Over the next few days, I shall be posting SOS Jatta's budget speech in
parts, as it is very long.
BUDGET SPEECH 2002
PROGRAMME BASED BUDGETING FOR EFFICIENT RESOURCE ALLOCATION AND USE WITH A
POVERTY REDUCTION DIMENSION
Mr. Speaker,
I beg to move that " The Bill entitled an Act to provide for the services of
the Gambia for the period 1st January, 2002 to 31st December, 2002 (both
dates inclusive)" be read a second time.
I. INTRODUCTION
Mr. Speaker,
About one year ago, a question was asked: "Can Africa claim the 21st
century?" More than a year after today, to what extent are we prepared to
say "yes" to this question, not for Africa as a whole but for our country as
a part of the whole. To what extent have we reduced the poverty of our
people – to what extent have we brought food to them, education to our
children, health to all and uplifted the general economic well being of the
citizenry? I am afraid we are still far from an assertive yes.
Every year we budget and implement, and at the end of the implementation we
budget again, year after year. Why do we budget and what do we hope to
achieve by the implementation? The time has come for a change. The desire
for change is not foreign to man; it is rather intrinsic in his very nature.
Adam Smith of old wrote "such is the delicacy of man alone that no object is
produced to his liking. He finds that in everything there is a need for
improvement" (Bathia - History of Economic Thought). It is in the nature of
man to strive for change, variety and greater perfection. These principles
underlie the basis of our desire for change. We want our budget
implementation process to continuously better the lot of our people and the
reporting medium (the budget speech) to increasingly reflect the realities
of progress being registered in the economy.
Today, our people continue to be afflicted by acute poverty (69% of persons
and 54% of households) with most of our social indicators lying far below
the internationally acceptable minimum levels. Infant and under-5 mortality
rates are as high as 61 and 80 per thousand populations. Access to safe
drinking water stands at 79% (97% for urban and 50% for rural), the doctor
patient ratio is one to every 15,269 population and the patient per bed
ratio is 916 per bed. Overall life expectancy is 59.3 years. The combined
enrolment ratio is 41% while adult literacy is as low as 33.1%.
Infrastructural development is still at an infancy stage with only 20% of
the total road network paved. These are but only a few of the daunting
challenges that we must confront and overcome, if we should win the fight
against poverty and deprivation.
Mr Speaker, Sir
Averting the trend of these indicators and what they measure, among others,
is the reason why we budget. And here we should not question how much we
have done or spent so far, but rather how we spent it. Our change of
strategy would therefore be one of re-orientation from the conventional
line-item approach to a Programme Based Budgeting (PBB). The object is to
approach issues in such a way as to be able to measure the outcome of our
activities against set targets, identify bottlenecks and design solution
strategies. More fundamentally, PBB allows us to prioritise our activities,
especially when revenues are not forthcoming and donor-fatigue is becoming
more and more apparent.
The foundation of an operational programme budgeting system is an
articulated master plan defining the goals and objectives of the sector.
What this is saying is that, all sectors that do not have national policies
should come up with one. Based on the policy, programmes and activities
would then be developed towards attaining the objectives of the policy. The
programmes and activities would then be fitted to a budgetary time frame for
implementation. Consequently, all budget submissions would be based on a
proper costing of such activities for each year.
It is with much hope that I report to you today, that this process has
started with the Department of State for Education and is at an advanced
stage of expansion for the Departments of State for Health and Social
Welfare and Department of State for Agriculture. The good news with these
pilot Departments of State is that they all had sector policies. Thus the
bulk of their work involves conducting a Public Expenditure Review (PER) to
identify the direction of their spending in the past – whether this conforms
to the objective of the policy.
Issues to focus on in the PER process may cover policy, institutional, as
well as, resource issues. Based on this, a full report assessing the
relevance of sector policies, the appropriateness of programmes, and the
alignment of expenditure with policy priorities should be carried out.
Programme based budgeting clearly requires sectors and agencies to develop
policies with qualitative and quantitative targets, costed programmes that
support these policies and a clear performance evaluation criteria.
Mr Speaker Sir,
After developing our policy goals and targets into programmes, we would then
adapt them to a Medium Term Expenditure Framework (MTEF). The MTEF is a form
of programme based rolling plan, where programme implementation is spread
over a given number of years e.g. three years. Whatever activity could not
be implemented in the first year of plan implementation is carried forward
to the second year. The spill over of the second year is then moved on to
the third year and so on, so that at any one time you have programmes for
implementation spanning over three budget years.
