This is the statement of Finance Minister Hon Seedy Keita delivered at the Gambia’s National Assembly on the tabling of the Revised 2022 Budget which took place on Thursday 28th July 2022. Below is the entire speech delivered on the day.
Mr Speaker, I rise to submit before this August Assembly a Revised Budget for 2022 as per the provisions of Section 30(1) of the Public Finance Act of 2014 states that “The Minister may submit a Revised Budget to the National Assembly with any changes on revenues and expenditures that may be required, within the limit of the total appropriated amount of expenditures in any particular financial year”. The submission of this revised budget is premised on the following:
- The downward revision of total Revenues amounting to D3.3 billion (11% reduction of the approved 2022 budget)
- The reduction of expenditure of D1.2 billion from domestic debt service and cuts from MDAs (3.4% of the approved Budget)
- The funding of the salary increment amounting to D575 million
- The creation of two new Ministries (Ministry of Communication and Digital Economy and the Ministry of Public Service, Administrative Reforms, Policy Coordination and Delivery).
This proposed budget is reflective of the current economic realities and consistent with a stable macroeconomic framework
INTRODUCTION
As both the domestic and global. economies began to recover from the effects of the pandemic in 2022, the Russia-Ukraine war brought about a dramatic shift in the global economic conditions characterised by heightened supply-side constraints, and higher food and energy prices fueling inflationary pressures across the globe. The resulting effect is the growing poor performance of domestic resource mobilization, affecting oil-related taxes as well as putting increasing pressures on government spending needs. These effects together with the creation of additional two new Ministries and the decision of the government to increase the salary of Civil Servants necessitated the revision of the approved 2022 budget to accommodate these changes.
RECENT ECONOMIC DEVELOPMENTS
Mr Speaker and Honourable Members of the House
In 2022, the initial growth forecast was estimated at 5.8 per cent- largely driven by a stronger private remittances inflow to support construction and domestic demand, as well as a more sustained recovery in the tourism sector performance. However, the war on Ukraine has dramatically shifted the outlook to the downside, with overall economic growth revised to 3.8 per cent – induced by heightened inflationary pressures, increase food commodity prices, agricultural inputs, fertilizers prices, and energy prices. In
addition, the growing global supply chain bottlenecks and a reversal in general monetary policy direction further acerbate the downside risk to growth.
As a result, in 2022, the agricultural sector is estimated to only grow marginally to 4.8 per cent from 4.7 per cent in 2021. Whilst the industry sector and services sector are projected to record a decline in growth of 6.3 and 1.1 per cent in 2022 compared to 10.4 and 1.9 per cent respectively a go ago.
However, the faster than anticipated recovery in tourism arrivals in early 2021 and record high remittance inflows spurred growth, but the recent global macroeconomic landscape has dramatically rendered the outlook more uncertain. And as inflation continues at a faster pace- reducing the spending capacity of both tourists and Gambians abroad, the trajectory of good performance on tourism and remittances to drive domestic growth is becoming more in doubt.
On inflation, the global increase in both energy and food commodity prices is fueling inflation, reaching 11.6 per cent in June 2022. And as supply-side constraints continue, amid a sustained increase in demand, inflationary pressures are expected to further strengthen-thus stifling growth prospects- especially for lower-income import-dependent countries. As a result, inflation is expected to remain above the medium target of 5 per cent for the rest of 2022 and beyond.
In terms of outlook, growth is projected to moderately rebound to 3.8 per cent in 2022 and strengthen further in the medium term at an average of 4.3 per cent growth per year. These projections are predicated upon recovery in tourism, which appears slower than initially anticipated in view of the surge of the global inflation outlook and the ongoing war on Ukraine.
Mr Speaker and Honourable Members of the House
RATIONALE UNDER-PINING THE REVISED BUDGET
As you may all be aware, the Government has taken a decision to revise the approved 2022 budget due to the four factors mentioned above. The global economic shocks resulted in the non-realization of more than 11% of the revenue budget. To ameliorate that, the government decided to reduce other charges and interest on domestic debt to contain the impact of the revenue reduction and to be able to accommodate the increase in salary of the civil service and a revised remuneration package for Cabinet Members.
Overall, this has increased the personnel cost by D575.8 million. The increase is applicable to certain public institutions that use the Civil Service Integrated Pay Scale.
To finance this salary increment, the government decided to embark on expenditure cuts across MDAs. These cuts affected Other Current by D761.3 million, Capital Expenditure by D116.3 million, and debt service by D415 million.
