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Economy of Gambia

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Overview:
The Gambian economy is a highly open type as measured by export and import ratios to GDP, however, as much as 80 percent of exports consist of re-exports. The main domestically-originating exports are groundnuts and tourism.

The Gambia has recently run substantial trade and current-account deficits financed largely by official grants and loans, and increasingly foreign direct investment inflows.

Foreign direct investment in 2003-2005 averaged more than 10 percent of GDP. The country's economy is mainly reliant mainly agricultural exports as a foreign currency earner.

Entrepot (re-export) trade from Banjul Ports makes up a significant portion of economic activity though the devaluation of the CFA Franc in 1994 reduced it somewhat.

Tourism, which mostly takes the form of sun seekers, birdwatchers and African-Americans, makes up about about 18% of the Gambia's GDP.

Economic development is very reliant on continued multilateral and bilateral aid and on prudent economic management by the government as espoused by the International Monetary Fund's fiscal help and advice.

The Gambia is among the poorest countries of the world, ranking 155th out of 177 countries in the 2007/2008 UNDP Human Development Index rankings (HDI). According to the UNDP's Human Poverty Index (HPI-1) of 2004 poverty is was at 40.9 percent, with rural poverty slightly exceeding urban poverty rates, except in Banjul where the rate is much lower. The Gambia’s per capita GDP measured at PPP is higher than Benin, Senegal or Togo, but literacy is low by regional standards.

Services account for over 50 percent of GDP, reflecting the importance of re-export trade and tourism. Agriculture accounts for about a third of GDP but more than 70 percent of employment. The manufacturing sector is undeveloped even by West African standards, providing only 5 percent of GDP and displaying little dynamism.

Macroeconomic performance deteriorated in 2002–03, reflecting the impact of loose fiscal policy, accommodating monetary policy and a drought.

Inflation rose from an average of less than 5 percent in 2001 to 17 percent in 2003, the highest level in nearly two decades. The dalasi depreciated by 55 percent in nominal effective terms between end-2001 and end-2003. The seeds for the poor performance were sown in 2001 when a combination of significant unbudgeted expenditures and a fall in tax revenues led to a large increase in government borrowing from the Central Bank of The Gambia (CBG) and a sharp rise in domestic debt. Real GDP declined by 3 percent in 2002 because of a drought, but recovered in 2003.

The 2002 IMF Poverty Reduction and Growth Facility (PRGF) loan was cut off in 2002 following spending overruns and irregularities at the CBG. The Gambian government has sought to re-establish a program with the Fund through a Staff-Monitored Program (SMP) as an interim step towards re-establishing a PRGF. The IMF notes that fiscal and monetary policies have been tightened lately, contributing the sharp decline in inflation, from double digits in 2003-2004 to 4.5 percent in 2005. Nevertheless, the IMF expresses continued concerns about slippages in fiscal discipline, extra-budgetary expenditures, and inadequate auditing of both fiscal and monetary accounts. The Gambia’s fiscal policy is also constrained by a large domestic debt and high real interest rates, such that a substantial primary surplus is required to cover interest payments.

As at 2008 The Gambia currently had a Staff Monitored Programme with the IMF, as part of a Medium Term Economic Framework Plan. The agency has reported some modest progress on fiscal balance and some improvements in financial management.

A tightening of fiscal and monetary policies from late-2003 restored macroeconomic stability and contributed to sustained growth. The basic primary fiscal balance moved from a deficit of over 1 percent of GDP in 2001 to an average surplus of nearly 9 percent of GDP during 2004–07.  Yields on treasury bills rose from 15 percent at end-2001 to 31 percent at end-2003 before declining to 10–15 percent from mid-2005. Inflation fell to less than 1 percent at end-2006 before a spike in the prices of some imported food items pushed it to around 6 percent during most of 2007. Real GDP expanded at a robust average annual rate of 6.5 percent, led by the tourism, telecommunication, and construction sectors. Tourism infrastructure has been a major beneficiary of foreign direct investment (FDI).

Gambia’s longer term policy objectives are sketched in the ambitious Vision 2020 document which aims to turn Gambia into a diversified middle income economy with the private sector as "a serious partner in national development and the very engine of growth."

Selected Indicators:

Agriculture:
Products: groundnuts (140,000 tonnes - 2005), rice, millet, sorghum, corn, sesame, cassava, palm kernels; livestock: cattle, sheep, goats

Budget:
revenues: $181.1 million
expenditures: $163.4 million (2007 est.)

Current Account Balance:
-$70 million (2007 est.)

Export Commodities:
Groundnut products, fish, raw cotton, palm kernels, hides & entrepot trade

Export Partners (Principle):
India 37.7%, China 17.5%, UK 8.7%, France 5.1%, Belgium 4.2% (2007)

Exports:
$111 million f.o.b. (2008 est.)

