The Gambian Economy in Perspective: Turning it Around

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The Author Suwareh Darbo is currently the Country Economist for Lesotho at the African Development Bank. Prior to that, he worked for the Ministry of Finance and the United Nations Development Program in the Gambia.

 

By: Suwareh Darbo 

This Brief is a modest attempt at addressing the economic imbalances while at the same time putting the economy on a sustainable growth path. It makes a number of recommendations aimed at reversing the declining trend in the economy. These include fiscal consolidation, improvements in public financial management, improving domestic resource mobilization, introduction of an agrarian revolution, diversification of the economy, value addition/processing/ industrialization, introduction of an national service scheme, addressing youth unemployment, improvements in the investment climate and preparation for the African Continental Free Trade Area.

The Gambia is a low income country, consumer-oriented, and heavily import-dependent with a narrow export base consisting mainly of groundnuts and fish. Each of these characteristics has its own dynamics. Most low income countries have limited fiscal space, either because of an infinite number of priorities or because they have their priorities wrong. I believe that in most low income countries, the latter is the case. Such a structure leads to huge fiscal deficits, high domestic debt levels and hence high inflation. The Gambia also consumes more goods than it produces, an asymmetry which leads to huge internal and external imbalances. As Ali Mazrui, Kenya’s political scientist observed, developing countries, including the Gambia, consume what they do not produce and produce what they do not consume. The Gambia imports virtually everything, including tooth picks while our exports are limited leading to huge current account deficits.

The aforementioned partially explains why the Gambian economy is in distress: Inflation is double digit (18.36),  the twin accounts, fiscal balance and current account balance are in deficit (2.9% of GDP and 12.5% of GDP in 2023 respectively) while total public debt and publicly guaranteed debt is a staggering USD1.69 billion in 2021 of which external debt constitutes USD 981.45 million (58.19%) and USD 705.01 million (41.81%) is domestic debt. (I assume that the domestic debt is driven by the fiscal deficits (expansionary fiscal policies) while the external debt is driven by huge infrastructural developments and movements in major currency exchange rates such as the US Dollar, and the Euro).

This economic quagmire cannot be addressed by simple financing solutions alone but by an adjustment program with a special focus on fiscal consolidation to be complimented by an economic blueprint. If expenditures are not aligned with revenue, the most natural thing to do is to adjust.

  1. Fiscal Consolidation (expenditure controlling and revenue enhancing measures)
  2. Reduce international travel. Only travels that are externally financed should be authorized. Except for the President, all public servants should travel economy class; ministers should have only one vehicle.
  3. Reduce government phone expenses;
  • Freeze all government hiring;
  1. No training will be undertaken except those that are externally financed;
  2. Reduce government fleet costs. All government vehicles to be parked after office hours; introduce a permit system to be managed by the Secretary General. Deploy police to impound vehicles that do not have permits. Release impounded vehicles only on the strength of demonstrable corrective measures taken by the Secretary General. Only Permanent Secretaries should be assigned an official vehicle and all other officials below this level should not be entitled to such vehicles;
  3. Reduce the incentive to travel by reducing Per Diem rates; and,
  • Reduce the cost of foreign missions by reducing the number of embassies. Embassies are prohibitively expensive to maintain and so reducing them will free up fiscal space for under-resourced sectors such as health, education and security. The vehicles in the embassies which are closed can be given to the security sector while the other assets can be auctioned and the revenues paid into the consolidated revenue fund.
  • Eliminate the procurement of refreshments and official entertainment; and
  1. Set price limits in IFMIS to curtail the overcharging of government.

These measures are expected to improve the fiscal space, stabilize debt and help restore macroeconomic stability. Failure to consolidate the fiscal situation would force the authorities to choose between a further depletion of government deposits at the Central Bank of the Gambia, (implying adverse consequences for reserves), or to maintain deposits at the cost of continuing to accumulate arrears, which could further undermine growth and financial stability.

  1. Public Financial Management

The various audit reports underscore weaknesses in public financial management. There is need to enforce fiscal discipline, improve controls, restore integrity of public financial management, and accountability and rekindle trust and confidence of the local and foreign investors, as well as development partners in public policy and management.

In particular, the creation and accumulation of arrears is a reflection of serious fiscal mismanagement, weak internal controls and inefficiencies in the public financial management. These have to be addressed immediately.

Most of the frauds mentioned in the audit reports revolve around procurement.  Hence, there is need to increase capacity for budgeting, accounting, procurement and internal audit, including at local level to settle the ground for deeper fiscal decentralization.

The Gambia Public Procurement Authority should not allow procurement outside the formal procurement system. All public procurement should be handled by the Gambia Public Procurement Authority.

There is also a need to improve the management of SOEs by ensuring accountability, transparency, efficiency and effectiveness in service delivery. Furthermore, the SOEs must submit performance reports to the Ministry of Finance to conform with legal frameworks. Close monitoring of SOEs by the relevant Ministry or authority is absolutely necessary.

The various audit reports also revealed blatant misuse of imp rests. The Accountant General should set a deadline for the retirement of imp rests. For example, if an officer fails to retire an imp rests within five days of his/her return from mission, such imp rest should be deducted from his/her  salary.

