Gambia: The Ministry of Finance and economic affairs Thursday September 27th released a government memo sent to all departments temporary banning nonessential travel amid outcry over excessive travel expenses. The memo came during President Barrow and his delegation’s visit to New York to attend the 73rd United Nations General Assembly. The high powered Presidential visit attracted widespread condemnation from Gambians after it was learned that the President chartered an expensive private Vista jet to fly him and some members of his delegation to New York. The Jet is estimated to charge up to $15,000 per hour according to the Company’s website.
Preliminary reports and financial estimates indicate that it could cost the Gambia up to $250,000 over Eleven and half Million Dalasis (D11,500,000) for roughly about ten days. This is different from cost of accommodation, per diems and other travel needs of the President. It was also reported that several members of Barrow’s delegation flew commercial because the Jet could only carry sixteen people.
Few days prior to the President traveling to New York, the Minister of Finance Mamburay Njie during a Question and Answer Session at the National Assembly in Banjul revealed that the Barrow government has spent over Two Hundred and Thirty-Million Dalasis (D230,0000) from January 2018 to July little over Six Months. The minister indicated that the government has almost exceeded its travel expenses that were allocated in the 2017/18 Budget. The exorbitant travel expenses attracted widespread condemnation by many Gambians both on the ground and the Diaspora. Many pointed out to the fact that the Vice President Alhagie Ousainou Darboe just few days prior reported to the same National Assembly that the Gambia faces imminent food shortage in the next year due to expected poor rainy season harvest. It therefore did not make sense to many for government to continue to spend lavishly on travel while the country continue to face challenges economically.
The Finance ministry’s announcement banning nonessential government travel is believed to be in response to the mounting criticism from many quarters especially from the loudest constituent – The Gambian Diaspora noticeably on Social Media and online Radios. However, readers may recalled that exactly one year in October 2017 the former minister of information Demba A. Jawo announced that the Barrow government was instituting a first class travel restriction on civil servants to cut cost. The minister said in response to a question during an interview with Freedom Newspaper“Well, when the government found out that the coffers were almost empty; when the government came to power we realize that it is very important to minimize government expenditure. The Minister of Finance decided to bring a proposal to cabinet, which says that there will be travel restrictions on First Class Travels, especially for Permanent Secretaries, Director Generals, Chairmen of Management Boards,” Many Gambians applauded this move and additional austerity measures that were being recommended by the former minister of Finance Amadou Sanneh including transportation and vehicle restrictions. In fact, Finance Minister Sanneh’s austerity measures were met with stiff resistance within the government and allegedly this may have led to his removal as Minister of Finance to Economic Affairs.
The debate about government expenditure and lack of serious attention to unnecessary expenses and cost cutting intensified during this UN week. While government critics believe the funds can be better utilized to improve the standard of living of Gambians through improvement of medical facilities, schools, treatment of victims of the Jammeh regime etc, government supporters are quick to point out the reciprocity benefits that the government is bringing from all the travels. Many who exchanged information with Gainako indicated that the government brought millions if not billions including the $1.7 Billion pledge at the donor conference held in Brussels few months ago.
A brief conversation between Gainako Editor and the minister of information Mr. Ebrima Sillah revealed that government did indeed bring millions of dollars from a trip to Saudi Arabic on the impending OIC Summit to be hosted by Gambia; the President’s trip to China, Nigeria and other high level visits. The minister referred our editor to contact the government spokesperson to grant us an interview. The editor however asked why the government was shy about sharing such information with the general public. He acknowledged that such information in the public domain could defuse some of the tension, but also pointed out that “some people may have their hidden agenda and that you cannot run a government base on social media” He emphasized that we should speak to Ebrima Sankareh whose role it is to discuss government matters. Our editor made several attempts to reach out to Sankare by leaving voice and text message but no response as of the time we go to press.
It is essential that the Barrow government recognized that they have had and continue to have challenges sharing information with the general public. This has been a chronic problem from the inception of the Barrow government and for whatever reason it is hard to comprehend. When citizens are informed of government activities; financial dealings, personnel appointments etc it leaves little room for speculation. The Gambian media though still lacking in many areas has wider readership especially on social media, online and print. The Barrow government must take advantage of the 24 hour news cycle and inform citizens of vital information especially as it relates to government finances; grants, loans, and awarding of contracts to international companies.