The environment for this change is very encouraging. The biggest constraint
in this effort has been the manpower needs, which is now being addressed by
various capacity building projects namely: EMCBP, CBEMP just to name a few.
One of these – the CBEMP has the added task of adapting the budget process
to the MTEF. All these would be undertaken in the pursuit of poverty
reduction and in a framework that fosters greater efficiency in resource
management and allows for the participation of civil society in the
formulation and evaluation of the projects and programmes that make up the
budget.
In furtherance of the objectives for increased participation in the national
resource allocation process (the national budget), the government has taken
the initiative to organise a broad based two-day workshop with the aim of
enhancing participants’ understanding of the mechanics of government
financing. Workshops of this nature, it is believed, will bring about
greater participation by all stakeholders in the budget process. My
Department of State has launched The Economic Watch, a quarterly newsletter
this month that will inform the public on key developments in the economy.
We hope that all these interventions will ensure an efficient and effective
resource allocation to progressively reduce and hopefully eliminate the
incidence of poverty.
II. THE WORLD ECONOMY
Mr. Speaker,
Unforgettable events in the year 2001 led to a downward projection of world
output growth to 2.6% from the impressive annual growth rate of 4.7%
recorded in 2000. Even before the September 11th incident, the growth rate
of the world economy was predicted to slow down following the declined
performance of the U.S. economy in the first two quarters of the year.
However, the outlook was much worsened by the developments in this last
quarter of 2001.
From a 12.4% high in 2000, the annual percent change in the volume of world
trade is projected at 2.7% as a direct result of the decline in output
growth for all the key economic regions. The increased oil prices from 2000
did not help the situation as monetary policy was tightened in the U.S. and
some major European countries, while the increased inter-linkage of capital
markets heightened the impact of the fall in confidence level on global
demand and trade flows.
Oil prices have since registered a fall following the sharp increase after
the terror attack on America, and now stand far below the average barrel
price of $28 experienced last year (2000). The price decrease was helped by
the easing of monetary policy by the Federal Reserve in the USA.
Sub-Saharan Africa is projected to register a modest output growth rate of
3.8% at end-2001 due to declining commodity prices coupled with the global
contraction in trade leading to a fall in exports. However it must be
emphasised that the economic prospect is brighter for the African countries
that have a stable macroeconomic background and sound structural policies.
These policy objectives continue to be at the centre of Government's
economic strategy in tandem with poverty alleviation, thereby minimising the
effects of uncertain developments in the world economy. A case in point is
the bright prospect for our tourism industry this season despite the global
economic downturn.
III. THE DOMESTIC ECONOMY
i. Real Sector
Mr. Speaker, Sir,
For the year ending December 2001, real Gross Domestic Product (GDP) is
estimated to grow by 4.6% as a result of growth registered in almost all the
industries
All the sub-sectors under agriculture, once again recorded increases, with
other crops (comprising of cereals, vegetables and fruits) forecasted to
grow by 11.6% and groundnut by 5%, amounting to a 9.4% rise for all the
crops. Output from Livestock, Forestry and Fishing are also estimated to
grow by 3, 4 and 18 percentage points respectively. Agriculture is therefore
forecasted to grow by 8.6%.
Manufacturing is expected to grow marginally by 1.7%, with relatively faster
expansion in small-scale undertakings of 2% compared to 1.5% growth in
large-scale activities. Electricity and Water's contribution to GDP will
grow significantly by 17.4% by the turn of the year. Building and
Construction industry is also forecasted to grow by 3.6%.
It is again projected that the trade sector will register a contraction,
from a total contribution of D78.1 million to D74.9 million, a fall of 4.1%.
This can be explained by the difficulties faced in the groundnut trade in
the past, however the trade situation is expected to improve by the turn of
the year. This activity is forecasted to grow by 0.5 % by end-2001.
The activities of GAMCEL and AFRICELL, leading to an expansion in
telecommunication and increased mobile phone usage, significantly
contributed to the projected growth of 14.9% in the communication industry,
while transportation is expected to maintain its annual growth rate of 4%.
Real Estate and Business Services is also expected to register a marginal
growth of 2.2% during the period under review whilst growth in the Other
Services industry is estimated at 1.7%. The operations of AFRICELL has
brought about improved competition and reduced prices of mobile phone
services.
ii. Fiscal Developments
Mr Speaker,
The performance of revenues and expenditure for the current fiscal year has
been mixed. While there has been revenue shortfalls, especially in the first
quarter, as a consequence of lower customs collections and low payments from
the public enterprises, expenditure overruns associated with the additional
payments to Alimenta exerted pressure on the outcome of 2001 fiscal
aggregates. The fiscal authorities stepped in with some measures to improve
revenue collections and tightened spending to contain the deficit to the
targeted level.
