Saturday, March 1, 2014

The Gambia: A chronically mismanaged economy

The International Monetary Fund (IMF) Resident Representative in The Gambia, Mr. Kagabo Gaston Mpatswe lamented at the deterioration of the Gambian economy, especially in the second half of last year. He reiterated the Fund's November 2013 mission findings and recommendations.  Despite persistent IMF warnings, the fiscal and current account deficits continue to widen which the IMF Resident Representative seem to attribute to "spending pressures" that led to the "large fiscal slippages."  Interest rates continue to climb because of government domestic borrowing habit which the IMF seem to be helpless in reining in, causing the private sector to be deprived of much needed credit to grow and create jobs for the ordinary Gambian citizen.

Needless to say that to break the domestic spending fever of this regime, more-of-the same is not going to do the trick.  The Fund and other donors need to do more than to rehash the same boiler plate template of calling for 'fiscal prudence', a call that is obviously being ignored repeatedly, mission after mission.

The 'spending pressures' this regime face are mostly self-inflicted or to put it in another way, they are internally-generated pressures driven by politics to keep the current regime in power by embarking on projects that will otherwise not attract outside funding.  The A(F)PRC regimes have perfected the unconventional route to project financing by necessity.  When they seized power illegally in 1994 and were faced with sanctions by donors, they searched for friends who could provide them the lifeline needed to exchange their army uniforms for civilian grand boubous.  They looted the public treasury to supplement their other sources.  Not that they these practices have ceased, they have been perfected by Jammeh and his former and present senior officials that occupied the financial infrastructure.  Wasn't the IMF a victim of statistical malfeasance at the hands of the Central Bank of the Gambia (CBG) that resulted in The Gambia being sanctioned.

Attention of the Fund is being drawn to yet another manufactured spending pressure in the horizon i.e the so-called world class university campus at Faraba Banta, the architectural plans of which were presented to Jammeh who endorsed them on the spot with the assurance to the consulting engineers that the funds for the university have "already been secured."

Our records show that two loan agreements pertaining to the Faraba Banta world class university" were signed the regime, one with the Kuwaiti Fund and the most recent with BADEA.  The first was to the tune of about $14.4 million signed in July 2010 by the then Minister of Finance Mamadou Diaz Foon and the second was for an amount of $ 7 million in April 2011 by then the Finance Minister Mambury Njie.  Both of the signing ceremonies took place at the State House in Banjul for maximum propaganda points.  The total cost of the "world-class university at Faraba Banta" was confirmed by Jammeh last week to be $ 51 million.

If we assume that the $ 21.4 million has not been renegotiated and used for other purposes, and that they have not been cancelled, there will still a funding gap of approximate $ 30 million.  Without going into loan servicing implications and the impact these loans will have on the overall debt burden of a country with more pressing priorities like huge food deficit problems and a groundnut sector that threatens to implode, the Fund should play a more proactive and sterner role in getting the regime to prioritize the pressing issues facing the economy and the country instead of pursuing silly but very expensive projects.

The agriculture sector has suffered neglect at the hands of the regime despite paying lip service to it. Mr. Mpatswe will soon discover that sloganeering is a national past time, and just like "soldiers with a difference" and "transparency, accountability and probity", "grow what you eat and eat what you grow" will prove to be more empty words from a regime that it out of its depth and consumed by corruption.

By allowing a monopoly control of the groundnut buying business to be in the hands of the Gambia Groundnut Corporation (GGC), farmers will be cheated of their labor by not being offered competitive prices.  Private buyers should have been allowed to participate in a free market environment, as was the case in the second half of last year's buying season which saw an immediate increase in the price that the private operators were prepared to pay farmers for their produce.

Macroeconomic stability`is by definition a national economy that minimizes vulnerabilities to external shocks. Exposure to currency fluctuation, huge debt burdens and unmanaged inflation can cause economic crises and collapse in GDP.

We have witnessed the Office of the President dabbling in the foreign exchange markets last summer causing panic and confusion that, in our view, destroys the very foundation upon which the free exchange rate mechanism was established since the inception of the ERP in January 1986.  That foundation is trust in the system that guaranteed freedom from political interference, especially from politicians like Jammeh.

The Central Bank Governor failed Gambians and so did the IMF, the former for not resigning in protest for the usurpation of his powers by the executive, and the latter form not applying a firmer rebuke than the Fund's warning contained in its November mission report.  Presidential interference has caused disruptions in the forex market and has irreparably undermined confidence which took almost three decades to build.  An inefficient forex market, coupled with an under-performing agriculture sector as the major foreign exchange earner, is a toxic cocktail for an economy that is already on life support.  The building of international reserve to act as "sock absorber" under these circumstances will be difficult if not impossible.

Potential long-term growth rate potential exits provided structural reforms take place in key infrastructure sub-sectors like telecommunications and energy.  We have witness GAMTEL mismanaged, its resources pilfered and its most profitable operations hived off and given to Jammeh's cronies in the name of public-private partnerships or some form of joint ventures, turning a once profitable telecommunication company into a bankrupt one.  NAWEC is even in worse state.

As in so many areas of Gambian life, this regime has failed in economic management too.  It has been twenty painful years of experimentation with our economy by a group of soldiers who've had no experience in governance of any kind.  It is so sad that they have wrecked a once well-managed economy putting the lives of so many Gambians at risk.  It is time for them to go so that serious Gambians can embark on the difficult task of picking up the pieces from Yaya Jammeh and his minions.  It is not that Gambians don't know how to manage an economy in decline.  They've done it before in the mid-1980s with the ERP, and they can do it again.