External Debt:
$628.8 million (2003 est.)

Foreign Exchange Reserves:
$142.8 million (31 December 2007 est.)

Gross Domestic Product (Estimates - 2008):
GDP (Official Exchange Rate)
$653 million

GDP (PPP)
$2.044 billion

GDP Real Growth Rate
4.5%

GDP Per Capita (PPP)
Purchasing Power Parity
$1,200

GDP Composition by Sector
agriculture: 33%
industry: 8.7%
services: 58.3%
 
Industries:
Processing peanuts, fish, and hides; tourism; beverages; agricultural machinery assembly, woodworking, metalworking & clothing

Imports:
Commodities: foodstuffs incl. rice, flour, sugar, manufactured goods, petroleum, heavy fuel oil, cement bulk & bags, auto vehicles, machinery equipment .

Import Partners:
China 23.7%, Senegal 11.5%, Cote d'Ivoire 8.3%, Brazil 8%, Netherlands 5.2% (2007)

Imports:
$301 million f.o.b. (2008 est.)

Inflation - Annual:
(consumer price index)
7.0 % per cent 2008

Labour Force:
400,000

Labour Force by Occupation:
agriculture 75%, industry, commerce, and services 19%, government 6%

Unemployment Rate:
The Gambia's unemployment rate is very high though no exact figures are available.

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Average INFLATION in Gambia is 5.6 percent - 12-month moving average

Central Bank of The Gambia: (CBG)

MPC Press Release (31 January, 2014)

"Domestic Economic Developments
Growth
Real GDP growth of The Gambian economy for 2013 is provisionally estimated at 5.6 per cent compared to 6.1 per cent in 2012 and the contraction of 4.3 per cent in 2011. Growth in the value-added of agriculture is estimated at 14.8 percent, industry (7.0 percent) and services (3.7 percent).

Government Fiscal Operations
Provisional data on the execution of the 2013 budget show that total revenue and grants amounted to D5.9 billion (17.5 percent of GDP), below the target of D7.7 billion (20.0 percent of GDP). Domestic revenue, comprising both tax and non-tax revenue, increased by 10.6 percent to D5.2 billion, D4.6 billion of which was on account of international trade taxes. Grants, on the other hand, declined significantly from D1.8 billion in 2012 to D725.1 million in 2013.

Total expenditure and net lending rose to D8.7 billion (25.5 percent of GDP), or 11.2 percent from 2012. Current expenditure increased significantly to D6.3 billion, or 22.4 percent. Of the main components of current expenditure, wages and salaries increased by 15.1 percent, other charges (37.8 percent) and interest payments (7.4 percent). Capital expenditure, in contrast, declined to D2.32 billion from D2.58 billion in 2012.

The overall budget deficit (including grants) was D2.7 billion (8.0 per cent of GDP) in 2013, higher than the deficit of D1.3 billion (5.9 per cent of GDP) in 2012. The deficit was financed mainly from domestic sources in the amount of D2.2 billion (6.0 percent of GDP). External financing amounted to D578.8 million and repayments (D172.7 million).

The domestic debt, mainly short-term debt, totaled D13.5 billion (39 percent of GDP), an increase of 25.1 percent from 2012. Treasury bills and Sukuk Al-Salaam, accounting for 81.0 percent and 2.9 percent of the debt, increased by 34.5 percent and 13.6 percent respectively.

Reflecting mainly the increase in the policy rate, the yield on Treasury bills and Sukuk Al-Salaam increased significantly. The yield on the 91-day Treasury bill and Sukuk Al-Salaam rose from 9.62 percent and 9.70 percent in December 2012 to 15.85 percent and 15.84 percent in December 2013. Similarly, the yield on the 182-day and 364-day Treasury bills increased to 17.0 percent and 18.51 percent from 10.20 percent and 10.97 percent respectively. The average Inter-Bank interest rate for the month of December 2013 was 15.81 percent compared to 9.57 percent a year ago.

Monetary and Banking Sector Developments
Broad Money grew by 15.1 percent in 2013, higher than the target of 12.5 percent and growth rate of 7.8 percent in 2012. The expansion in broad money was due entirely to growth in the net domestic assets (NDA) of the banking system which rose by 25.8 percent compared to 7.7 percent in 2012. Net foreign assets (NFA), on the other hand, contracted by 8.7 percent compared to the growth rate of 7.7 percent in the previous year. Reserve money, the Bank’s operating target, grew by 28.1 percent in the twelve months to December 2013 compared to 6.8 percent in the preceding year and the target of 10.9 percent.

