GOTG ANNOUNCES 2008 DRAFT BUDGET

UNCLAS SECTION 01 OF 03 BANJUL 000614

SIPDIS

SENSITIVE
SIPDIS

STATE PASS TO EXIMBANK, OPIC, USTDA

E.O. 12958: N/A
TAGS: ECON EAID EFIN ETRD PGOV KMCA IMF GA
SUBJECT: GOTG ANNOUNCES 2008 DRAFT BUDGET

BANJUL 00000614 001.2 OF 003


REFTEL(S): BANJUL 26
BANJUL 457 (NOTAL)
BANJUL 574

--------------
SUMMARY
--------------


1. (SBU) The budget figures for the 2008 fiscal year and 2007
year-end estimates released on December 3 indicate that the GOTG's
new revenue collection systems are working. The budget numbers
reflect, at least on paper, the government's focus of the current
IMF Poverty Reduction and Strategy Paper (PRSP) and Poverty
Reduction and Growth Facility (PRGF). The budget assumes that The
Gambia will achieve debt relief under the Heavily Indebted Poor
Countries (HIPC) initiative and Multilateral Debt Relief Initiative
(MDRI),a decision expected by year's end. Post is dubious that the
budget announced and presented will have much relation to the way
the Gambian government really spends its money, as there is little
to no accountability, and very little spending on non-security
projects is visible, apart from that financed by donors. END
SUMMARY

--------------
FOCAL STRATEGY
--------------


2. (U) On December 3, Secretary of State (Minister) for Finance
and Economic Affairs Musa Bala Gaye, announced draft figures for The
Gambia's 2008 budget. Bala Gaye said the aim of the budget is to
foster growth and development by focusing on GOTG efforts to
alleviate poverty in line with the PRSP, and reflects a
consolidation of The Gambia's recent macro-economic achievements.
He projected that growth will remain between six and seven percent,
inflation will stay below five percent, and international reserves
will be maintained at a level equal to about four months worth of
imports. He noted that the domestic debt to GDP ratio and the
current account deficit, including official transfers, will be
reduced. Already incorporated in the figures are anticipated
complementary resources of D502 million (23.9 million USD) from HIPC
and MDRI debt relief.

--------------
REVENUE COLLECTION PAYING OFF
--------------


3. (U) The Finance Minister announced a 416 million dalasi (19.8
million USD) basic balance surplus at year's end, equivalent to 2.6
percent of GDP, up from a projection of 0.2 percent in the 2007
budget (ref A). This represents 22.1 percent of GDP, among the
highest revenue-to-GDP ratios in Sub-Saharan Africa, according to
Bala Gaye. He cited the "outstanding fiscal performance" of 2007 as
a "landmark" in The Gambia's history, noting that revenue reforms
implemented earlier this year, including creation of the Gambia
Revenue Authority (GRA),were successful. He explained that GOTG
accounts at the Central Bank have increased through improved revenue
collection and expenditure controls, thanks largely in part to the
advent of the GRA. The minister noted that tax administration will
be strengthened and revenue collection will be stepped-up again in

2008.


4. (U) Total revenues and grants are expected to reach nearly D4.5
billion (216 million USD),3 percent more than predicted in the 2007
budget. Domestic revenue collection is anticipated to rise by six
percent to D3.5 billion (168.3 million USD) from D3.3 billion (158.2
million USD) by the end of 2007. Of the D4.5 billion total, almost
D3.8 billion (179.6 million USD) comes from domestic revenues, up 14
percent from the 2007 budget figure of 3.3 billion (158.2 million
USD). Out of total domestic revenues, direct tax constitutes just
over one billion dalasi (48.4 million USD),about 27 percent,
indirect tax makes up D2.3 billion (111.7 million USD),about 62
percent, while the remaining D408 million (19.4 million USD),or 11
percent, comes from non-tax revenues and grants.

--------------
EXPENDITURE AND LENDING
--------------


5. (U) Expenditures and net lending for 2007 are now projected at
D4.1 billion (195.3 million USD),ten percent less than the 2007
budget figure of D4.5 billion (214.9 million USD). The drop stems
mainly from capital expenditures, which are forecast at D1.4 billion
(67.2 million USD). This is 27 percent lower than the 2007 budget
figure of D1.9 billion (92.2 million USD),owing to lower than
expected disbursements on externally-funded projects. The current
expenditure for 2007 is estimated to increase from the previous
budget figure by five percent to D2.6 billion (126.3 million USD).