As we go to press FAR Limited an oil giant is three days away from starting a major oil drilling offshore Gambian waters. According to the company there is estimated to be over 825 Million Barrels of crude oil almost $60 billion dollars of oil money. The government has little or no information about the terms surrounding this oil drilling and how much would be allocated to FAR and or the Gambia government. It is inconceivable that such a multi-million dollar project would be started on Gambian soil and yet there is scanty information about it and the issue has not been debated at the National Assembly. What has the government got to hide sharing such information with the general public? An informed citizenry is a strong and productive citizenry. All eyes are on this government and how it moves from here will determine how the Gambian people will response to the government. Recent activities of anonymous donors depositing millions of dalasis into the First Lady’s foundation has raised more questions about why this government is not comfortable sharing information. The government must note that information vital or not will come out into the public domain so it would be prudent for them to start sharing as much as they can.
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Reasons for the Dalasi’s Poor Exchange Rate
As Gambians, we have been lamenting over the awful exchange rate of the Dalasi, in relation to the major currencies of the world, for a better part of 2 decades. One would think nearly 2 years after a democratically elected government, and a slim—to—no–chance of expropriation of assets of foreign companies, why hasn’t the exchange rate of the Dalasi improved? The bulk of the answer to that question lies in the Gross Domestic Product (GDP). Gross Domestic Product (GDP) is the monetary value of a country’s production of goods and rendering of services during a time period, usually a year. It could be the cost of shining your shoes in front of Albert Market in Banjul, or as sophisticated as the cost of building an oil carrying super tanker. If you think about it, the shoe shiner’s earnings end up in businesses where he/she buys goods or services from, which, in turn, report their earnings on their Income Statements, to the Income Tax or Revenue departments. Therefore, his/her earnings are captured in the GDP figure. First, let us look at the methods of compiling GDP: The Expenditure method and The Income method. The Expenditure method calculates GDP through spending; meanwhile, the Income method calculates GDP through the earnings.
Here are the components of the Expenditure method:
1) Consumption by Individuals (C)
2) Business Investments (I) excludes sale and purchase of stocks and bonds
3) Government Spending (G)
4) Exports (X)
5) Imports (M)
The formula for the GDP Expenditure method, therefore, is: C + I + G + (X-M)
A steady increase in spending by consumers engenders a favourable exchange rate. When consumers are spending on goods and services, earnings of businesses improve. Their spending also has a multiplier effect on the economy, which signals to the foreign exchange traders of London and New York, who set the exchange rate of floating currencies, the health of an economy. For developed countries, the “Consumption by Individuals” is the largest component of GDP. Citizens of the developed countries have a lot of disposable income (income after taxes), to spend on goods and services. An increase in business spending also is an indication that businesses are thriving and willing to take risks. One thing you learn in Economics and Finance 101: the higher the risk, the higher the potential reward. For poor countries, like Gambia, the “Government Spending” is generally the largest component of GDP. Government spending should be a small component of GDP, unless during a recession, when individuals and businesses cannot increase their demand for goods and services. A spike in government spending that is not related to building infrastructure, roads, hospitals, schools, or factories, which economists dub as “Investments in the future of a country”, results in an increase in its obligations/liabilities and an inability to pay the bills–if it gets out of hand. The foreign exchange traders of London and New York see out of control government spending as a negative, which results in an unfavourable exchange rate.
The aggregate difference between the Exports and Imports (X-M) is the Balance of Trade or Current Account of a country. The Balance of Trade or Current Account has a very significant impact on a country’s exchange rate, in the GDP formula. If your exports are more than your imports–like Qatar—which, according to Trading Economics, Inc., had a monthly trade surplus of about 17.5 billion U.S. dollars, as of August 2018, an enviable position for a country to be in. If your imports are more than your exports–like Gambia—which, according to Trading Economics, Inc., had a quarterly trade deficit of about 70 million U.S. dollars, as of March 2018, an unenviable position for a country to be in. These numbers are reflected in the exchange rates of the Qatari Riyal and the Gambian Dalasi. While one U. S. dollar exchanges for 3.64 Qatari Riyals, one U.S. dollar exchanges for about 45 dalasis. The trade surplus results in a favourable exchange rate; a trade deficit results in an unfavourable exchange rate. From another cynical angle, one can argue why one U.S. dollar exchanges for about 6.95 Chinese Yuan, even though China enjoys a large trade surplus, vis-a-vis the United States. The explanation for that is: China uses the “Open Market Operations”, which entails the buying and selling of Chinese government securities (Treasury bills and Bonds) through its Central Bank, to artificially lower the exchange rate, to cheapen Chinese goods, which ultimately increases their sales abroad. The Open Market Operation is the tool Central Banks use to target exchange rates, interest rates, or inflation. This is what Central Banks do on a daily basis, buying and selling of government securities, to align with government policies.
