“In the absence of corrective policies, The Gambia’s external viability and fiscal sustainability could be at serious risk” – IMF Country Report No. 15/272
For those who have been around long enough and/or have read about the country’s political evolution, the above quotation is a stark reminder of the Colonial Master’s perception of The Gambia at the dawn of Independence in 1965. The then British Colonial Administration was of the view that The Gambia, given its size and paucity of both human and natural resources, could not survive as a stand-alone independent country and therefore, there were thoughts of merging the territory with Senegal. Our then Independence leaders resisted the idea of a merger and instead opted for closer ties with our neighbor whilst maintaining our sovereignty as a country. These leaders believed that the country could survive as an economically viable independent state. They mustered courage and put all hands on deck to ensure a somewhat economic took-off. From then on, our Foreign Policy was largely shaped by our peculiar circumstance until July 1994. Today, 50 years later, under the stewardship of Yahya Jammeh, the same doubts are being expressed, this time, by The International Monetary Fund (IMF). Jammeh took power on the pretext that the economy was going down the drain due to “rampant corruption” and economic mismanagement. What an irony that after 21 years of Jammeh, the supposed Saviour’s stewardship, the country has retrogressed to a point that our viability, as a country, is being questioned one more time, as in 1965!
In an earlier article to this paper entitled “Executive Brigandage”, I did indicate how worrisome Jammeh’s latest meddling in the foreign exchange market should be, for it was very clear where we were headed with that latest Executive meddling. Alas! We are there. There is no turning back; we must now face the dire consequences. The consequences will undoubtedly have serious social and political ramifications. Economics and Politics are siblings of the same parents. However, before, we get to the Social and Political consequences of this economic mess, let us try to make sense of some of the statistics given by the IMF in the report looking at these few selected Economic Indicators:
Nominal GDP or Gross Domestic Product in absolute terms, is the monetary value of all that a country has produced over a given period without adjustment for inflation. Whilst nominal GDP tends to indicate a country’s economic performance, the more important indicator is the Real GDP which is takes into account the effect of inflation. GDP Per Capita, on the other hand indicates, in monetary terms, how much, on average, each citizen in a given country has produced, over a given time period. The figure is derived by dividing a country’s GDP by the population. Therefore, whilst the GDP indicates a country’s level of productivity, the GDP Per Capita indicates the level of individual productivity. In other words, it is an indication of the standard of living in a country. Given the above background, statistics provided by the IMF on The Gambia indicates that the country’s GDP Per Capita has been consistently deteriorating from US$ 551 in 2010 to US$ 385 at the end of August 2015. This means that in The Gambia, average productivity and/or standard of living has been consistently deteriorating in the last five years by an average of over 30%. Therefore, whilst in nominal terms, the country’s GDP has increased from GMD 26.66bn in 2010 to GMD 38.20bn in 2015, in reality, however, the Gambian economy has been shrinking with core inflation currently at above 7.5%. Simply put, the country has not been growing, despite the fanciful figures provided by the authorities.
Public Debt – funny enough, whilst the economy is shrinking, public debt is rising. According to the IMF, The Gambia’s public debt (nominal) has increased from 69.6% of the GDP in 2010 to 101.1% of the GDP at the end of August 2015. This means even if the country were to use all of its output in 2015 for the repayment of the public debt, this will not be enough clear all of the debt hanging around the country’s neck. Sadly, the bulk of this debt is in the short-term, implying enormous pressure on the government inn terms of servicing. At this juncture, let us ask ourselves this basic question: if the public debt is increasing whilst our economy is shrinking, where are the funds going? To me, as a layman, this means that whatever debt the country contracts is mainly used for the recurrent budget and very little, if any, is used for development purposes. The above question still remains relevant even if we focus only on the recurrent expenditure, in view of stagnant salaries in the Civil Service, deterioration in the provision of public goods, dwindling exports, widening overall negative Trade Imbalances and unprecedented high levels of unemployment. Basically, we are borrowing to survive. We need Yahya Jammeh and his team of Economic experts to explain to us where the funds, borrowed on our behalf, are going.
Increasing Trend in Domestic Tax – to further complicate matters for the citizenry, in the face of a shrinking economy, domestic tax revenue keeps increasing from 14.9% of the GDP in 2010 to 19.7% at the end of August 2015, according to the IMF. One is tempted to ask: where is the additional tax revenue coming from? Given that the economic base has hardly changed over the years, one could sense government expanding the tax base to cover almost every economic that Gambians do irrespective of the magnitude and/or economic viability of such venture(s). This kills incentive to work. Imagine mere street hawkers who barely make ends meet having to pay all kinds of duties/taxes to all kinds of central and/or local government authorities. These are groups that need our support and protection, but in The Gambia, they are seen as sources of revenue and they face constant harassment for either falling or delaying to pay duties. One does not need to be an Economist to know that sustainability in tax revenue can only come from an expansion of the country’s economic base. Continuous increase in taxes without a complementary expansion in the country’s economic base can lead to the death of the economy. In all developing countries, it is the Small & Medium-size Enterprises (SMEs) that create employment and as such, they need support and encouragement. Sadly, what is happening in The Gambia is the complete opposite: it is a systematic killing of SME businesses through the imposition of heavy taxes/duties. So unemployment is ubiquitous.
Foreign Exchange Reserves – We had, in an earlier article, indicated the sources of Foreign Exchange for The Gambia. Every country needs enough stock of Foreign Exchange if it must fulfill its basic role of providing goods and/or services which it does not produce/provide locally to its people. How sufficient a country’s Foreign Exchange holdings is, is measured in terms of the number of months of imports those reserves can cover. Statistics from the IMF indicates that The Gambia’s average Foreign Exchange holdings have been seriously deteriorating from 5.1 months of Import Cover in 2010 to just 2.6 months at the end of August 2015. In other words, our average holding of Foreign Exchange has reduced by about 50% in the last five years. The continued depletion of our Foreign Reserves means we could find ourselves unable to import essential commodities/items (petroleum products, food items, medical supplies etc) in the coming months.
So precarious is The Gambia’s economic health that the IMF is calling for “…. bold action on a variety of fronts…… to restore policy credibility”. If past experiences both in The Gambia and other Third World countries are anything to go by, certainly IMF’s strait-jacket and out-of-touch solutions, will soon be underway as a bitter pill for Gambians to swallow. In my opinion, the IMF has always missed the point when it comes to recommending effective solutions to rescue African and, generally, Third World economies out of the doldrums. The Gambia has no leverage to reject IMF recommendations having already mortgaged the economy to the institution. So we should expect cuts in public spending which implies laying off workers, increase in taxes, etc. These so-called solutions are usually socially and politically destabilizing.
To be continued.