Amadou Colley, governor of the Central Bank of the Gambia (CBG), has said there are high expectations that banks’ interest rates, particularly lending rates, would be reduced, adding that this is due to some considerations in preceding years.
Governor Colley, who took over the mantle of leadership of the bank less than two years ago, was speaking on Tuesday at the CBG’s board room, where he said the Monetary Policy Committee of the Central Bank of The Gambia has decided to reduce the policy rate by 1.0 percentage point to 13 per cent, adding: “The expectation is that other interest rates, particularly lending rates, would be reduced.”
Economic players, including bankers and entrepreneurs could see this move as timely, owing to events dictating the sovereign debt crisis that battered European countries and handicapped international businesses.
“Although, growth in emerging and developing economies remains robust, it is expected to moderate somewhat due to contagion from the European crisis as well as policies aimed at curbing domestic demand pressures,” Mr Colley said.
He added that the decline in headline inflation is steady with the cutback in money supply and the stability of the Dalasi, saying inflation is expected to remain in single digit in 2012 predicated on prudent implementation of monetary and fiscal policy as well as the easing of global food prices.
However, core inflation, which excludes the price of energy, utilities and unpredictable food items, also decline to 4.3 per cent from 5.7 per cent in the previous year of 2010.
According to the CBG governor, in emerging and developing economies like Gambia’s, “Inflationary pressures are also expected to decline slightly from 7.3 per cent in 2011 to 6.3 per cent in 2012,” saying three factors will determine the path of inflation: energy and food price, output gaps, and the credibility of policymakers.
Despite the country’s economy growing by 5.4 per cent in 2011, compared to 5.5 per cent in 2010 and 6.7 per cent in 2009 respectively, agriculture, which is the mainstay of the economy and highest contributor to the GDP, grew at a slower pace this year, compared to 12.1 per cent last year.
“Industry value-added is estimated at 1.3 per cent, lower than the 2.6 per cent in 2010 attributed to the decrease in the output of mining and quarrying and electricity, gas and water to 1.6 per cent in 2010. Construction output shrank by 2.9 per cent on top of the contraction of 3.7 per cent in 2010,” he added.
However, all the service sub-sectors grew strongly, with the highest growth rates recorded by communication (14.0) and wholesale and retail: 9.7 per cent. On the other hand, service value-added grew by a robust 8.5 per cent compared to the 1.2 percent in 2010.
The target for broad money did not meet expectations, as it was projected to grow at 13.1 percent, coming out with unexpected 11.0 percent lower than the 13.7 per cent of 2010.
He pointed out that the Net Foreign Assets (NFA) and the Net Domestic Assets (NDA) – which are the determinants of broad money – of the banking sector - grew by 13.1 per cent and 10.1 per cent compared with 3.9 and 19.0 per cent respectively in 2010; thus, while the NFA increased colossally, the NDA declined steadily.
Reserve money also increased by 12.3 per cent, higher than the 10.5 per cent in 2010 and the target of 5.0 per cent. Provisional data indicated an improved government fiscal position in 2011, while revenue and grants increased to D5.2 billion (16.1 per cent of GDP), higher than the D5.0 billion (17.1 per cent of GDP) in 2010.
The Central bank boss observed that: “Domestic revenue, comprising tax and non-tax revenue rose to D4.6 billion, or 6.9 percent. Tax receipts amounted to D3.7 billion of which D1.8 billion was on account of international trade taxes. Non-tax revenue also rose to D499.6 million, or 7.4 per cent.
“Total expenditure and net lending amounted to D6.1 billion compared to D6.0 billion in 2010. Current expenditure totaled D4.4 billion or an increase in 13.3 per cent. In contrast, capital expenditure contracted to 1.7 billion, or 20.8 per cent from 2010.”
Whilst the year 2011 was challenging for the country, as IMF mission concluded that the country was in ‘debt crisis’, the overall budget balance including grants of that year was a deficit of D910.0 million (2.8 per cent of GDP), lower than the D1.04 billion (3.5 per cent of GDP) in 2010.
“As at end December 2011, the gross international reserves of the Central Bank of The Gambia was US$182.50 million, equivalent to 5.1 months of import cover,” Colley said.
Despite the contraction in the volume of transactions in 2011, activity in the domestic foreign exchange market continues to be vibrant. In the year to end-December 2011, the volume of transactions totaled US$1.43 billion, which is lower than the US$1.67 billion in 2010.
As regards the financial landscape of the country, the CBG governor said the banking sector remains sound. Although the average capital adequacy ratio decreased slightly to 25.4 per cent in 2011 from 25.9 per cent in 2010, it was significantly higher than the minimum requirement of 10 per cent.
Despite domestic debts consuming 25% of national budget year on year, as at end December 2011, the “outstanding debt increased to D9.4 billion or 8.6 per cent from 2010”. This is a cause for alarm; thus prompting the IMF mission to visit the country to issue a warning that the country should reduce its dependency on domestic borrowing.
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