments

9

• Column (2) of Table-2.3.2 indicates the item-wise actual fiscal performance in 2008 as percentage of GDP and the column (3) indicates the item-wise budget estimates in 2009 as percentage of GDP. It is observed from these columns that 2009 budget estimates assume better performance of grants and expenditure as percentages of GDP. Overall fiscal deficit for 2009 is budgeted at 3.1% of GDP compared to 2.2% of GDP recorded in 2008. • Columns (4), (5) and (6) of Table-2.3.2 present the major item-wise performance of revenues and expenditure in Jan-Sep of 2007, 2008 and 2009 respectively, as percentages of the corresponding nominal GDP (as estimated by GBOS) for the full year. It is observed from the table that, in terms of the percentages of GDP, the total revenues and expenditures have performed better in Jan-Sep 2009 than those in JanSep 2008. • The revenue and expenditure ratios to GDP are also observed to be on track in JanSep 2009 (column-6) as compared with the 2009 budget estimates (column-3). Table-2.3.2 Govt Financial Performance in Jan-Sep 2009 compared with Jan-Sep 2008 Items (1) Revenue and grants Domestic Revenue Tax Revenue Nontax Revenue Grants Exp & Net Lending Current Expenditure Personnel Emoluments Other Charges Interest External Domestic Cap Exp & Net Lending Capital Expenditure Net Lending

Overall Bal Inc.grants3 Basic balance4 Basic Prim. Balance5

2008 Actual as % of GDP (2) 16.1 15.4 14.0 1.4 0.7 18.3 13.3 4.0 6.2 3.1 0.7 2.5 5.0 4.5 0.5 -2.2

2009 Budget as % of GDP (3) 18.3 15.1 13.5 1.5 3.2 21.4 15.3 4.1 7.8 3.4 0.6 2.8 6.1 5.9 0.2 -3.1

2007 Jan-Sep as % of GDP (4)

-0.7

-1.1

2.4

2.3

3.4 6.5

13.8 13.5 11.7 1.8 0.4 13.0 9.3 2.4 3.8 3.1 1.0 2.1 3.6 3.3 0.4 0.9

2008 Jan-Sep as % of GDP (5) 12.4 11.9 10.6 1.3 0.5 12.9 10.0 3.0 4.6 2.4 0.5 1.9 2.9 2.6 0.3 -0.5

2009 Jan-Sep as % of GDP (6) 13.0 12.3 11.1 1.2 0.7 14.3 10.2 3.1 4.7 2.3 0.5 1.8 4.1 3.6 0.4 -1.3

2008 Jan-Sep as % of Outturn (7) 77.1 77.3 75.8 92.3 72.7 70.6 75.1 75.3 73.9 77.2 72.7 78.5 58.5 57.7 66.6 22.2

2009 Jan-Sep as % of Budget (8) 70.9 81.5 82.1 76.4 21.7 66.6 66.6 76.1 60.4 69.4 86.0 65.9 66.6 61.7 192.5 41.1

0.6

0.0

-92.3

3.2

3.1

2.3

124.9

100.1

Source: Economic Planning and Management Unit (EMPU), DODFEA.

3

(1) Overall balance= (Revenue and grants) minus (expenditure and net lending). (2) Basic balance= Domestic revenue minus (expenditure and net lending) plus externally financed capital expenditure; 5 (3) Basic primary balance= Basic balance plus interest payments 4

10

2.4 Domestic Debt and Treasury Bills Outstanding •

At the end of Sept 2009, outstanding domestic debt stood at D5.9 billion (amounting to 23.7% of GDP), down from the outstanding domestic debt at D6.1 billion (amounting to 27% of GDP) a year ago. • The share of Treasury bills increased from 79.6% at the end of Sep 2008 to 84.5% at the end of Sep 2009, share of Sukuk Al-Salam remained unchanged at 2%, that of Government bonds increased marginally from 4.1% to 4.2%, while that of NIB treasury bills declined from 14.2% to 9.2% over the period. Table-2.4-A Outstanding Domestic Public Debt as on 30 Sep 2009