Revenue for the year 2001, according to programmed figures, have been
revised downwards to D1.31 billion which represents a 17% growth from the
actual outturn of D1.1 billion in 2000. However, the total revenue collected
between January to October 2001 totals D874.7 million, and this represents
77% of expected revenues for the current year. This revenue outcome recorded
up to end-October comprised of D714.9 million of tax revenue, D109.8 million
non-tax revenue and a grant element of D50.1 million.
The total projected expenditure amounted to D1.5 billion of which about D1.1
billion (70%) has already been spent from January to October of this year.
Out of this amount, about 26% was used to pay wages and salaries, 23% went
to interest payments and the rest is accounted for by capital expenditure.
The overall fiscal deficit excluding grants is expected to be contained at
around 5.9% of GDP. However, this relatively high level of deficit has taken
into cognisance of the on-lent amount of D77 million to NAWEC for the
acquisition of a 6.5MW generator. If this is excluded, the deficit will
narrow down to about 4.6% of GDP.
iii. Monetary Developments
Mr Speaker,
For the first nine months of 2001, monetary expansion was moderate in
comparison to the growth in the preceding year. During this period, the
liquidity infusion into the economy was partly to finance the borrowing
requirement of Government. The expansionary impact of this was mostly offset
by a decline in net foreign assets of the banking system. Consequently,
broad money supply grew moderately by 3% during the review period.
Bank financing of Government resulted in a substantial increase in the net
domestic assets of the banking system. Government’s net position with the
banking system deteriorated markedly and reached a deficit of D448.5 million
at the end of September 2001, due mainly to increased expenditure. The
Private sector's net position, on the other hand, declined by 5.7% to D636.6
million during the same period, as a consequence of reduced trading
activities.
The net foreign assets of the banking system at D894.7 million at the end of
September 2001 reflected a substantial decline of 30.7% compared to
end-December 2000. The net foreign assets of the Central Bank went down
12.1% reflecting the D234.6 million drawdown in gross official reserves. The
drop in the external reserves of the Bank was due to the heavy debt service
payments and Central Bank’s intervention to sell foreign exchange in the
inter-bank market in order to reverse the build-up in commercial bank
arrears.
a. Inflation
The Consumer Price Index for the low-income population in Banjul and Kombo
St. Mary is estimated to reach 4.3% between January and December 2001
compared to 0.8% recorded in 2000. This relatively high inflation rate
resulted from a culmination of factors that generally worsened the economic
environment including higher oil prices as well as the depreciation in the
value of the Dalasi.
The ‘Food, Drink and Tobacco’ and the ‘Non – Foods’ divisions both recorded
rises in their indices, of 4% and 4.7% respectively. The ‘Food, Drink and
Tobacco’ category accounted for 55.5% of the rise in the overall index
whilst the ‘Non – Food’ division explained 45.5% of the overall rise.
Monetary policy implementation was mainly pursued through open market
operations. To combat the rising inflationary pressures and also mitigate
volatility of the exchange rate, the Central Bank intensified its efforts
and diversified the instruments at its disposal to mop up excess liquidity
in the system. A 364-day Treasury bill was introduced in this regard, in
September 2001.
iv. External Sector
Mr. Speaker, Sir
The preliminary estimates for the overall balance of payments showed a
deficit of D258 million representing 4.2% of GDP in 2001. Developments in
the current account excluding official transfers were mostly related to
deterioration in both the trade balance and net factor services balance. The
former deteriorated due to the higher increase in imports by 8.4% in real
terms whereas exports went up by only 5% as a consequence of plunging terms
of trade among other factors.
The factor service balance turned negative reflecting poor performance in
the tourism sector coupled with out-payments for freight and insurance in
respect of imports. Including official transfers, the current account
balance however, improved marginally to represent a deficit of only 0.6% of
GDP in 2001. The capital account, on the other hand, turned negative at an
estimated value of D125.8million. Net Official Loans showed a marked
decline, due mostly to a surge in amortizations reflecting un-programmed
payments to Alimenta. The significant drop in short-term capital also
reflects investor pessimism in the domestic economy.
a. Exchange Rate
Although the level of tourism activities during 2001 was below expectations,
the foreign exchange market was quite vibrant as transaction volumes,
measured by aggregate sales and purchases of foreign currency in the
inter-bank market, rose by 18% to D6.8 billion by end-September.