If you look at the trade surplus or deficit from the view point of an individual, the trade surplus means your monthly salary is more than your monthly expenditure; a trade deficit means your monthly salary is less than your monthly expenses or bills. Creditors are kinder to the former than the latter. The same scenario plays for countries. The foreign exchange traders in London and New York, who determine the exchange rate of floating currencies (such as the Dalasi) are kinder to the former (trade surplus) than to the latter (trade deficit). This is what partly explains the exchange rate of a floating currency, like the Dalasi. One could further argue that the United States has a high trade deficit, then why does the U.S. dollar have a favourable exchange rate? The answer: the U.S. dollar is the reserve currency of the world and most of world commerce is conducted in it. Furthermore, the more foreign currency reserves at the Central Bank, the easier it becomes to pay one’s foreign obligations, which are repaid in the foreign currency of the creditor or lender. Another reason for the favourability/unfavourability of the exchange rate is found in the difference in GDP between the Expenditure method and the Income method. Again, let us look at the formula of the Income method of GDP.
Here are the components of the Income method:
1) Total National Income (TNI): (the sum of all wages, rents, interests, and profits)
2) Sales Taxes (ST)
3) Depreciation (D): gradual decrease in the economic value of an asset, over its life span
4) Net Foreign Factor Income (NFFI): it is the difference between the aggregate amount of money earned by a country’s citizens and companies abroad, and the aggregate amount that foreign citizens and overseas companies earn in that country).
The Philippines, which has a lot of her citizens working abroad, has a high Net Foreign Factor Income (NFFI); on the other hand, Kuwait, which has very few of her citizens working abroad, has a low or negative NFFI.
The formula for the GDP Income method, therefore, is: TNI + ST + D + NFFI
The difference between the GDP Expenditure method (C + I + G + (X-M) and the Income method (TNI + ST + D + NFFI) is the Statistical Error–and in less charitable terms–it is called the Black Market, Underground Economy, or the Hidden Economy.
If you look at the two methods of calculating GDP (Expenditure and Income) they should be the same number, because one’s spending is another’s revenue or earnings. The Statistical Error number includes income earned by illicit transactions, like drug dealing or criminal enterprises, where income is not reported. According to the IMF, Africa’s development is stunted by the large Statistical Error number in the economies. In other words, African countries lose a lot of tax revenue, which could be utilized to build hospitals, roads, schools, or provide the social safety net. Countries that have a low Statistical error in their GDP, like the United and Switzerland, have a favourable exchange rate; countries like Egypt and Nigeria, which have a high Statistical error in their GDP, have an unfavourable exchange rate. As mentioned earlier, the ability to collect taxes bodes well for the exchange rate. These are the objective, measurable, unbiased reasons for the horrible Dalasi exchange rate. The subjective and biased reason would be the perception of the stability of a country and its government, by the foreign exchange traders in New York and London. That perception cannot be objectively quantified. The GDP of a country is similar to the Income Statement of a company, or the Budget account of a family, through which all monetary transactions flow, but at a higher and more intricate level of complexity. Meanwhile, the Gross National Product (GNP) is the value of all finished goods and services produced in a country in one year, by its nationals. It is a less accurate measurement of the economic and monetary activities than the Gross Domestic Product (GDP), because it leaves out economic & monetary activities of foreigners.
The bottom line is–we have to start selling to foreigners–goods and services they want; or we reduce our demand for the goods and services of foreigners. Most of you remember when Gambia Produce Marketing Board (GPMB) and the Gambia Cooperative Union were humming on all 4 cylinders, exporting groundnuts and cotton in large quantities. During those days, we had a favourable exchange rate. Obviously, there are more subtle reasons for the setting of the exchange rates of currencies, both objective and subjective, but this posting gives you the basic knowledge of how they are set.