The near-term outlook for the Gambian economy "is favourable", as macroeconomic fundamentals remain strong and the appreciation of the dalasis "is expected" to contain inflationary pressures, the Governor of the Central Bank of The Gambia, Momodou Bamba Saho, has said.

Speaking on Friday at a press briefing by the Monetary Policy Committee of the Central Bank held at its Conference room, Governor Bamba Saho said that though there are risks to the forecast particularly relating to the marked increase in oil and food prices, recent growth performance indicates that the Gambian economy proved remarkably resilient over the past three years.

"Growth averaged 6.4 per cent in real terms between 2003 and 2006," he said, adding that in 2007 GDP growth was estimated at 6.9 per cent supported by 11.3 per cent increase in value-added of the services sector.

According to the readings of the private sector business sentiment survey, the Governor intimated, economic activity was higher in the third quarter of 2007 compared to the second quarter of 2007.

"Expectations are that activity would be much higher in the fourth quarter relative to the third quarter," said, adding: "A very high percentage of respondents (61.0 per cent) expect prices to be lower in the fourth quarter of 2007 implying a subdued inflationary expectations."

Inflationary trend and Dalasi appreciation

According to the National Consumer Price Index, end-period headline inflation was 6.02 per cent at end-December 2007 compared to 0.42 per cent in December 2006, said Governor Bamba Saho.

He elaborated: "Food price inflation accelerated from 0.25 per cent to 9.46 per cent in December 2007. Non-food prices, on the other hand, increased by only 1.55 per cent [in the same year]. Core inflation, which excludes prices of energy and volatile food items, also accelerated from 0.82 per cent in December 2006 to 6.02 per cent at end-December 2007."

The inter-bank foreign exchange market continued to be vibrant, said Hon. Saho, noting that in the year to end-November 2007, transaction volumes increased to D36.5 billion, or 9.4 per cent from a year ago reflecting "strong inflows" from inward remittances, travel income, foreign direct investment and re-exports.

"As at end-December 2007, the Dalasi appreciated in nominal terms by 19.60 per cent, 9.30 per cent and 17.5 per cent against the Dollar, Euro and Pound Sterling respectively from the corresponding period in 2006," the CBG Governor further said.

He continued: "Looking ahead, the Dalasi is forecasted to remain stable in the medium-term premised on continued implementation of prudent monetary and fiscal policies, increased foreign currency inflows and the likelihood of reduced demand for foreign exchange by Government in light of the HIPC and MDRI debt relief.”

Marked improvement in domestic borrowing

The stock of domestic debt of the government has substantially been reduced, especially between September and November 2007.

"As at end-November 2007, the stock of domestic debt declined to D5.6 billion, or 3.8 per cent from end September 2007," the Governor revealed, adding: "The maturity structure of Treasury bills, which accounts for 84.7 per cent of the debt stock, continued to move from the short to the long end. At end-November 2007, 364 days bills, 182 days bills and 91 days bills accounted for 87.67 per cent, 25.47 per cent and 81.23 per cent of outstanding Treasury bills.

The yield of the 91-day and 182-day bills declined to 10.5 per cent and 11.6 per cent in November 2007 from 11.1 per cent and 12.2 per cent respectively in September 2007.

However, the 364-day bill rose slightly to 12.9 per cent from 12.7 per cent in September 2007."

Domestic revenue and expenditure

As domestic revenue increased and expenditure cautiously undertaken, the CBG Governor said, "the improved performance in public finances achieved in the first three quarters of 2007" should therefore be sustained.

He said: "Domestic revenue outturn in the eleven months to end-November 2007 increased to D3.2 billion, or 16.7 per cent from the corresponding period in 2006. Total expenditure and net lending, on the other hand, contracted by 5.0 per cent to D3.0 billion and was below projection by D1.4 billion.

The overall budget balance excluding grants was a surplus of D195.6 million, equivalent to 1.2 per cent of GDP. Including grants, the surplus totalled D477.7 million, or 3.0 per cent of GDP.”

The Governor also said preliminary projections suggest an overall balance of payments (BOP) surplus of D101.8 million ($4.52 million) in the third quarter of 2007 compared to an estimated deficit of D227.8 million ($8.4 million) in the second quarter reflecting the marked increase in the capital and financial account balance.

He added that money supply grew by 7.9 per cent in the year to end-November 2007, compared to 21.9 per cent a year ago. "Reserve money, the Bank’s operating target, rose by 4.0 per cent significantly lower than the growth rate of 13.2 per cent a year after," he said. "From end-December 2006, money supply and reserve money contracted by 0.03 per cent and 10.7 per cent respectively.


The banking sector

The Governor noted the efficient operations of banks in the country. Banks, he said, have sufficient capital and liquidity to meet their commitments.

"The industry’s average risk weighted capital adequacy ratio was 23.2 per cent in September 2007, higher than the minimum requirement of 8.0 per cent," he said.

He also noted that bank’s private sector credit increased from D2.5 billion in November 2006 to 2.7 billion in November 2007, representing a modest increase of 5.1 per cent.

Governor Bamba Saho said 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 it charges commercial banks, at 15.0 per cent.

"The MPC would continue to monitor changes in economic conditions and respond appropriately in order to discharge its mandate to maintain price stability," he affirmed.