According to the Gambian government’s 2012 national budget, there has been significant drop in revenues as a percentage to GDP from 17.5 per cent in 2007 to about 14 per cent in 2011.
This has led to large fiscal deficits prompting government to engage in a series of tax administration reforms and expenditure controls.
Fiscal deficit is considered to be the total amount by which money spent is more than money received by a government.
In The Gambia, fiscal deficit as at end-year 2011 was budgeted at D466.3 million (1.5 per cent of GDP) whilst the estimated outturn (i.e. what turned out to be the expected final deficit over the year) for the same period was D740.5 million (2.3 per cent of GDP).
In a bid to maintain a sound fiscal management of the economy and curb its continual drop in projected revenue, The Gambia government in the past five years has introduced a number of Public Financial Management (PFM) reforms that are expected to promote macroeconomic stability, improve revenue mobilization, and promote efficiency in resource allocation.
Fiscal policy, which is government management of its spending and taxation decisions, has important, but much-debated effects on the short-run behaviour of a country’s economy. If governments choose to tax more than they spend (i.e. run up a surplus) then the impact of policy is to depress the overall level of spending in the economy. The reverse occurs if government runs up a deficit.
It therefore plans to embark on applying fiscal reforms that will include comprehensive tax reforms aimed at easing out the pressure and cumbersomeness of taxation in the country, and at the same time trying to generate substantial revenue through tax and non-tax sources.
A rundown of its fiscal out for the year 2012 gives a clear picture of this task of maintaining a sound fiscal policy while trying to generate more revenues in the course of the year.
FISCAL OUTLOOK FOR THE YEAR 2012
The primary objective of the Government has been committed to alleviating poverty, accelerating growth and improving the wellbeing of its population.
Therefore its fiscal policy for 2012 would have more to do about meeting this target of its Programme for Accelerated Growth and Employment (PAGE), the successor programme of PRSP II, which aims at alleviating poverty through creating employment opportunities for the people, especially its teeming number of younger population.
The 2012 budget states: “The PAGE is expected to be funded by domestic resources, traditional donors and non-traditional donors; it is based on Vision 2020 and various strategies, and is the execution template for the government’s long-term vision. Consistent with the Paris Declaration’s resolutions on aid efficiency and the ownership of development, PAGE acts as the main interface between the government and its development partners. It is fully aligned with the Millennium Development Goals (MDGs).”
REVENUE
Given the gloomy picture of the WEO [World Economic Outlook] characterised by threats of double dip recession in some developed countries the fiscal outlook for The Gambia has been cautiously projected.
The 2012 budget is prepared on the basis of the following key macroeconomic assumptions; to sustain real GDP at 5.5 per cent, inflation at 5 per cent, the overall budget deficit is projected at 3 per cent, current account balance excluding budget support at15.3 per cent. The exchange rate has been relatively stable, with gross official reserves projected at D185.9 million or 5 months of import cover.
Total revenue and grants for 2012 is projected at D5771.3 million (17.6 per cent of GDP) as against a total of D5650.2 million (17.8 per cent of GDP) a year earlier. Tax revenue is forcasted at D4613.9 million in 2012 increasing by D23.6 million from its previous year level of D4590.3 million. In the fiscal year 2012, grants are projected at D1157.3 million against D1059.9 million in 2011 including a 9.2 per cent increase.
EXPENDITURE
Total Expenditure and Net lending for the year ending 2011 was D6116.5 million (19.3 per cent of GDP). During the course of the year 2012 total expenditure and net lending is projected at D6722.8 million or 10 per cent increase by D606.3 million from its 2011 level. This is mainly due to higher than expected increase in external resources.
Other charges for the year ending 2011 were D2.2 million. This figure was projected to increase slightly in 2012 to D2.5 million constituting 7.76 per cent of total expenditure and net lending compared to 7.13 per cent in 2011.
The fiscal deficit for the year ending 2011 was D466.6 (1.47 per cent of GDP). The deficit for 2012 is projected at D951.4 million (2.9 per cent of GDP). The deficit will be fully financed through domestic and external borrowing. The net-external financing is estimated at D405 million while the domestic financing is projected at D541 million.
The public debt is relatively high and stood at 69.2 per cent of GDP as at end-December 2010 of which domestic debt represents 29.3 per cent. The concern is on domestic debt as it is more of a burden to the budget than external debt, which is highly concessional.
REVENUE MEASURES
In its effort to mobilize resources, The Gambia Government will introduce measures to help boost its revenue geared towards the funding of development programmes, the 2012 national budget says.
The government has therefore proposed the following measures to reverse the declining nature of tax revenue over the past three years.
These include implementation of a quota system on Duty exemptions on fuel for diplomatic missions; expansion of excise tax coverage through the collection of excise taxes on domestically produced goods; bringing into the tax net holders of Special Investment Certificate (SIC) whose certificates have expired; removal of the protection on sugar and cement, as the protection has not made any difference in the market price; increasing the revenue tax on laundry soap from D5 per kilo to D7.5 per kilo; and removing the fuel concession given to Gambia Ports Authority (GPA).
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