  1. Domestic Resource Mobilization

Net ODA received per capita in the Gambia  declined from USD119.47 in 2017  to USD92.8 in 2021.  The decline in Official Development Assistance (ODA) coupled with limited fiscal space calls for intensifying domestic resource mobilization, a long-term path to sustainable development finance. The country cannot continue to rely on economic handouts to finance its development. Mobilizing domestic resources will be critical to closing the resource gap, meeting unmet needs, and ensure sustainable financing. 

The country’s investment in its own public goods and services, particularly infrastructure, is also essential for attracting private investment and laying the foundation for long-term economic growth.

Efficient and effective procurement is fundamental to good governance. Improving procurement practices can save both governments and taxpayers money, and free up resources for other development spending. The Government can establish or reform the regulatory structures and institutions to enable open, transparent, and accountable government procurement.

Tax reform is not simply about increasing domestic revenue for public goods and services. It also includes activities that help fight corruption through more transparent and streamlined tax administration, which can improve a country’s business climate as well as public perception and confidence in government institutions. Donors can provide Government with technical assistance and guidance on institutional and policy reforms that help them boost tax collection and reduce opportunities for corruption.

Some of the innovative approaches to domestic resource mobilization include financial sector reform policies for growth and poverty reduction, microfinancing, taxation for growth and poverty reduction, management of domestic debt, government spending targeted to crowd in private savings and investment (including public-private partnerships), and mobilization of private capital, including reversal of capital flight and active participation in international trade.

  1. Agrarian Revolution

It is imperative to launch an agrarian revolution on account of the country’s huge food imports. In 2021, the Gambia imported $67.6M worth of rice, becoming the 76th largest importer of rice in the world. In the same year, rice was the 4th most imported product in Gambia. The country imports at least 50% of its food requirements. This agrarian revolution should begin at home in the form of vegetable gardening. There are a number of items which can be grown at home, instead of importing them, including onions, tomatoes, rice, carrots, etc. In a period of hyperinflation, households are advised to grow these vegetables in their backyards instead of relying on imports.

The Government should, therefore, declare an agrarian revolution and provide farmers with farming implements and inputs such as seeds, fertilizers and pesticides. The government should also demonstrate its commitment to the Maputo Declaration on Agriculture which emphasizes  allocation of at least 10% of national budgetary resources to agriculture and rural development. This agrarian revolution should be spear headed by parliamentarians who must lead by example. Each parliamentarian should have a coos, rice and findi farm and should encourage the establishment of a community garden in each village under his/her constituency.

The tourism sector, for example, is an enclave. It is not integrated with the rest of the other sectors. Most of what the tourists consume is imported while it can be grown in the country.

Reducing food imports will save foreign exchange, improve the current account of the balance of payments and restore external imbalances.

  1. Diversification of the Economy

            As mentioned above, the country has a narrow export base restricting its foreign exchange earnings. The country’s exports are concentrated in a few items. The country should, therefore, diversify away from lower productivity sectors like agriculture to higher productivity industries in the industrial or service sectors. The Government should commission a study to determine which products are amenable for exports.

  1. Value Addition/Processing /Industrialization

Since independence, the Gambia has been producing the same products without adding value. Therefore, there has been very little, if any, structural transformation of the Gambian economy. Value addition and processing are necessary to generate employment. The country can begin with processing fruits which are usually in abundance during certain times of the year. As a result of lack of processing, fruits go rotten. Similarly, the country can process ground nuts into ground nut oil. Development experience has demonstrated that no country can develop by simply exporting raw materials. Every country has to move up the value chain, process the raw materials and eventually industrialize.

  1. National Service Scheme

The Government should introduce a national service scheme. This will instill a sense of nationalism and patriotism in young people. The Government  can also implement its projects through this scheme using cheap labour. Students who have benefitted from Government scholarships should be required to do national service for at least one year. The modalities of such a scheme should be worked out. National service has the potential of eliminating tribalism and uniting the country. Posting people to places where they do not ethnically belong can endear them to that community, enable them speak their language and appreciate their culture. In other words, national service can lead to cross-cultural fertilization.

  1. Youth unemployment

Youth unemployment is a recipe for social unrest. The African Development Bank has a program called the Enable Youth program which trains youth in agriculture in incubation centers through a Partial Credit Guarantee Scheme. At the end of the training, the Bank connects them with a commercial bank to facilitate the issuance of a loan to the graduands. The Government can use its entire ADF allocation to fund this program.

  1. Investment Climate

The Gambia ranks very low in the World Bank’s Ease of Doing Business report. The Gambia is ranked 155 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. This is not good enough. The country should identify areas for improvement so as to  attract both domestic and international investors and facilitate the conduct of business.

10.       Africa Continental Free trade Area

Intra-African trade constitutes only 12-15% of Africa’s total trade. The continent still trades more with former colonial powers and more recently with China. Africa Continental Free Trade Area should be a game changer for the continent, including the Gambia having access to a market of 1.4 billion with a GDP of USD2.99 trillion. It has the potential to create employment opportunities and increase incomes of Gambians. However, it is not going to happen automatically. The country has to eliminate tariff and non tariff barriers, if any, empower the private sector in terms of access to credit facilities, develop the infrastructure, including in particular ICT, and improve the investment climate.  

The Author, Suwareh Darbo, is currently the Country Economist for Lesotho at the African Development Bank. Prior to that, he worked for the Ministry of Finance and the United Nations Development Program in the Gambia.

Disclaimer: The views expressed in this Brief do not necessarily reflect those of the African Development Bank; they are the author’s own views.

 

 

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