Type of debt

30 Sep 2008

30 Sep 2009

4,860 122

5,005 120

Government Bonds

250

250

NIB Treasury Notes

873

547

Total

6,105

5,922

22590

25023

27.0

23.7

Treasury bills Sukuk Al-Salam

Nominal GDP (GBOS) As % of nominal GDP

% change in June2009 over June 2008

Million Dalasi

3.0 -1.7 0.0 -37.4 -3.0

Composition (in percentage) 30 Sep 30 Sep 2008 2009 79.6 84.5 2.0

2.0

4.1

4.2

14.3

9.2

100

100

Domestic Debt Sustainability As per the analysis made by the CBG, the current level of Gambia’s domestic debt is unsustainable. Out of three sustainability indicators given in Table-2.6.B, only one indicator viz. debt to revenue ratio is satisfied. However, debt to GDP ratio may be satisfied during 2009. Table-2.4-B Primary Benchmarks for Domestic Debt Sustainability Ratios (%) Item Threshold 2006 2007 2008 2009 Projected 1. Debt service to 28-63 142 124 118 91 revenue ratio 2. Debt to GDP ratio 20-25 33 30 27 30 3. Debt to revenue 92-167 180 158 166 147 ratio Note: (1) Debt service is the sum of interest payments plus the amortization (i.e. repayment of principal) including the rollover of treasury Bills. (2) There are no internationally agreed levels of thresholds. The thresholds used here are those used by the Debt Relief International (DRI) for many HIPC countries. Source: Central Bank of Gambia

2.5 External Debt and Aid

11



The stock of external debt declined substantially at end-2007 following HIPC and MDRI debt relief. At the end of 2006, prior to completion point, the stock of nominal external public debt was US$676.7 million (133.1 percent of GDP). Multilateral creditors accounted for 84 percent of this debt, with IDA as the largest creditor (39 percent of total outstanding debt).



At end-2007, post-completion point, the stock of external public debt fell to US$299.4 million (46.0 percent of GDP).



The latest IMF Debt Sustainability Analysis (DSA) concludes that The Gambia remains at a high risk of debt distress after HIPC and MDRI debt relief due to the high level of debt as well as the country’s vulnerability to shocks.



The World Bank’s Country Policy and Institutional Assessment (CPIA), classifies The Gambian economy as a “poor performer” based on an average of the ratings for the preceding three years. Table below presents the policy-dependent debt burden thresholds. The PV of debt-to-GDP and the PV of debt-to-revenue ratios remain comfortable. Debt service payments remain manageable throughout the projection period, rising no higher than 10 percent of exports and revenue. But, the PV of debtto-exports ratio breaches the debt-burden threshold for a protracted period.



Presently, Ministry of Finance and Economic Affairs is actively engaged in establishing a fully computerized debt recording and management system and formulating a debt management strategy. As per the latest compilation, the outstanding external debt is estimated to be US$328 million (amounting to 31.4% of GDP) at the end of 2008.



The Ministry has also set up a separate Directorate for the Aid Management and has prepared a comprehensive report on aid coordination for the first time. Table 2.5: Policy Dependent Debt Burden Thresholds Under Debt Sustainability Framework Indicators

Strong Performer

Moderate Performer

Weak Performer

NPV of External Debt to GDP Ratio (%)

50

40

30

The Gambia 2008 22

NPV of External Debt to Exports Ratio (%) NPV of External Debt to Revenue Ratio (%) Debt service to Exports Ratio (%)

200

150

100

117

300

250

200

117

25

20

15

9

Debt Service to Revenue Ratio (%)

35

30

25

9

Source: International Monetary Fund, Washington D.C.

12

2.6 Treasury Bills Yields •

Yields on treasury bills fluctuated widely in recent months. As expected, the higher the maturity of treasury bills, the higher is the yield. However, despite stability in deposit rates and significant decline of CPI inflation from 7% in January 2009 to 2.3% in Sep 2009, Average yields on the 91-day and 364-dat treasury bills remained unchanged at 10.4% and 14.3% respectively and yield of 182-day bills declined marginally from 12.1% in Jan 2009 to 11.7% in Sep 2009.



