Wednesday, November 20, 2013

Gambia's economy continues to be mismanaged

Roger Nord, Deputy Director, African Department of the International Monetary Fund (IMF) visited Banjul, and after a closed door meeting with Mrs. Isatou Njie-Saidy, Vice President of The Gambia told reporters that she assured him that "her government is committed to ensuring the economic growth (registered), is sustained, inclusive and creates jobs."

The Fund representative suggested to reporters that the message he received from the Vice President although "clear" but he implied that the regime's were neither convincing nor reassuring. After all, the same reassurances have been given by the same regime to the same donors in the past by the Jammeh regime only to fail in following through with their promises. 

Mr Nord's response to Gambia's Vice President is that whereas a message was clear, there seem to be no sign that the Gambian authorities are committed to neither their word nor to implementing mutually agreed policies between the Fund and Government.  Combing through Fund Mission Reports dating to 2000 to date, the same warnings seemed to have been standard issues to a regime that promises a great deal about a deficit that keeps rising uncontrollably, not to speak of a domestic debt that now stands at an unsustainable level of 33% of GDP.

The Gambia spends about 25% of all domestic revenue collected annually on servicing the interest on its external debt.  Internally, government is crowding out the private sector by running high domestic debt thus limiting access to credit the banking system.  Limited access to credit, coupled with a hostile environment have resulted in businesses fleeing The Gambia for neighboring countries like Senegal.  The Fund has documented on numerous occasions the regime's insatiable thirst for domestic borrowing, and it is yet unsuccessful in curbing the domestic borrowing spree.

Consequent to the exponential growth in domestic debt, the job-creating capacity of a shrinking private sector has been contracting over the years adding to the chronic unemployment problem which has become structural in nature, pointing to the need to review the role of the Central Bank with the view to reinforcing its statutory role of managing or checking inflation and adopting monetary policies that encourage employment.

In the closed door meeting with Gambia's Vice President, the IMF representative seemed to  have politely reminded her that to achieve sustainable economic growth that is both inclusive and creates jobs, the regime must first stabilize the economy, keep inflation low, stabilize the foreign exchange markets by allowing the floating exchange rate mechanism without interference from the Presidency, and to control the fiscal deficit. Perhaps with the exception of the foreign exchange issue which is a recent  phenomenon, all the prescriptions enumerated by the Fund representative have been standard advise which have gone unheeded for years by a regime that continues to display monetary and fiscal imprudence.

As regards the stability of the foreign exchange market, the regime destabilized it this summer with the unilateral decision of Yaya Jammeh to directly intervene in the market by pegging his own rates against the U.S dollar and other currencies in direct contravention of the Central Bank Act.   Monetary policy is the exclusive preserve of the Central Bank.  The interference in the foreign exchange market by the Presidency has resulted in an unstable and distorted forex market that will take years to correct itself.  The floating exchange rate mechanism that has been in place since January 1986 and served the economy well was interrupted by a dictator with little regard for fiscal and monetary order.

The IMF official did not only warn the government of the challenges facing the country but advised strongly that government spending must be tailored to fit "available resources."  The inability of the Jammeh regime to pursue fiscal and monetary prudent policies is just one more reminder that the international community is dealing with a highly indiscipline and unpredictable regime that must be reined-in, one way or the other.

The IMF official was understandably skeptical of the assurances of the Vice President Isatou Njie-Saidy who on her 5th official visit to Taipei last month looked Taiwanese President Ma Ying-jeou straight in the eye and assured him that the Taipei-Banjul diplomatic relations was as solid as a rock.  We all know how that turned out.