THE GAMBIA: THE BUDGET, BACKLOG, AND BANK LOANS

UNCLAS SECTION 01 OF 03 BANJUL 000763 SIPDIS SIPDIS STATE PASS TO EXIMBANK, OPIC, USTDA E.O. 12958: N/A TAGS: ECON EAID EFIN ETRD PGOV KMCA IMF GA SUBJECT: THE GAMBIA: THE BUDGET, BACKLOG, AND BANK LOANS REF: A. BANJUL 722 AND PREVIOUS ¶B. BANJUL 744 BANJUL 00000763 001.2 OF 003 -------------- SUMMARY -------------- ¶1. The Department of Finance disclosed budget figures for 2006 and estimates for 2007 before the National Assembly on December 6, with poverty reduction and consolidation of fiscal policy as the key highlights for the coming fiscal year. Secretary of State for Finance, Musa Bala Gaye, admitted that there were slippages related to the GOTG's hosting of the African Union Summit in July, but attested that the budget had remained largely on track despite those expenditures. And in a December 4 meeting of the National Assembly's Public Accounts Committee (PAC),members of the legislature discussed the backlogged auditing process for the GOTG's accounts. While accounting procedures appear to be improving, auditing is still a challenge due to the amount of documents that are apparently missing from the GOTG's files. However, GOTG representatives insist that the backlog will be cleared in line with the IMF's proposed PRGF timeline. A loan from the Islamic Development Bank to enhance food security is another encouraging sign for The Gambia's economic and development prospects. END SUMMARY. -------------- 2006 BUDGET ROUNDUP -------------- ¶2. The December 6 announcement of the 2007 budget estimates to the National Assembly (NA) reflected optimism from Secretary of State (SoS) for Finance and Economic Affairs, SIPDIS Musa Bala Gaye. He stated that The Gambia has recorded a real GDP growth rate of 7.7 percent for 2006, attributing this to growth in the construction and tourism sectors, a rebound in telecommunications, and equal output growth in crop and non-crop agricultural products. Encouraging factors heralded by the SoS also include the low inflation rate, currently at an annualized rate of 1.52 percent, and, as previously reported (ref A),the Central Bank's lowered re-discount rate and statutory reserve requirement. The Central Bank's gross official reserve rose to 2.4 billion dalasi (approx. 89 million USD) and, as of September 2006, the net domestic assets of the banking system also rose to D3.4 billion (121 million USD),an increase of 27.3 percent, due largely to growth in domestic credit from the private sector and government. The money supply grew by 20.7 percent in 2006, a slight increase over 20.1 percent in 2005. ¶3. Bala Gaye informed NA members that the capital and financial account balance is estimated to shrink from D3.0 billion (107 million USD) in 2005 to D1.7 billion (61 million USD) in 2006, resulting in an overall balance of payment surplus of D804 million (30 million USD) in 2006, compared to D1.7 billion (61 million USD) in 2005. The total revenue and grants for 2006 are estimated at D3.08 billion (110 million USD),18.3 percent more than in the previous year, including total receipts of D2.6 billion (929 million USD),tax on international trade, estimated at D1.4 billion (500 million USD),direct tax, estimated at D813 million (29 million USD), and non-tax revenue of approximately D400 million (14 million USD). The budget deficit, including grants, is projected to improve from 8.6 percent of GDP in 2005 to 4.7 percent in 2006 due to purported improvements in revenue collection efforts. The basic balance is expected to register a surplus of D262.7 million (9.4 million USD) during 2006, a "pointer to sustained fiscal consolidation." Bala Gaye touted structural reforms by the GOTG, including the inception of the Gambia Revenue Authority, the Gambia Bureau of Statistics, and the Roads Authority. -------------- AU SUMMIT SLIPPAGES -------------- ¶4. According to Bala Gaye, fiscal performance improved during 2006 despite the African Union Summit hosted in Banjul in July and the September presidential elections. Total expenditure and net lending is projected at D3.86 billion by year end. Current expenditure will increase to D2.69 billion (96 million USD) from D2.42 billion (86 million USD) in 2005. Though other charges are projected to increase from D736 million (26.3 million USD) to D1.1 billion (38 million USD) largely due to the hosting of the AU Summit, interest payments have dropped to D934 million (33 million USD) from D1.1 billion (40 million USD) in 2005 due to low domestic BANJUL 00000763 002.2 OF 003 interest rates. Capital expenditure, much of which was for the AU Summit preparations, rose 46 percent over the 2006 budget estimate of D979 