Press Release December 29, 2006

Recent economic data indicated that the strong economic growth achieved in 2005 will be sustained in 2006. According to the recent business sentiment survey, economic activity is also expected to be higher in 2006 compared to 2005. Real gross domestic product (GDP) is estimated at 7.7 percent in 2006 compared to 6.9 per cent in 2005. Value-added of all the sectors is expected to increase, with the construction sub-sector recording the highest growth rate of 21.0 percent.

Monetary policy continues to follow a prudent course to sustain the marked deceleration in inflationary pressures. Money supply grew by 19.7 per cent in the year to end-October 2006, compared to 20.0 per cent a year earlier. Reserve money, the Bank’s operating target, grew at an annual rate of 17.9 per cent, higher than 15.9 per cent a year ago. Compared to end-December 2005, money supply and reserve money grew by 15.1 percent and 9.5 percent respectively.
Inflation remains low and non-volatile and inflationary expectations subdued.

End period inflation, measured by the consumer price index (CPI), was revised upwards to 1.5 per cent in September 2006, from 0.2 per cent. Prices rose by only 1.4 per cent in November 2006 compared to 2.0 per cent in November 2005. Food price inflation was a minuscule 0.2 per cent while non-food prices rose by 4.4 per cent due mainly to the marked increase in prices of housing by 32.5 percent.

Fiscal policy in the third quarter of 2006 was supportive of monetary policy relative to the preceding quarter. Domestic revenue totalled D740.8 million in the third quarter of 2006, lower than the target by only D8.8 million. Compared to end-September 2005, domestic revenue rose by D136.0 million, or 22.5 per cent attributed in the main to better-than-expected increase in tax revenue, which exceeded the target by 0.4 per cent. Expenditure and net lending totalled D0.7 billion and was below projection by D304.8 million, or 29.2 per cent.
The fiscal deficit on cash basis including grants narrowed significantly to D252.4 million relative to D740.0 million in the second quarter of 2006.

Revised estimates indicate a balance of payments (BOP) surplus of D850 million (US$30.27 million) in 2006, lower than the surplus of D1.7 billion (US$61.74 million) in 2005, reflecting in the main projected decline in the capital and financial account surplus. The current account deficit including official transfers is expected to narrow to D0.9 billion in 2006 from D1.3 billion in 2005. Gross international reserves increased to D2.8 billion (US$100.0 million) in October 2006 and the Gambia was current on all its debt service obligations.

The Dalasi remains stable supported by strong economic fundamentals and robust inflows from remittances, foreign direct investments (FDI), re-exports, and tourism. The inter-bank foreign exchange market was quite vibrant. Volume of transaction, measured by total purchases and sales of foreign currency in the inter-bank market, increased by 34.9 per cent in the year to end-November 2006.

The banking sector is fundamentally sound and profitable. Total industry assets increased to D8.4 billion at end-September 2006, or 16.6 percent from September 2005. The average capital adequacy ratio was 45.0 per cent, well above the minimum threshold of 8.0 per cent. All the banks observed the minimum capital requirement. The lowest capital adequacy ratio was 18.8 per cent.

The near-term outlook for the Gambian economy is favourable, reflecting solid macroeconomic fundamentals. The Dalasi is forecast to be stable and inflationary pressures subdued. The budget estimates for 2007 indicate that fiscal policy will continue to support the Bank’s objective of maintaining low and stable prices. However, there are downside risks to the forecast relating primarily to the 30.0 percent increase in the price of water and electricity and high and volatile oil prices.

Taking the above-mentioned factors into consideration, including the risks to the inflation outlook, the MPC has decided to maintain the rediscount rate, the policy rate, at 14.0 per cent. The MPC would continue to monitor the situation and if the outlook changes, the Committee would review its stance.