The Gambia’s banking sector continued to be stable and sound. The industry’s capital and reserves totaled D3.02 billion, a slight decrease of 0.13 percent from 2012. The risk-weighted capital adequacy ratio averaged 28.0 percent, slightly lower than the 30.0 percent in 2012. All the banks observed the minimum capital requirement of 10.0 percent.

Total assets of the industry rose to D23.8 billion, higher than the D22.8 billion in 2012. Loans and advances, accounting for 23.4 percent of total assets, rose to D6.04 billion, or 9.4 percent from 2012.

Data on the sectoral distribution of credit indicate that loans and advances to the tourism sector grew by 21.6 percent compared to a contraction of 10.5 percent in 2012. Advances to distributive trade, accounting for 31.6 percent of total credit, rose by 10.8 percent on top of the growth of 15.6 percent a year earlier. In contrast, credit extended to agriculture, fishing and manufacturing contracted by 37.5 percent, 16.7 percent and 9.4 percent in 2013 from the robust growth of 8.7 percent, 40.9 percent and 2.1 percent respectively in 2012.

The non-performing loans (NPLs) ratio increased significantly to 19.0 percent in 2013 compared to 12.1 percent a year ago.

Deposit liabilities rose to D15.05 billion, or 12.4 percent over the previous year driven mainly by the strong growth in demand and savings deposits. Time deposits, on the other hand, contracted. The liquidity ratio declined slightly to 76.0 percent compared to 78.0 percent in 2012, but higher than the minimum requirement of 30.0 percent.

Industry earnings increased significantly from D17.5 million in 2012 to D106.5 million in 2013. However, the return on assets declined slightly to 1.79 percent relative to 1.98 percent in 2012.

External Sector Developments
The overall balance of payments is estimated at a deficit of $32.9 million in the first nine months of 2013, lower than the deficit of $41.7 million in the corresponding period of 2012. The current account surplus increased to US$82.32 million compared to US$56.9 million in the same period in 2012. Of the components of the current account, the goods account deficit narrowed to $90.4 million compared to $132.7 million and $97.7 million recorded in the same period of 2012 and 2011 respectively.

The services account balance also improved from a surplus of US$43.54 million to a surplus of US$83.26 million during the period under review. In contrast, receipts from current transfers recorded a reduced surplus of $100.4 million, relative to the surplus of $154.9 million in the same period of 2012, mainly due to the marked decline in transfers to general government.

The capital and financial account deficit widened to US$49.4 million compared to the deficit of US$15.2 million in the corresponding period in 2012.

Volume of transactions in the foreign exchange market in the year to end-December 2013 decreased to US$1.31 billion, or 17.0 percent from 2012.

Gross international reserves amounted to US$170.3 million, equivalent to 4.1 months of import cover, down from US$195.8 million a year ago.

Although the Dalasi was broadly stable in the first half of 2013, it depreciated significantly in the second half of the year. As at end-December 2013, the Dalasi depreciated against the US Dollar by 14.8 percent, Euro (21.0 percent) and Pound Sterling (14.7 percent) from December 2012. In nominal effective exchange rate terms, the Dalasi depreciated by 15.1 percent compared to 13.5 percent and 7.3 percent in 2012 and 2011 respectively. The depreciation of the Dalasi was partly the result of reduced foreign exchange receipts, coupled with strong demand owing in part to the high level of liquidity in the economy.

Inflation
Consumer price inflation, measured by the National Consumer Price Index (NCPI), increased to 5.6 percent in December 2013 compared to the 4.9 percent recorded in 2012. Food prices, which remained the main driver of headline inflation, rose to a high of 7.3 percent in October 2013 before easing somewhat to 6.6 percent in December 2013. Non-food prices, broadly stable and non-volatile in 2010, 2011 and in the first half of 2013 averaged less than 2.0 percent, accelerated to a high of 4.6 percent in June 2013 before decelerating to 3.7 percent in December 2013.

Core inflation, which excludes prices of energy, utilities and volatile food items, accelerated to 6.2 percent in October 2013 before easing to 5.7 percent in December 2013.

Inflation Outlook
Real GDP growth is projected at 7.5 percent in 2014 predicated on robust expansion of agriculture and services, particularly tourism. This indicates that The Gambian economy is gradually growing close to potential. Inflation is forecast to moderate to within the target of 5.0 percent by end-December 2014 premised on prudent implementation of monetary and fiscal policies. The outlook to inflation is subject to several upside risks emanating both from the external environment and the domestic economy. The most important risks are higher-than-expected oil prices and fiscal and exchange rate pressures.

Decision
Against this backdrop, the MPC judged the current policy stance to be appropriate and therefore has decided to keep the policy rate unchanged at 20.0 percent. Nonetheless, the MPC recognizes that circumstances could change and is desirous to respond promptly to keep prices under control and ensure that inflation expectations are well anchored."

Source:  MPC of CBG
See their report.

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