By Dr Basil Jones
Every year in the month of December, the Minister of Finance submits a draft of the Government’s budget of revenue and expenditure for scrutiny by the members of the National Assembly.
For the 2020 budget appropriation the charts that follows provides a layman’s and laywoman’s pictorial representation of the 2020 budget appropriation. This is the story.
According to the Draft 2020 Budget, Gambia’s GDP in Dalasis are estimated as follows; 87.6 Billion in 2019 and 98.3 Billion in 2020.
The best way to analyze the budget is as a percentage of Gross Domestic Product (GDP). Chart 1 shows that both total revenue and grants and total expenditure and net lending declined in 2020 compared to 2019. What is interesting to note is that the estimates for revenue declined more than the reduction in expenditure for 2020. As a result, the budget deficit increased from 4.17% of GDP in 2019 to a deficit of 5.67% of GDP in 2020. One would have expected that inflows from $1.7 billion pledged to finance the 3-year National Development Plan will be coming into the economy that increase significantly and boost government revenue and grant especially project related revenue. What this is showing is that commitments of the $1.7 billion from the donor’s conference in Brussels is not yet materializing as expected. Secondly budget support is lower than expected. With increasing budget deficit, it brings into question the sustainability of the budget.
Chart 2 shows the revenue breakdown in 2019 and the estimates in 2020. In 2020, program grants or what we call budget support declined, project grants declined and tax revenue was relatively flat. The decline in project and program grant and the flat tax revenue is the main reason that total revenue and grant for 2020 budget is lower than in 2019, Comparing this table, it shows that 2019 was a much better year for revenue and grant mobilization that 2020. What is significant here is that our tax to GDP ratio is very low compared to other African countries. In other words, the domestic tax base is very shallow and despite revenue measures in the 2019 budget, this is not filtering through into 2020. As an economy we continue to rely on external partners and donors to fund our budget. Progressive countries are relying less on donor support and relying more on domestic resources mobilization. The only revenue source that is projected to increase between 2019 and 2020 is non-tax revenue and this is not a significant source of revenue for the government.
So, what is happening on the expenditure side and what is the storyline. Recall from Chart 1 that total expenditure for 2020 declined compared to 2019. It is a good sign that government is reducing expenditure. However, let us dig deeper into the story. The first observation from Chart 3 is that expenditure on personnel and other current ( the largest chunk of expenditure) was reduced from 2019 to 2020. Capital expenditure increased and this is not a bad thing as we need to invest in infrastructure. If the government is really going to develop and transform the economy, it needs to reallocate resources by reducing expenditure on personnel, other current expenditure and get interest on both domestic and external debt to the minimum. This will free up resources to invest in needed infrastructure for the country.
Chart 4 clearly shows that interest on domestic debt has increased significantly from 2019 to 2020 compared to interest payment on external debt. This table confirms the point that the government is relying on domestic financing of the budget rather than external financing to meet its expenditure needs for 2020. In value terms the total debt service increased from D4,79 billion in 2019 to D9.43 billion in 2020, representing a whopping 96.9% increase.
This is the most interesting part of this storyline in the 2020 budget estimates – the interest on domestic debt. Why is this so. Take note that interest on external debt is relatively flat meaning that the government is not using external borrowing to finance its expenditure. However, the burden of financing the budget falls on domestic borrowing and hence we have seen an increase in interest on domestic debt rising from 2.61% of GDP in 2019 to 4.02% of GDP in 2020. What are the consequences of government competing with the private sector in the domestic money market. Simple, the government will crowd out private investment meaning that commercial banks will have more incentive to subscribe to government treasury bills and bonds and not lend to the private sector to spur economic activity. Moreover, the end result is that interest rates will go up due to government borrowing domestically. High domestic debt contracted in shallow domestic financial market is very costly for growth
How is the budget deficit in 2020 being financed? A budget deficit occurs when the total expenditure and net lending is higher than the total revenue and grants that is mobilized. In 2019 the budget deficit was from 4.17% of GDP in 2019 increasing to a budget deficit of 5.67% of GDP in 2020. There are mainly two sources of financing the budget deficit, either externally from loans and grants or you borrow domestically. Chart 5 clearly shows that between 2019 and 2020, external borrowing declined while domestic borrowing increased sharply to finance the budget deficit. Now is the time for the government to really revisit its budget and cut coat according to size. Drastically reduce wasteful and unnecessary expenditure and aim to increase revenue to achieve a budget surplus.
Where is the spending going in 2020? The government is entrusted to raise revenue through taxes and also to contract external loans and grants. This will be used to spend on both recurrent and capital expenditure for government ministries, departments and agencies. What stands out in chart 6 is that 41.01% of 2020 expenditure goes into payment debt. This amounts to D9.43 billion out of an appropriation of D22.9 billion. The second largest recipient is the ministry of basic and lower education followed by centralized services with budget allocation of D2.62 billion and D1.45 billion. It is not clear what centralized service consists off and this needs to be broken down further. What does this chart tell us? Apart from ministry of health, education and works, government budget is skewed to ministries that are not adding to the productive base of the economy (Interior, Defense, Centralized Service, Office of the President, Foreign Affairs). Take agriculture for example which employs over 70% of the population and contributes about 25% to GDP. Allocation to the ministry of agriculture is a meagre D395 million or 1.7% of total expenditure. Clearly this is not a poverty reducing budget. It is not a growth and employment promoting budget.
Between 2019 and 2020, which are the ministries that have experienced a reduction in their recurrent and development budgets. Chart 7 is self-explanatory and what is more worrying is that the Ministry of Agriculture experienced the second largest reduction in budget by 38.2%.
Chart 8 shows government ministries that have experienced an increase in budget between 2019 and 2020. There are some wide swings and it will be interesting to understand the justification of the 503.4% increase for the ministry of Trade, the 438.1% increase for the Ministry of Lands and Regional Integration. In passing when was regional integration merged with the Lands? Office of the President’s budget increased by 61.2%. A lot of questions needs to be answered and a lot of unpacking should be done to understand what is going on and the rationale for these allocation that is not (i) poverty reducing, (ii) does not support the productive base of the economy, (iii) is not employment and job creating and (iv) is not supporting improving the lives of ordinary Gambians.