Former Vice President and Finance Minister of the Gambia Hon B. B. Darboe has again emphasized that Gambia’s debt burden both Domestic and International can no longer be ignore by the Jammeh administration and any concerned Gambians. Mr. Darboe was speaking at a symposium in London organized by Gambians over the weekend. Below is one of the topics of discussion and Mr. Darboe’s full presentation.
Topic: Domestic borrowing as well as international debt at record high, [with] YJ showcasing his [illonati-gotten] wealth, is there any correlation to the poor performance of the Dalasi? What are the necessary corrective measures to stop the downward spiral?
I must say that I was not consulted on the choice of this topic which I am now asked to speak on. But I can trust the judgment of the organizers of our symposium who must have considered that the subject is of general interest, especially so since the prevailing turmoil surrounding the Dalasi exchange rate is a topical issue.
My presentation is going to be a brief one; my aim is merely to share some thoughts on the issues flagged so as to provoke discussion and debate. Perhaps a good starting point is to break the proposition into sub-themes, briefly examining the factual bases for each of the claims made therein, and then to discuss the reality, as well as the extent, of the supposed correlation. By this I refer to the relationship between, on one hand, the level of national and international debt and, on the other hand, the lower value of Dalasi, whether you consider that development came about through depreciation or through what the Government called “economic sabotage” by persons hoarding foreign currencies and withholding them from the market. I will also endeavour, along the way, to:[1] contextualize the problem being experienced with the Dalasi by relating it to the prevailing macroeconomic realities in today’s Gambia and [2] bring out how and to what extent we, diaspora Gambians, are particularly impacted by the adverse developments.
Proposition:
That The Gambia’s domestic as well as external indebtedness has seen phenomenal increase over the past two decades is a fact that can no longer be disguised. We all know that the YJ Government is notorious for deceitfulness, and for the opacity, or total lack of transparency, of its governance practices. But the truth can no longer be hidden behind a mask. Over the past few years, on each occasion of presenting the annual budget, successive Finance Ministers have been forced to groan under the burden of debt servicing as well as to admit to growing concern over the size of the debt stock.
Taking first domestic debt,for example, the cumulative position by 2012, as quoted in the latest published figures, is US$384,000,000 or 31.3% of the national Gross Domestic Product, [GDP], i.e. the total value of all the goods and services produced in the country. For comparison, this figure is 300% higher than the position that obtained in 1994 when the A[F]PRC regime forcefully seized control of the country, which at the time stood at US$96,980,000 or 13% of the GDP.
At this stage, I consider it appropriate to remind ourselves of how domestic debt, also called the national debt, comes about. We all know that in a modern state, the essential function of a government is to promote economic productivity while preserving general prosperity and, at the same time, attending to the demands for social development [education, health, housing etc]. In order to discharge this function, the government determines monetary and fiscal instruments and outlines these in the context of the annual budget which it gets Parliament to approve to serve as its main instrument for managing the economy. Domestic debt therefore arises when revenue raised from taxation [direct and indirect] cannot cover public expenditure, and the Government is forced to either overdraw its accounts with the Central Bank or to borrow from the general public by selling various types of loan stocks, [sometimes called gilt-edged stock] e.g. treasury bills. While almost all countries at some point or the other experience budget deficits and are forced into domestic indebtedness, a responsible Government maintains a careful watch on the trend, and prudently acts to keep matters at manageable levels.
In The Gambia’s case, the serious deterioration cannot be the result of prudent or competent management of the economy. Instead, the situation came about through incompetence or recklessness or both; there is no other way of putting it truthfully.
And the situation looks even more worrying when we scrutinize the pattern of public expenditure, for an idea of where our money in fact gets spent. Just one example, that of expenditure on the President’s Office, is edifying enough: in the current 2013 budget, 25% of all planned recurrent spending is allocated to the President’s Office; the allocation is three times what is allocated to agriculture, the most important sector of the economy, employing 75% of the population. Similarly, more is allocated to “defence and security” than on basic and secondary education, while the Ministry of the Interior gets as much as the public health services. And the trend continues, with judiciary at the bottom of the heap.