This implies that the margins of yields over inflation rates or over deposit rates are increasing over time and need to be corrected by adopting appropriate monetary instruments and policies. Table-2.6 Average yields on treasury bills (in percentage per annum) 2008 2009 2007 91-D 162-D 364-D 91-D 162-D 364-D 91-D 162-D 10.5 12.7 13.6 10.6 11.4 13.6 10.5 12.1 12.0 13.4 13.8 10.9 11.9 13.7 11.1 12.8 12.6 13.4 13.7 11.0 12.1 13.6 11.4 12.7 12.0 13.0 13.0 13.4 13.8 10.9 11.9 13.3 12.5 13.8 12.8 13.3 13.8 10.2 11.3 13.0 13.0 13.8 12.6 13.1 13.9 10.0 11.2 13.3 11.5 12.0 12.5 13.2 13.9 9.6 10.6 12.6 10.2 11.2 12.6 12.9 13.6 8.8 10.2 12.1 10.4 11.7 11.6 12.2 12.9 8.9 11.0 13.1 10.6 11.7 12.5 10.3 11.4 13.6 10.5 11.5 12.5 10.1 13.4 13.7 10.4 11.6 13.6 9.9 12.5 14.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Trends of Yields of Treasury Bills during 2007-2009 45 40 35 30 25 20 15 10 5 0

91-D

162-D

364-D

13

364-D 14.4 14.4 14.4

14.6 15.3 15.6 14.4 13.3 14.3

2.7. Money Supply •

Broad money supply (M2) recorded an annual growth of 20.7%, compared to 11.1 percent a year ago. While quasi money increased by a faster pace of 27.1 percent, narrow money increased by 14.2 percent. Reserve money grew by 2.7 percent, higher than an increase of 0.9 percent recorded a year ago.



On the supply side, 20.7% growth in broad money supply in Sept 2009 was supported by 4% growth in currency, 20.1% growth in demand deposits, 17.8% growth in savings deposits and 40.7% growth in time deposits.



On the demand side, growth was mainly due to 32.7% growth in net foreign assets, while net domestic assets increased by only 12.7% over a year ago.



Domestic credit increased from D5.8 billion in Sept 2008 to D6.9 billion in Sept 2009, supported by 21.3% growth in government borrowing, 82.9% growth in credits to public entities and 13.3% growth in credits to the private sector, over a year ago. Table-2.7 Money Supply and Demand in Sept 2009 Components

1.Money Supply (M2) (2+3) 2.Narrow Money (2.1+2.2)

Sep 2008 Million Dalasi 8770 4360

Sep Sep 2008 2009 % share Million Dalasi 10585 100 4979 50

Sep 2009 % share 100 47

Sep 2009 % change over Sep 2008 20.7 14.2

2.1 Currency

1599

1663

18

16

4.0

2.2 Demand deposits

2760

3315

31

31

20.1

3.Quasi money (3.1+3.2) 3.1 Savings deposits

4410 2617

5606 3083

50 30

53 29

27.1 17.8

3.2 Time deposits

1793

2523

20

24

40.7

Demands for money (1+2)

8770

10585

100

100

20.7

1.Net foreign assets (1.1+1.2)

3494

4637

40

44

32.7

1.1 Monetary Authorities

3087

3934

35

37

27.4

1.2 Commercial banks

407

703

5

7

72.8

2.Net Dom. Assets (2.1+2.2) 2.1 Domestic credit

5277 5835

5949 6909

60 67

56 65

12.7 18.4

(a) Credits to government

2132

2587

24

24

21.3

(b) Credits to public entities

482

881

5

8

82.9

(c) Credits to private sector (d) Credits to forex bureau 2.2 Other items, net

3038 183 -558

3442 0 -961

35 2 -6

33 0 -9

13.3 -100.0 72.2

Reserve Money

2572

2844

Source: Central Bank of Gambia

14

10.6

2.8 Performance by Commercial Banks •

The Gambian banking industry consists of 13 banks with highly skewed distribution of assets. The industry continues to be dominated by three large banks which accounted for 64.4% of the total assets at the end of September 2009, although their share has declined from 67% a year ago.



The banking industry remains sound. Total industry assets increased by 21% on year-on-year basis from D11.3 billion at end-Sep 2008 to D13.7 billion at end-Sep 2009.



Gambian banks do not have large exposure to foreign assets or foreign liabilities. Banks also do not have large contingent liabilities. At end-Sep 2009 contingent liabilities constituted 13.2% of total liabilities, compared to 10.3% a year ago.



At end-Sept 2009, loans and advances constituted 30% of total assets and the ratio remained fairly stable during 2009. The notable sectoral increases of bank loans in September 2009 were for manufacturing, construction, tourism and fishing, while loans to agriculture recorded decline over last year’s lending.



At end-Sept 2009, investments in government Treasury Bills by the banks constituted about 26% of their total assets. As expected, three large banks had the dominant share.



The Banking sector continues to function efficiently with sufficient capital and liquidity. The industry’s risk-weighted capital adequacy ratio stood at 34.84% in March 2009, and 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 compared to 9.95 percent a year ago, and were adequately provisioned in compliance with the statutory norms and requirements.