On revenues, there is a general decline in revenues and grants, and the continuous subsidy on petroleum products to the tune of nearly D1.0 billion for the first six months of the year affected the revenue performance for oil-related products.
Budget support grants have been revised downwards due to the non-materialization of budget support from the EU and ADB for a combined amount of US$30 million (about D1.5 billion).
For non-tax revenue, US$30 million has been revised downwards following the nonrealization of this revenue from the petroleum sector receipts. The sum of these three revenue items resulted in the overall reduction of D3.277 billion in the revenue budget.
Mr Speaker and Honourable Members of the House
REVENUE AND EXPENDITURES
Revenue and Grants
Total Revenue and Grants for the revised 2022 fiscal year are projected to reach D26.6 billion about an 11 per cent decline compared to the approved 2022 budget. The decline in the revised budget is mostly on account of poor performance in tax, non-tax and budget support grants. The lower performance in non-tax revenue of D147 billion is mostly related to lower than programmed non-tax revenue from the petroleum sector for 2022. Project Grants are projected to remain unchanged at D9.66 billion, whilst programme grants are estimated to decline to D1.1 billion in the revised budget compared to D2.6 billion as per the approved 2022 budget. This downward revision is explained primarily by the Di.6 billion expected in budget support from the EU and AfDB. As a result, the 2022 revised budget only factors Budget Support to the tune of D1.1 billion from the World Bank.
Expenditures & Financing
Total Expenditure and Net-lending are revised from the approved estimate of D32.2 billion in 2022 to D)31.1 billion for the revised budget of the 2022 fiscal year, representing a decline of 3.4 per cent. Personnel Emolument expenditures, on the other hand, are projected to increase from D5.1 billion to D5.7 billion, accounting for an additional personnel cost of D575.8 million. The increase in PE is mainly as a result of the increase in the basic salary of civil servants.
On Other Current (other charges) Expenditure billion to D10.6 is estimated to decline from D11. 3 billion by the end of the fiscal year, representing a decline of 6.7 (D761.3 million). This is mainly percent as a result of cuts in goods and services and the budget transfers on balances of MDAs. Similarly, capital expenditure (GLF and financed) is also externaily expected to fall from D12.1 billion to D12.0 billion, a D116.3 million percent) decline (1 compared to the approved 2022 budget.
Debt interest payments is also revised downwards to D3.04 billion, falling by D415.2 in the revised budget compared to the 2022 approved budget amount of D3.5 billion. This is mostly due to over-projection of domestic debt interest payments by D450 million.
On financing, external financing remains broadly unchanged, however, domestic financing through domestic borrowing has increased to D4.2 billion in the revised budget, from D2.5 billion in the approved budget. This represents an increase of D1.7 billion in domestic borrowing- coming from the ECF on-lending to support the revenue shocks from the Russia-Ukraine war. Capital revenue also increased by D385 million in the revised budget, reaching D1.4 billion (37.9 per cent increase), from D1.0 billion in the approved 2022 budget. This is mostly on account of for the sale of MEGA Bank.
Mr Speaker and Honourable Members of the House
REVENUE POLICIES
To restore oil revenues, domestic retail prices will need to be revised to reduce the subsidy element and generate a total revenue of D750 million by the year end. This measure is expected to generate an estimated D750 million (0.6 per cent of GDP) in [the] next five months.
The revised budget will also include immediate revenue measures which will help address the increase in the wage bill resulting from the 30% salary increment. As a result, the 30% increment in salaries is estimated to generate a Personal Income tax of D222.5 million in the remaining six months of the year.
On MEGA Bank sale, [the] government will ensure the timely execution of the sale agrecment so that proceeds from the sale will be available for spending.
On pensions, a 5% deductions will be applied on the gross carnings of all employces, estimated to generate D106 million to finance the budget.
In the context of improved domestic resource mobilization, the Ministry has established a new Directorate of Tax and Revenue which will focus on enhanced compliance and monitoring of revenue performance. This will cover critical areas such as domestic and international trade taxes, as well as tax expenditures.
On Pay-as-you-Earn, the Ministry has issued a letter to all SoEs to submit records of their PAYE deductions, filing and payment to the Gambia Revenue Authority. This in effect is expected to ramp up compliance through enhanced monitoring. A similar letter will be issued in collaboration with GRA to all registered taxpayers for PAYE.
Similar measures are being undertaken by the new Directorate for all VAT registered entities in the country to remit VAT collected on behalf of the government to the GRA on time. The current VAT compliance rate of 66% is expected to be increased to at least 80% and this is expected to bring additional revenue.