BANJUL 00000614 002.2 OF 003


Personnel emoluments are slated to be D734 million (35 million USD),
five percent lower than the 2007 budget figure of D765 million (36.4
million USD). Other charges are estimated at D1.1 billion (54.4
million USD),25 percent higher than the budget figure of D920
million (43.8 million USD). The Finance Minister said that interest
payments will be D782 million (37.2 million USD),15 percent lower
than the 2007 budget figure of D846 million (40.3 million USD).

--------------
ADDITIONAL RESOURCES
--------------


6. (U) Expenditures and net lending for 2008 are projected at D5.2
billion (247.8 million USD),15 percent higher than the 2007 budget
figure. This increase, according to the Finance Minister, is due to
the use of HIPC and MDRI debt relief resources to finance increased
investment expenditures in 2008. An additional D390 million (18.6
million USD) was funded by privatization proceeds from the August
sale of 50 percent of the shares in the state-owned Gambia
Telecommunications Company (GAMTEL) and its mobile subsidiary GAMCEL
(ref B). (COMMENT: To Post's knowledge, this is the first
disclosure of any proceeds from the sale, though this does not
reflect the full amount. END COMMENT)

--------------
OTHER CHANGES
--------------


7. (U) The 2008 budget also shows an upsurge of 11 percent in
current expenditures and 21 percent in capital expenditures.
Recurrent expenditures have increased from D2.5 billion (120.5
million USD) in 2007 to D2.8 billion in 2008 (133.9 million USD).
Out of this, personnel compensation amounts to D918 million (43.7
million USD),or 32 percent, interest payments on external and
domestic debt account for D622 million (29.6 million USD),or 22
percent, and other charges equal D1.1 billion (54.4 million USD),or
46 percent. Purchases of goods and services will increase from D523
million (24.9 million USD) to D725 million (34.5 million USD),or 39
percent, from 2007 to 2008.


8. (U) Current transfers and subsidies are also projected to
increase from D397 million (18.9 million USD) to D418 million (19.9
million USD). The expected basic balance surplus will contract to
D259 million (12.3 million USD),or 1.2 percent of GDP, as a result
of the impact of the appreciation of the dalasi on revenues, and the
expansion in both recurrent and Government Local Funds (GLF) capital
expenditures. The budget deficit of D730 million (34.8 million
USD),or about three percent of GDP, will be financed by external
borrowing of over one billion dalasi (48.8 million USD),capital
revenue of D15 million (0.7 million USD),repayment of domestic debt
of D57 million (2.7 million USD),repayment of arrears of D179
million (8.5 million USD),payment to bank and non-bank sectors of
D266 million (12.7 million USD),and privatization proceeds from the
GAMTEL/GAMCEL deal.

--------------
POVERTY REDUCTION
--------------


9. (U) Bala Gaye stated that the GOTG's goals are to reduce
poverty and meet the economic Millennium Development Goals on the
basis of sustained growth and macro-economic stability underpinned
by disciplined, effective, and efficient fiscal and monetary
policies. He noted that the GOTG has increased expenditures on
poverty programs to about 46 percent of the new budget, from around
40 percent in the 2007 budget.

--------------
STRONG DALASI HERE TO STAY
--------------


10. (U) Bala Gaye echoed the same projections and reasoning in a
meeting with CDA on December 12. He firmly declared that the rising
dalasi would stabilize between D18 and D22 to the dollar, stressing
that it would not go above D22, implying that the government would
intervene to prevent it. The minister insisted that the proper
calculations regarding the effects of the strong dalasi on the
economy had been carried out. (NOTE: The exchange rate was steady
for over a year at D28 to the USD until July. END NOTE) The final
budget will be read before the National Assembly on December 14, and
post will report on any reactions septel.

--------------
COMMENT
--------------


11. (SBU) We remain skeptical of the GOTG's adherence to the

BANJUL 00000614 003.2 OF 003


coming budget, as the IMF recently found that a large amount of
security-related spending was unreported (ref C). The announcement
of part of the proceeds from the sale of GAMTEL/GAMCEL, and the
incorporation of debt relief measures into the 2008 budget are
noteworthy. Our question remains -- what is the government doing
with these record revenues? Despite the claim that more than 40
percent is going to poverty reduction programs, we frankly see
little sign of investments on that scale in such programs. In
contrast, virtually all investment we see being made in development
in The Gambia can be traced to donor contributions. We will pay
close attention to the final written budget when it is presented to
see if it offers any more clues, but for now the question remains
unanswered. END COMMENT
BACHMAN