Saturday, September 14, 2013

The IMF gives Gambia a failing grade

The Executive Board of the International Monetary Fund (IMF or Fund) gives The Gambia a failing grade in the management of its economy following a recently concluded consultations between Fund staff and the government of Yaya Jammeh.

In a press release dated September 13, 2013 issued by the Executive Board, the economy, in the eyes of the Fund, is recovering from the 2011 drought which led to a large drop in crop production, and corresponding decline in GDP in the same year.  The release continues to raise concern about the persistent decline in the balance of payments leading to the depreciation of the dalasi.   The Fund cannot help but cite recent developments in the foreign exchange markets, characterized by frequent and incoherent press releases emanating from State House fixing forex rates, a function which, by law, is the exclusive purview of the Central Bank of the Gambia.  Therefore, Jammeh's recent actions in this area are illegal.

The fiscal indiscipline of the Jammeh regime continues to be one of the major problems facing Gambia's economy.  Yaya Jammeh is the economy's worst enemy by engaging in imprudent fiscal policies, adding to the problems associated with heavy debt burden. Interest on debt stands at 22.5% of government revenue and rising.  In other words, for every D100 revenue collected by government through taxes and other revenue sources, D22.50 is spent on nothing but the interest on the debt that government, leaving government D77.50 ( with zero payment on the principal ) to spend on vital services like medications, fixing roads, emergency assistance to flood victims, and salaries for civil servants.  The Fund had previously warned government of the dangers of leaving the domestic debt left unchecked which now stands at approximately 33% of GDP.  Despite previous promises made by the regime to reduce the fiscal deficit, the problem persists with no sign of abating.

The foreign exchange mess caused by Jammeh's insistence on meddling in Central Bank functions is of concern to the IMF not only because of the market disruptions it has caused, but also because it encourages capital flight and dampened remittances from abroad.  The ensuing chaos following directives from State House to fix the rates is evidenced by the closure of numerous forex bureaux, and the use of murky and inconsistent rules governing their re-opening. Anecdotal evidence supports the fear that capital flight is taking place, especially to neighboring countries with friendlier private sector environment.  As regards remittances from abroad, several diasporan Gambians have decided to hold on to their monthly or quarterly remittances, however temporarily, until there is discernable evidence of the restoration of some form of sanity at State House.  Until this happens, I believe that remittances from abroad will decline which is more bad news for a very bad government.

The IMF Directors lamented at the poor economic data generated by government without which policymaking will be difficult.  This problem has been cited before, and will continue to be permanent fixture in the periodic reporting of the Fund because as long as the Jammeh regime stays in power, the more the figures will continue to be fudged, cooked and massaged to conceal the hard truths of a failed government. The Central Bank Research Department used to be the pride of the government under Jawara. Unfortunately, the same is not true today because of political interference which is why I expect the problem to persist because this government sees everything through the political prism.  To Jammeh, everything is political including data collection for research and policy-formulation purposes.

As regards the International Monetary Fund, I believe it has been massaging the monetary and overall economic problems facing the Gambia rather than confronting them head on.  Meanwhile, the regime continues to flout important policy measures with impunity - policies that have, in the past, served The Gambia well.  I have in mind, particularly, the flexible exchange rate regime which has been in place since 1985-86, a policy that complimented the Economic Recovery Program (ERP).  The ERP came at tremendous cost and sacrifice to ordinary Gambians.  Civil servants were retrenched, investors with dalasi-denominated assets lost value, farmers lost their farm input subsidies, cost recoveries instituted and on, all in the name of prudent fiscal and monetary policies.   Jammeh is setting the economic management clock back three decades while, in my view, the Fund watches from the sidelines.  More proactive measures, including severe sanctions, are necessary from the Fund and the donor community.  It is time to borrow a leaf from the playbook of the European Union.