Tax Exemptions and Special Investment Certificates (SICs)-the Ministry has taken an aggressive approach to tackling excess losses associated to tax exemptions under SIC schemes. This action has started with the launching of an audit on all expiring SICs beneficiaries to establish the potential tax receipts from the graduating companies. This exercise will be conducted periodically going forward.
On the telecommunication sector, the MoFEA in consultation [with] the Ministry of Communication and Digital Economy will introduce revenue measures that will help enhance non-tax revenue collections.
Land lease rental income is largely underperforming mostly due to low compliance and lack of enforcement. To this end, the MoFEA has requested from the Ministry of Local Government a list of all leased properties and the amount of receipts associated to the leases. A comprehensive action plan will be drawn in collaboration with the Ministry of Local Government to support the collection and the administration of land lease rentals.
The implementation of the digital tax administration system through the Asycuda World; launched on the 20th of June 2022; and Integrated Tax Administration System (ITAS) has already started. This is expected to improve compliance, cost of collection as well improved data quality for economic policy planning and formulation.
Rental Income on both residential and commercial properties iremain largely untaxed. As a result, the GRA in collaboration the GBoS has recently conducted a survey of all rented properties in the GBA to establish a rental registry that can inform an enforcement plan and collection strategy.
Toll Bridges- Recent changes in the automation [of] ticketing for revenue collection at the Senegambia Bridge has proved to be highly efficient, registering a revenue growth of 100 per cent compared to the manual ticketing system. In addition, the Accountant General Department has now been deployed to take-over revenue collection administration from Gambia Ferries and National Roads Authority. Given this success, the Ministry in collaboration with relevant stakeholders is working on establishing a toll collection plaza at the Basse and Fatoto Bridges to further strengthen toll-related revenues.
On PPP concessions, the Ministry is embarking on a comprehensive review of all government concession contracts, especially the ones close to expiration. The share of the concession fees on the current SECURIPORT at the Banjul international airport that goes to The Gambia Civil Aviation Authority will revert to the consolidated revenue Fund. A cabinet paper on the review of concessions will be presented to Cabinet for consideration and approval.
Mr. Speaker and Honourable Members of the House
EXPENDTURE POLICIES
The 30% basic salary increase only covers the civil servants (Ministries and Departments) as well [as] subvented Hospitals under the Ministry of Health and subvented Schools under the Ministry of Basic and Secondary Education.
Furthermore, the general salary increase of 30% on basic salaries excludes pensioners. The pensioners are excluded because their pensions were increased by 100% in 2018. This increment resulted to an income mismatch between active employees and pensioners and therefore their exclusion is meant to correct this anomaly.
Delinking of allowances from the basic salary will be carried out to further create an estimated fiscal space of D125milion in the next six months of 2022. To further create fiscal space, the Ministry will freeze all committee allowances for internal meetings held within MDAs.
On the general expenditure revisions, a cut on the budget balances of Ministries was done to provide needed fiscal space in order to accommodate the salary revision. In addition, the groundnut subsidy for 2022 has becn removed since groundnut prices are surging globally and thercfore minimizing the need for the subsidy on groundnut.
Domestically Financed Capital Expcnditure has also been reduced. This affects mainly non-perfornming capital projects. However, additional funding for road construction has been provided. This mainly covers roads such as Hakalang and North Bank roads Lot 1 and 2 and Kiang Sankandi.
Debt service
The Ministry has started engaging our external creditors for a debt reconciliation exercise. The objective of the exercise is to update our external debt database and improve policy making process.
On the domestic front, the Ministry has started the debt re-profiling initiative to reduce the cost of interest on domestic debt. For this reason, the government has begun the issuance of long-term bonds to retire short-term treasury bills instruments.
In the same vein, the Ministry will continue to engage our creditors on debt relief initiatives to create the necessary fiscal space for domestically financed capital expenditures.
Mr. Speaker and Honourable Members of the House
CONCLUSIONS
The overall fiscal position will remain sound under the presented framework. All revenue shocks have been adjusted and domestic revenue are expected to finance government expenditure for the rest of the fiscal year. This will help provide greater predictability in the implementation of government programmes. Furthermore, spending cuts more than offset the increase in salaries.
Mr. Speaker and Honourable Members of the House
Whilst we continue to count on your usual support, we look forward to this august assembly to approve the revised 2022 budget which is expected to improve the lives and livelihoods of civil servants in particular and the Gambians in general within a stable and sound economic environment.
