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. _________________________________________________________________ Chat with friends online, try MSN Messenger: http://messenger.msn.com <<//\\>>//\\<<//\\>>//\\<<//\\>>//\\<<//\\>>//\\<<//\\>> To view archives of postings, go to the Gambia-L Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html To contact the List Management, please send an e-mail to: [log in to unmask] <<//\\>>//\\<<//\\>>//\\<<//\\>>//\\<<//\\>>//\\<<//\\>>