Friday, August 7, 2015

An economic meltdown: The chickens are here to roost

It may have taken 21 years for Yaya Jammeh to destroy a functioning economy but it is finally here - the total obliteration of a once thriving and well-managed economy that was the envy of the region.

Jammeh inherited an economy from Sir Dawda Jawara that held promise to 2 million Gambians, which has now dissipated into a dysfunctionality only a military regime can achieve with absolute ease, made possible by total ignorance of the basic principles of economic management.

Speaking to reporters in his capacity as Chairman of the Monetary Policy Committee (MPC), Mr. Colley, Governor of the Central Bank confirmed what former Minister of Finance warned Gambians last year that "next year - referring to 2015 - will be a very difficult year."

Indeed, it is proving to be an extremely difficult year, especially for ordinary citizens who have seen their food security blanket removed by a regime that insists on spending scares resources irresponsibly, in sectors that ensure the perpetuation of the dictatorship rather than help alleviate poverty. The result is that 600,000 Gambians are now food insecure.  A figure that has the potential of exploding to 800,000 by the end of the year, representing half of the country.

According to the Governor, the year to end in June 2015, the domestic debt has ballooned to D 19.1 billion or almost 50% of GDP from 30.4% only a year ago.  Based on local reporting of the CBG figures, the D 2.23 billion of the D 19.1 billion was accumulated in the first half of this year calendar year alone.  Treasury bills account for 69% of the domestic debt.  The 1% of GDP annual ceiling agreed to with the IMF is out the window as we predicted immediately following the announcement of the financial bailout of the regime.

Price inflation is also on the rise to worrying levels, further putting a squeeze on a population that is already hard pressed to make ends meet.  There has been a 1.8% increase in inflation from 5.4% in June 2014 to 7.2% in June 2015.  Failure to act against these heightened pressures may cause prices to accelerate further thus entrenching higher rates of inflation.

Clearly, out-of-control spending is fueling inflation.  Therefore, unless government curtail spending, especially in the defense and security sectors, and reorder its priorities - less expenditures on non-productive activities, like celebrations and frivolous engagements - in a significant way, rate of inflation will continue to rise.

The economy has also fail to grow.  It went from a negative 0.7% in 2013 to an adjusted figure of 0.5% in 2014 at a period when African countries, south of the Sahara are among the fastest growing economies in the world at between 8% and 10%.   Even post-conflict countries like Cote d'Ivoire, Sierra Leone and Liberia are growing faster than The Gambia.  The reason being an incompetent leadership that is also highly corrupt.  In fact, Jammeh and his handlers seem to encourage corruption.

The burden of Gambia's debt which now stands at almost 50% of GDP is unsustainable.  We wrote last year, citing The Economist magazine, and suggesting that exponential growth in the debt is, in part, due to the usually short maturity of the type of loans the regime is contracting.

For example, the regime has opened eight different lines of credit with the Ex-Im Bank of India - including a $ 27 million National Assembly Building, that are now fall due with non-concessionary terms associated with each of these loans.  Most of these projects fall within the non-generating revenue category and thus are not self-financing.  Government must service these loans.  No wonder interest payments alone have increased by 81%, according to the Central Bank Governor.

The trajectory of the public debt is not only unsustainable but worrying.  Worrying because of the inability or unwillingness of the Jammeh regime to address its addiction to cash.  Jammeh will find every excuse under the sun to borrow money for expenditures that will bring neither growth to the economy nor development in the country.  Instead, we are saddle with a mountain of debt that generations of Gambians yet unborn will have to pay.