million (35 million USD),totaling D1.4 billion (51 million USD). -------------- 2007 BUDGET PREVIEW -------------- ¶5. Bala Gaye underscored the emphasis that the GOTG would place on poverty reduction in the next fiscal year, with increases in spending for social services. He hinted that the GOTG was expecting the IMF's proposed PRGF to go ahead early next year (ref A). He announced some projections for the 2007 budget, but the official 2007 budget was not presented to the National Assembly for debate until Monday, December 18. Septel to follow. -------------- FORWARD WITH THE BACKLOG -------------- ¶6. On December 4, the Public Accounts Committee (PAC), composed of 10 National Assembly (NA) members, convened to hear testimonies from the Auditor General, the Acting Director of the Treasury, and the Permanent Secretary from the Department of State for Finance and Economic Affairs (DOSFEA) regarding the GOTG's accounts for the period of July 1992 to December 1999 in order to submit a report of its findings, opinions, and recommendations to the entire NA body. The backlog of account audits, highlighted by the IMF in its assessment of The Gambia's economy as a target area for improvement (ref A),was of key concern for the PAC as its members sought clarification from GOTG officials on the report presented by the Auditor General. ¶7. Led by Speaker of the National Assembly, Belinda Bidwell, the PAC asked the Auditor General, Baboucarr Sankareh, why he had failed to express an opinion on the audited accounts. Sankareh maintained that there was insufficient evidence to enable him to form an opinion or create a complete picture of GOTG revenue and expenditure during the period in question due to the large number of missing vouchers and records at the Department of the Treasury (DOT). Gabu Mendy, Acting Director of the Treasury, claimed the missing records had been removed from the DOT by various Commissions of Inquiry set up after the 1994 coup which brought the current regime to power. ¶8. Abdou Touray, Permanent Secretary from the Department of State for Finance and Economic Affairs, informed the PAC that the GOTG accounts for 2000-2003 had already been submitted for auditing, while the 2004 and 2005 accounts were being prepared for submission. Sankareh admitted his office had received them, but the still-missing documents moot attempts to perform audits. Touray, undeterred, underscored the clearing of the backlog as one of the benchmarks for a new Poverty Reduction and Growth Facility to be put in place by the IMF, and stated that future accounts would be submitted on a quarterly basis upon the introduction of the much-lauded Integrated Financial Management Information System (IFMIS). IFMIS is due to launch in January 2007 (ref A). His optimism was countered, however, by the insistence of several PAC members that the issue of the missing financial records be addressed so that future fiscal years may commence with an accurate opening balance. -------------- LOANS FOR LADEP -------------- ¶9. The National Assembly on December 6 ratified a loan agreement between the GOTG and the Islamic Development Bank (IDB) for the Lowlands Development Project (LADEP),which aims to strengthen food security and self-sufficiency. The agreement covers an ordinary loan equivalent to $8.9 million with a 25-year repayment plan, including a seven-year grace period, and a Least Developed Countries loan worth $1.8 million, to be paid back in 30 years, including a ten-year grace period. Combined, the IDB loans are set to cover 84 percent of the cost of LADEP over its five-year duration from 2007 to 2012. The announcement of the loan agreement followed closely on the heels of President Jammeh's highly-publicized visit to Tehran and the bilateral agreements allegedly made between the GOTG and the GOI (ref B). -------------- BANJUL 00000763 003.2 OF 003 COMMENT -------------- ¶10. The 2006 budget assessment and projections for 2007 are largely as anticipated, given the recent comments from the IMF during their November visit regarding slippages related to the AU Summit and the need for increased spending for social services (ref A). And while troubles still exist in the form of missing GOTG account documents, the open recognition of this and the earnest, if flawed, effort to remedy the backlog of audits show positive steps in the area of economic reform. As for loans from the IDB and the potential of lines of credit with Iran, Jammeh's strengthening of ties to the Islamic world appears to be largely due to economic motivations. Post will report on SOS Bala Gaye's 2007 budget speech and the National Assembly's reaction septel. END COMMENT STAFFORD