This pattern of expenditure tells us something about the priority of Jammeh and his A[F]PRC regime. Their true priority is not feeding the nation, or dispensing sound education to prepare our children for the future, or an efficient health delivery system or the well-being of the population in any form. Their true priority is the person of Yahya Jammeh, his security and his regime’s security. That is why we are burdened with a pompous President’s Office,an over-bearing and bungling leviathan, whose function is to pamper the over-bloated ego of a megalomaniac with absurd illusions of grandeur. If this means squandering our poor country’s scarce resources to feed his daily cravings, so be it. In that regard, excesses indulged in include laying on an office unit for the First Lady, operating fleet of presidential aircrafts, maintaining three presidential palaces in Banjul, Kanilai and Georgetown, and crowning the outfit with a post of a whole Minister for Presidential Affairs.
I will now talk about the external debtposition. The picture here too is equally disturbing. The average national external debt which, for the period 1975 to 1993, stood at US$222,926,952 has, in respect of the period 1994 through 2011, almost tripled to $533,489,176. It is no secret that the bulk of the huge increase came in the form of bilateral loans contracted under the most non-transparent indeed questionable of ways notorious for the in-built opportunities they offer for offering and taking kick-backs. Agreements creating most of such loans never went to Parliament for ratification, as required by law, or if they did were simply rubber-stamped without any serious scrutiny. To add insult to injury, the loan funds secured rarely went to the productive sectors to help the economy grow. Rather, they in the main went to finance dubious political projects such as the GRTS, or non-performing items of equipment such as the Barra ferries or under-equipped infrastructure such as hospitals and classroom blocks etc.
I therefore agree with the proposition that under the present regime The Gambia’s “domestic borrowing as well as international debt [stand] at record high”. The situation spells a huge burden on present and future generations, one which will cost the country dearly in terms of its prospects for meaningful progress. The price might be worth paying had the debts gone to finance productivity to create or expand wealth and enhance our capacity to support the burden. Regrettably, the misguided policies pursued by the Government has left the landscape littered with white elephants.
Indeed, the immediate to short term prospects for the Gambian economy are less than bright. With steady decline in agricultural output as well as in receipts from traditional sources such as tourism and trade, the sustainability of the much vaunted 3.2% GDP growth is, at best, doubtful. As for official development aid, prospects for now look jeopardised, what with the exclusion of the country from the US Government’s Millenium Challenge Account and the apparent impasse reached over political dialogue with the EU, threatening to shut the country from the two of the biggest aid programmes. To compound matters, out of the non-traditional aid sources that opened up to the regime,Ghadafi’s Libya, Chavez’ Venezuela and Iran have all since dried up on account of different reasons, leaving only Taiwan to make occasional cash hand-outs.
At the same time, despite the hype about private sector-led growth strategy, or the frequent headline-grabbing announcements of visiting investors calling on the authorities, the country continues to attract no significant in-flows of foreign direct investment. And this should not come as any surprise; the point is that Jammeh and his A[F]PRC regime never seem to have learned nor understood the elementary fact that attracting private investment in today’s competitive environment requires, in addition to conditions of economic profitability, a solid and truly favourable investment climate. With an environment blighted by the absence of an appropriate legal framework, a dysfunctional judiciary, a confiscatory tax system and the shenanigans of corrupt officials, starting at the summit, the country presents little appeal to serious investors. And that situation leaves the field open to cowboys out to cut corners and make quick kills. If you need an illustration, just think of the current lopsided business landscape characterized by dubious outfits crowding the banking and insurance sectors or many wholesale outlets and/or supermarkets squeezed in the Banjul KSM area, some of which are suspected to serve as fronts for money laundering and other crime syndicates or are notorious in their own right for dealing in expired consumer goods and other illicit merchandise.
