Sunday, October 20, 2013

The failed economic policies of the A(F)PRC regimes

This article was first published in June 2013 about the most recently concluded IMF Article IV Consultations.  The issues raised therein are very relevant today as they were few months ago.

The IMF Mission Chief to The Gambia has just concluded a two-week Article IV consultations, and as it is customary, Mr. Dunn spoke to the press about the general conclusions of his mission to Banjul. 

According to The Daily Observer, the official Government mouthpiece, The IMF Mission chief made the following remarks and observations:

1.  That despite the depreciation of the dalasi against major currencies,"economic outlook is generally good as long as authorities implement prudent policies."  In plain English, The Fund is saying that the economy is performing poorly and will continue to deteriorate down the scale if current monetary and fiscal policies are not reversed.  I will come back to these later.  The Fund has been making the same statement since the beginning of this century. If you do not believe me, take out all of the Fund's Mission reports from 2000 and check for yourself. 

2.  That GDP growth is expected to rise to, what I assume is about 8 - 9 percent during 2013-2014 and not 89 percent as reported by The Daily Observer.  This expected growth is contingent on and "driven by a continuation of the recovery in agriculture."  Crop production is still below normal, and in my view, will continue through the 2013 - 2014 season, and probably beyond, based on FAO assessment.  Under drought conditions, drought-resistant seeds are needed in sufficient quantities to maintain or surpass current production levels.  We now know, thanks to FAO, that these type seeds are not available to the farming community because of, what I judge to be, government negligence.  Rounding up the two permanent secretaries of the Agriculture Ministry together with the Director of Agriculture and the project coordinator of the West African Agricultural Productivity Program and sending them to jail is the last thing you want to do when the sector is in crisis.  I hope Mr. Dunn has pleaded with the regime to release these officials without delay.

3. That "strong performance' of Tourism has contributed to improvement in the real growth in GDP in 2012.  However, as it is reported in the UK Guardian newspaper, this improvement could be short-lived because Gambia is benefiting as the Arab Spring pushes tourists from former hotspots like Egypt, Morocco and Tunisia.  If calm returns to theses destinations, bookings will go down again unless the product is improved.

4. That the tight monetary policy adopted by the Central Bank last month has helped slowed down the depreciation of the currency, and thus the Fund would wish that these 'prudent policies' are maintained into the future.  Central to the success of these policies is government's promise 'to refrain from CBGs financing of the fiscal deficit. 

5.  That "reducing government domestic borrowing to 1.5% of GDP in 2013 as previously planned, will be critical to eventually ease the current pressure on inflation and interest rates."  Increased reliance on domestic borrowing to finance lash and irresponsible public spending by the Jammeh regime has been a persistent problem that has been primarily responsible for Gambia's current unsustainable debt burden.   Gambia's current debt stock stands at 30% of GDP.  Interest payments on domestic debt consuming an estimated 18% of  government revenues, far outweighing the interest obligations on external debt.

6.  That tax reforms with the view to broadening the tax base and simplifying the tax system will enhance growth.  The mission is also encouraging government to lower the tax rates for businesses over time.  A comprehensive tax reform is necessary but I doubt that this government is capable of effecting meaningful change when all it seems to be interested in broadening the tax base and nothing on the efficient use of tax revenues.  

7.   That planned investments in agriculture and transport sectors offer the promise of higher, and 'more inclusive' growth going  forward.  This implies that growth in these sectors has been 'exclusive' and thus corrective measures are needed to balance things out.   Yaya Jammeh happens to be heavily involved in both of these sectors, including his forcing the Social Security and Housing Finance Corporation (SSHFC) to be majority shareholder in the newly formed Gambia Transport Service Corporation (GTSC).

8.  That in future greater oversight of activities of SSHFC should be exercised by CBG as part of its supervisory function by posting its audit reports on a government website.  For a government whose battle cry has been been transparency, Jammeh should have any problem with this new requirement.   Pensioners deserve to know how and where their money is being invested.  

In the main, the Fund has, once again, concluded that Gambia's economy is still in the 'weak performer' category where it will stay for the foreseeable future unless government is determined to adopt "prudent fiscal and monetary policies."  There is no indication that this regime will change its approach to governance which is to limit free expression of views, even among public servants, necessary to arrive at mutually accepted set of prescription for an ailing economy.   The moment the mission leaves, these same officials will be cowed into reneging on every word they've utter and agreed upon during the two-week mission.  So we will be back in November or December this year to discuss the same issues again and to note that things have gotten worse instead of better because Jammeh and his government have continued on the same path of fiscal and monetary imprudence.