By Janko Camara
Waking up, this morning in a 5-Star Harare hotel – The Meikles – where I got entangled in an awkward conversation about Gambia’s “Doctor” who cures all kinds of diseases, my only solace became a quick glance at the online papers to update myself with happenings in The Gambia, whilst having an English Breakfast in this typical British-style hotel. Being the first time in Mugabe’s Zimbabwe, I have been busy appreciating the beauty of the city as far as I can see from one of the hotel’s two restaurants situated on the top floors. The immediate hotel setting is so beautiful and everywhere is green. The hotel is, by all standards, British and is everything one would find in a typical 5-star hotel in London. The rest is for another day.
So coming back to the online Gambian papers, as usual, there is hardly anything positive about The Gambia in these papers. The stories are almost always about our “Banjul Mansa”, his crew and their everyday macho-like drama in that tiny country. So, I was not expecting anything so spectacular. However, one news item caught my attention on several of the papers I glanced: The Office of the President has, one more time, decided to intervene in the foreign exchange market by arbitrarily pegging the exchange rate of the Gambian Dalasi against the US Dollar. Again, this is not the first time the “Banjul Mansa” has done this, so in the main, there is nothing new. However, the intervention, this time, is very worrying coming hard on the heels of the government’s dishonest Letter of Intent to the IMF attached to which was a memorandum on their Economic and Financial Policies. One of the online papers gave a link to the IMF site where this document was readily available. In the said Memorandum, The Gambia Government enumerated steps they had taken in 2014 “to improve policy implementation”. Two specific steps are worth examining:
Fiscal policy. We liberalized fuel imports and introduced a new fuel pricing structure with higher pump prices on July 1, 2014. Fuel subsidies, which led to a sizable revenue loss in the past, were completely eliminated in September 2014.
I consider the above statement grossly misleading and an insult to our collective intelligence as Gambians. The statement creates an impression that “fuel subsidy” existed and was a major expense line of The Gambia Government, which spends heavily in subsidizing prices at the level of the pump; that the expenditures were so huge that the governmentincurred huge losses, whichtook it off-track, withregards tothe agreed policy programmes with the IMF. Nothing is further from the truth. Fiscal policygenerally extends to the whole gamut of government expenditure, not just a single line of expenditure. It is true that there existeda somewhatPetroleum Stabilization Fund, referred to by its acronym as “Flumara”, at the level of the Ministry of Finance which was supposed to cushion fuel prices to ensure the final consumer enjoys some sense of stability in the price of fuel. The questions, however, are: When last did the Ministry of Finance use Flumara to stabilize prices? Why, despite the existence of a fuel subsidy programme, did the price of fuel keep on increasing almost every quarter in The Gambia, sometimes without any public notification? Between 2012 and 2014, the price of refined petroleum products has moved from GMD 33.00 to GMD 58 a liter, registering a 76% increase. Even at the global level, fuel prices have not jumped at this rate within this same period.
A number of countries in Sub-Saharan Africa used to subsidize petroleum prices at the level of the pump for their citizens to experience stable and affordable prices. In most of these countries, fuel prices were lowered as soon as global petroleum prices started to slump. With lower prices, these governments gradually withdrew the subsidies hitherto in place and instead had the importers pay some token to them as tax. This way, the governments are recouping part of the expenses earlier incurred as subsidies. The Gambia is the only country in Sub-Saharan Africa, which has kept increasing fuel prices at the level of the pump in spite of falling oil prices. The reason being, the government continues to levy heavy taxation on petroleum importers to the point that reducing prices can only translate into losses for the importing companies. So telling IMF that the fuel subsidy was scrappedin September 2014 is not only blatant lies but also most dishonest to our people. But what appears interesting is that a government that claims to have the interest of its people, in their quest to get financial assistance, is telling the IMF that they have been so brazen, cruel and inconsiderate to their people by increasing fuel prices at a time all other countries are helping their people by reducing the energy prices. In any case, let us assume government was still subsidizing fuel up to the end of August 2014 as it claims. What then is the percentage of the “subsidy” in the overall government spending structure? The truth is that Gambians have had their tax spent on things that are not only unbudgeted in the national budget but also that yield no economic or social benefits to our people because there is no accountability. One man runs the budget aided and abetted by a group of unprincipled politicians and, to some extent,some top civil servants in who seem more interested in securing their positions than securing the national interest. That is how irresponsible The Gambia Government has been when it comes to spending. Last year, for instance, the government (or rather Yahya Jammeh) donated a total sum of One Million United States Dollars to two countries in the sub-region, as a goodwill gesture in their fight against the Ebola epidemic. For this unilateral foreign exchange transfer, The Gambia did not receive anything in return other than the boost it gave to the bloated ego of a single man – “Banjul Mansa”. This is different from the numerous state-sponsored Jamborees for which no value is received other than the destruction of our youthful population. The government’s (or Jammeh’s) uncontrolled wastage and wayward spending has become too much for the economy to absorb and this brings me to my second point – Monetary & Exchange Rate Policy.