Poor Performing Dalasi:
Thus there is no exaggeration in suggesting that Gambian economy has truly gone in the doldrums; some people talk of incipient meltdown. And it is not surprising that our currency the Dalasi does not command much confidence. Officially, The Gambia opted for the system of flexible exchange rate; this was the position since the reforms introduced under the structural adjustment programme of 1985/6. It means that the Dalasi is at any point in time left to float to find its own level in the market. The exchange rate is determined by the demand for, and supply of, of the Dalasi.
The major factors creating demand for the Dalasi are export earnings and foreign currency receipts including foreign direct investments and other in-ward transfers such as remittances by Gambians working abroad. Incidentally, the remittancesfactor now contributes over 12% of the GDP [where it used to be about 1% before 1994], even though Jammeh sees the Gambian diaspora as little more than a bunch of disgruntled political dissidents not deserving of any say in the way their country is run.
As for the supply of the Dalasi, the factors that exert influence include the level of imports [goods and services], and transfers of foreign currency for whatever purpose, including purchase of a mansion on the Potomac.
The beauty of the flexible exchange regime is that it is this demand-and-supply equation that determines the value of the Dalasi, with no need for the state to interfere in the market. A competent government merely maintains the macroeconomic fundamentals on track and works hard to guard against the development of seriously adverse balance of payments problems. That way, it helps ensure that healthy foreign reserves are maintained that can enable the central bank,on occasions, to intervene in the foreign exchange market without trying to distort the rates or manipulate the market.
Under these circumstances, repeated attempts by the Jammeh Government to peg the exchange rate appear to be ill-advised and not likely to prove efficient. The likely result will be to drive operators underground and encourage the development of a parallel market and even further loss of confidence in the Dalasi. The difficulty in understanding the motivation of the Government’s action is due to [1] the absence of clear exposition of their own reading of the situation [except for blaming saboteurs] and how pegging is the sustainable answer to the situation, and [2] frequent reversal of the pegging decisions that are from time time announced. This has led to suspicions in some quarters that the whole thing is a game of manipulation played for the personal gains accruing to those in power.Ground for such suspicions is strengthened by the fact that it is not the recognized national monetary authorities [the Central Bank] or the Ministry of Finance that appeared to be behind these pegging decisions. Instead the edicts are always issued by the President’s Office, when Yahya Jammeh is known to be the single biggest consumer of foreign currencies, what with his own and his family’s the globe-trotting hobby and flamboyant life style.
The bill in the end is left to be picked up by [1] bona fide businesses as a result of the uncertainties injected into the foreign exchange market and possible scarcity of foreign exchange; [2] the consumers of imported goods and services, especially the poor, on account of the inflationary trend that is bound to be triggered and [3] the Gambian diaspora communities, the source of the substantial remittances sent home, through unnecessary loss on exchange. The move to peg the exchange rate is another misguided decision that will only add to the economy’s woes and the suffering of the people.
Correlation.
Whatever the motivation, it is a fact that the Dalasi’s fortunes have suffered many knocks of late due to the faltering state of the economy, of which the record high indebtedness, in terms of both domestic and external debts, is one feature. As such, it is clear that there exists a correlation between the situation of excessive indebtedness, in itself the result of inefficient economic management, and the depreciation of the Dalasi. The indebtedness, much of it contracted recklessly, may not be the sole factor that triggered the Dalasi’s spiraling, but it is a major contributing factor to the faltering economy which accounts for the progressive depreciation of the value of the Dalasi.
Jammeh’s Wealth:
As for Yahya Jammeh’s ostentation in flaunting his supposed wealth, I do not wish to say much about that subject. Except to observe that to show off one’s wealth in the midst of the abject poverty all around, even where the source of such wealth is above board, is not my own idea of decency; some may even call it obscene. Where the source of the wealth is patently dubious, [Allah’s bank or other], I would not even want to comment.