However, commercial banks’ Return on Assets (ROA) declined from 2.10% in March 2008 to 0.9% in Sep 2008. ROA declined further to 0.49% at the end of Sep 2009. Table-2.9 Banks’ total loans and non-performing loans (NPL) by sectors in Sept 2009 Sectors

1. Agriculture 2. Fishing 3. Manufacturing 4. Building 5. Transport 6. Distribution 7. Tourism 8. Financial sector 9. Others 10. Total

Sep 2008 Million Dalasi

Sep 2009 Million Dalasi

Sep 2008 % share

Sep 2009 % share

148 17 117 342 281 831 195 125 1140 3196

136 25 195 512 355 931 293 126 1624 4197

5 1 4 11 9 26 6 4 36 100

3 1 5 12 8 22 7 3 39 100

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Sep 2009 % change over Sep 2008 -8.4 43.0 67.4 49.6 26.3 12.0 50.5 0.8 42.5 31.3

NPL Ml. D. 5.9 10.4 3.1 62.8 21.4 103.1 22.2 12.9 71.8 313.5

NPL as % of Total 4.3 42.0 1.6 12.3 6.0 11.1 7.6 10.2 4.4 7.5

2.9 BOP, Foreign Exchange Reserves and Exchange Rates (a) BOP Situation in 2008 (a) Overall BOP outcome in 2008 was not as bad as they were anticipated earlier. Year end foreign exchange reserves at US$125.2 million were still equal to 5.7 months of c.i.f. imports compared to US159.4 million equal to 6.2 months at end-2007 (b) BOP estimates indicate an overall deficit of D767.3 billion (- $34.2 million), amounting to (-) 3.4 percent of GDP in 2008 compared to a surplus of D741.7 million ($29.8 million), amounting to 3.6 percent of GDP in 2007, reflecting the deterioration in both the current and the capital and financial accounts. The Net Usable Reserve of the CBG stood at US$95.6 million at end-March 2009 and was above the IMF Program target (floor) by US$3.6 million. (c)

The goods account deficit improved from a deficit of D3.52 billion, amounting to 17.2 percent of GDP in 2007 to a deficit of D2.92 billion, amounting to 12.8 percent of GDP in 2008, or a decline by 17.14%.

(b) BOP Situation in 2009-Q1 Provisional BOP estimates for the first quarter of 2009 indicate an overall deficit of D468.9 million (US $17.9 million) compared to D7.42 million (US $0.34 million) in the first quarter of 2008. The current account deficit, including official transfers, amounted to D234.3 million compared to a surplus of D4.94 million a year ago. The capital and financial account widened from a deficit of D12.36 million in the first quarter of 2008 to D234.53 million in the first quarter of 2009.

(c) BOP Situation in 2009-Q2 Preliminary BOP estimates for the first half of 2009 (i.e. Jan-June 2009) indicated that the overall deficit narrowed to D348.44 million in 2009 from D376.5 million in Jan-June 2008. The current account recorded a surplus of D163.48 million in Jan-June 2009 compared to a deficit of D276.1 million in Jan-June 2008. The capital and financial account balance worsened to deficit of D511.92 million in Jan-June 2009 from a deficit D100.4 million in JanJune 2008 reflecting the decline in reinvested earnings and equity capital. The goods account balance improved from a deficit of D1.4 billion in Jan-June 2008 to D1.1 billion in Jan-June 2009 attributed to the surge in exports which more than offset the increase in imports. Exports, including re-exports rose to D2.2 billion in Jan-June 2009 compared to D1.4 billion Jan-June 2008. (d) Foreign Exchange Reserves and Exchange Rates Volume of transactions in the domestic foreign exchange market contracted to US$1.3 billion in the year to end-September 2009 from US$1.6 billion a year earlier. The domestic currency depreciated by 7.9 percent on the overall nominal exchange rate index of currencies compared to an appreciation of 1.6 percent in the preceding year. From December 2008 to end-September 2009, the Dalasi depreciated against the British Pound, US Dollar, CFA Franc and euro by 7.1 percent, 17.5 percent, 9.4 percent and 8.2 percent respectively. Gross official reserves, including Special Drawing Rights (SDR) allocation from the International Monetary Fund (IMF), as at end-September stood at US$141.3 million, equivalent to 6.0 months of import cover.

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