Tuesday, November 11, 2014

Huge domestic debt due to competition says Central Bank Governor

The Governor of the Central Bank of The Gambia (CBG) blames the huge and growing domestic debt to competition for funds between government and the private sector.  

He made the claim during a joint National Assembly committee on government finances.  According to the Governor, the government uses it's preferred lender position to borrow funds to finance "critical development projects" and thus crowding out the private sector - in short, depriving a sector the regime claim is the "engine of growth" of an economy that is "private-led."

Recognizing that the rationale for continuing to accumulate huge domestic debt against the consistent and persistent advise of the IMF, and the donor community in general will not go down well, he tried to recoil back to the mainstream thinking that deficit financing fuels inflation (one of the main mission of CBG) by suggesting that "the problem...is to try to limit ourselves to what we have" which I take to mean: prudent monetary and fiscal policy.

He proceeded, according to the Standard newspaper's quote to say this: "under normal situations, it (referring to fiscal and monetary prudence) works and any economy will find itself in trouble if that is not the case."

What the Governor seem to be saying is he's aware of the desirability of managing monetary policy prudently and the need for the regime to cut its coat according to its size but he's being pressured from the powers that be - in a dictatorship, that means one man) - to borrow in order to finance development projects. 

We wish he'd proceeded to list some of the so called critical development projects.  To do so would have confirmed what we've been criticizing the Jammeh regime for.  Firstly, development projects typically do not generate revenue to help finance the loan and it is for this reason that secondly, development projects like the Janjangburay bridge are left to term-lending institutions like the AfDB to fund on concessionary long-term terms. 

The IMF had been raising the problem of indiscipline for as long as we can remember, from one Central Bank Governor to the next, and yet the problem persists and getting worse.  As long as the political will is lacking to put an end to this irresponsible behavior, ordinary Gambians will continue to bear the brunt of the mismanagement of the economy in the form of high inflation, high unemployment and poor public services.

In the Gambia, the roles of government and the private sector appear to be reversed where the former plays the role of employment creator and the reliable creditor while the latter's job-creation ability is stifled by deliberate government policy thus denying it the important and critical role of acting as the engine of growth.

The government should stop competing with the private sector. The sector is better suited to react to market conditions better among other advantages.  Government, on the other hand, should focus its attention on providing the conducive environment, especially the regulatory environment, to allow the private sector to grow and create jobs for Gambians.