The Dalasis came under a lot of pressure losing considerable ground against
the major international currencies recording an overall depreciation of 8.4%
in nominal terms against the composite basket of currencies by end-September
2001 compared to end-December 2000.
The Dalasi fell by 12.4% against the US Dollar and 5% against the Pound
Sterling. The depreciation of the Dalasi was more pronounced in the parallel
market where it fell against the Dollar and the Pound by 13.1% and 13.7%
respectively. Thus the premium between the parallel and inter-bank markets
widened especially in the case of the Pound from 3.4% at end-December 2000
to 10.8% at the end of September 2001 whilst in the case of the dollar, the
movement was from 7.2% to 7.8%.
The pressure on the Dalasi could be attributed to the poor performance of
the tourist industry, reduced cross border trade and serious difficulties in
the marketing of groundnuts. This was also coupled with the strengthening of
the dollar in the international markets.
Despite these problems however, we remained steadfast in our commitment to
the liberal exchange and payment system. Therefore the Central Bank’s
interventions in the foreign exchange market continued to be guided by the
need to maintain relative stability in the market as well as to build up the
foreign reserves in order to meet performance targets. Hence official
exchange reserves as at end-September 2001 stood at D1.6 billion, equivalent
to 5.2 months of import cover.
v. Financial Sector Developments
Mr. Speaker,
In accordance with the licensing procedures stipulated in the Financial
Institutions Act 1992, approval was granted in principle to Guarantee Trust
Bank Gambia Ltd during the year, to conduct business in the country. This
will bring the total number of commercial banks in the country to seven.
Overall, the performance of the banking sector has been very encouraging.
Total deposit accumulation went up by 7% during the period reflecting
customer confidence in the banking system. Non-performing loans as a
percentage of gross loans also declined to 10.7% in June 2001, from 13.6% at
the same period last year while the total value of non-performing loans
declined by 25.1%. A number of banks have maintained a tight lending policy,
with gross loans decreasing by 4.4%.
Mr Speaker,
As part of Government’s efforts towards deepening the financial sector,
commercial banks have been authorised to operate Foreign Currency
Denominated accounts from the first week of December 2001. Only banks that
meet the strict criteria were allowed to introduce the new product. It
should be noted that Foreign Currency Deposits facilitate the accumulation
of the much-needed hard currency for the financing of international trade.
All commercial enterprises, particularly big businesses and individuals are
thus urged to take advantage of this scheme. The Central Bank is developing
new guidelines for the supervision and monitoring of financial institutions
that will be operating Foreign Currency-Denominated Deposits.
With the registration of a new Life and Health Assurance Company coupled
with another company presently under consideration, the total number of
insurance companies now stands at eleven. The Insurance Act of 1974 was
recently amended into a new bill that is almost ready for enactment. The
bill provides an updated and more comprehensive framework for achieving
soundness and security to ensure a more transparent and efficient insurance
industry for the protection of the insuring public.
vi. National Debt
Mr Speaker,
The Gambia’s external debt rose from a peak of US$ 362 million in 1994 to an
alarming amount in 2000, of US$ 401.8 million. This steep rise reflects the
increased development funds to finance new projects. Thus The Gambia’s
external debt rose by 11% in just five years. The External Debt is estimated
to reach US$378m in 2001, registering a decline of 5.7% from US$401.8m in
the preceding year. However, the above figures include PEs stock of debt.
The Gambia’s debt is mainly long-term debts of original maturity of more
than one year. The bulk of our debt is Multilateral Debt constituting 77% of
total external debt while the remaining 23% is from Bilateral Creditors. It
is the World Bank and the African Development Bank (ADB), which are our main
Multilateral Creditors.
The ratio of external debt service to GDP stood at 5% in 2001. This picture
is more dismal when viewed in terms of external debt as a ratio of export of
goods and services. The debt burden is no longer sustainable, and is
hampering our efforts to alleviate poverty proven by the debt service to
budget ratio, which at present stands at 30%. To minimize the debt problem
the Gambia qualifies and continues to benefit from the HIPC Initiative.
Government is also about to benefit from Paris Club (bilateral) to
complement HIPC resources.
The domestic debt burden has been increasing at an alarming rate and is now
of utmost concern as it negatively impact on interest rates and subsequently
lowers investment from the private sector. The stock now stands at D1.7
billion. Concerted efforts are underway to bring down the level.
Other parts will follow soon.
Have a good day, Gassa.
_________________________________________________________________
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