In the same dishonest letter, this is what the government wrote about their Monetary Policy:
“Monetary and exchange rate policy. We continued to pursue a flexible exchange rate regimeand maintained a tight monetary policy stance to support macroeconomic and exchange rate stability following the period when the government rescinded the exchange directives in October 2013. In particular, the CBG increased the rediscount rate to 22 percent at the beginning of August 2014, kept the reserve requirements at 15 percent, and tightened the permissible foreign exchange net open position of commercial banks.”
Without appearing academic, the ultimate objective of any country’s monetary policy is to ensure price and exchange rate stability. Where policy tools fail to produce these intended results, (as is the case in The Gambia right now) then the efficacy of the tools needs a re-assessment. Monetary policy does not work in isolation. It goes through a transmission mechanism with intermediate targets some of which are usually outside the control of the monetary authority. Most importantly, however, monetary policy has to be complemented by an appropriate fiscal policy. Whilst the Central Bank of The Gambia has taken “a tight monetary policy stance”, the same could not be said of our fiscal policy, which is anything but discipline. The Gambia Government (or rather Yahya Jammeh) has been overshooting the expenditure budget by very wide margins to the point that towards the end of 2014, a supplementary budget had to be tabled before our Rubber-Stamp Parliament for approval. The country has been running a chronic negative Balance of Payments with overall nominal DGP heading south for the last two years. So how effective can the Central Bank’s monetary policy be? One thing that needs to be stated is that a continued tight monetary policy stance,ala Gambian, may eventually choke the Banking system and cause more problems than the CBG attempts to resolve. This brings me to the issue at hand – Executive intervention to fix the rate of the Gambian Dalasi. I would like to call it Executive Brigandage.
The Gambia’s sources of foreign exchange has mainly been the following:
Remittances from abroad by Gambians (recent statistics shows this is at least 20% of our GDP)
Proceeds from exports of goods and services (this includes Agriculture and Tourism)
Direct Foreign Investment into the productive sectors of the economy (no longer reliable)
Loans and Grants from our “Development Partners”
Assistance from our bilateral relationships
Sale of Gambia Government property(ies) abroad, if any and
Revenue from investments abroad, if any
In reality, the country depends, largely, on inward remittances by Gambians abroad and to a lesser extent, on the exports of goods and services, as the main sources of foreign exchange. All the other foreign exchange avenues have been tapering mainly due to the queer comportment of the country’s leader and the resultant policy directives. In the meantime, whilst foreign exchange sources are dwindling, our import bills are ever increasing. Therefore, there is continued pressure on the Gambian Dalasi leading to the rapid depreciation in its value as is being experienced. So where you have an irresponsible government akin to the one in the Gambia, which prides itself in spending on things that do not yield any value to the country whilst its sources of foreign exchange are continually dwindling, this is the end result. As a country, we need to stop the joke we have been dragged into and resume hardwork. The earlier we put a stop to this Executive brigandage, the better for our country and all of us. We need to produce more for ourselves and sell more to the outside world. This cannot be achievedif we continue working for only four days in a week whilst spending all the other days doing nothing. Not even the so-called Developed Countries have such a luxury that we have in The Gambia. The fire-brigade approach to stop the free-fall of the Dalasi will, at best, only yield a counter-productive effect whilst gradually grinding the whole economy to a virtual halt. One of the unintended consequences of this Executive brigandage will be to encourage hoarding and smuggling, as has always been the case in the past. From the moment the announcement was made, those with foreign currency, outside of the formal system, would have started to hoard their currencies because they know, from precedence, that the rates would eventually rally, as has been the case in the numerous past interventions. So the effect of this is to make the already scarce commodity scarcer thus forcing the price further up. So when shall we put a stop to the Executive brigandage?