Gambia Monthly Economic Bulletin May 2010

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    The Gambia Monthly Economic Bulletin- May 2010

    THE GAMBIA MONTHLY

    ECONOMIC BULLETIN1

    May 2010

    Institutional Support Project for Economic and Financial Governance (ISPEFG)Ministry of Finance (MOF)The Republic of Gambia

    The Quadrangle, Banjul, the Gambia

    1The Gambia Monthly Economic Bulletinprovides an update on the recent economic developments andpolicies in the Republic of the Gambia. This Bulletin has been prepared, under the overall guidance of the

    Honorable Permanent Secretary Mr. Serign Cham, by a research team comprising Tarun Das,

    Macroeconomic Adviser (ISPEFG), Momodou Taal, Acting Director and Ms. Ceesay Chiel, Economist in

    the Statistics and Special Studies Division, Ministry of Finance; with key inputs from the Central Bank of

    Gambia (CBG), the Gambian Bureau of Statistics (GBOS), and the Gambian Revenue Authority (GRA).

    It is needless to point out that the views expressed in this Bulletin solely indicate the views of the

    Research Team, which need not necessarily imply the views of the MOF, the other budgetary agencies or

    the organizations they are associated with.

    Any questions and feedback can be addressed to: Tarun Das ([email protected])

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    mailto:[email protected]:[email protected]
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    Political and Administrative Structure

    The Gambia is divided into seven regions comprising two Municipalities namely, Banjul City

    Council (BCC) and the Kanifing Municipal Council (KMC) and five provincial administrative

    regions namely, Western Region (WR), North Bank Region (NBR), Lower River Region (LRR),

    Central River Region (CRR) and Upper River Region (URR). Politically, the relevant units are

    Local Government Areas (urban), Districts, Wards and Villages. The Gambia has 35 districts

    and about 1870 villages with an average of 13 compounds.Basic Facts about Gambia:

    Fiscal year: 1st January to 31st DecemberItems (Year) Units Value Rank in the World

    from topin descending order

    Area (2009) Sq. km. 11,300 171 out of 248countries

    Population (2008) Million 1.735 148 out of 241countries

    GDP PPP (2006) Million US$ 2061 184 out of 229countries

    GDP Nominal (2006) Million US$ 511 199 out of 229countries

    GDP PPP per capita (2006) US$ 1921 140 out of 169countries

    GDP per capita (2006) US$ 329 192 out of 207countries

    Poverty Ratio (% of peoplebelow One-US$ per day) (2004)

    Percent 59 7 out of 95 countries

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    Source: http://www.nationmaster.com

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    http://www.nationmaster.com/http://www.nationmaster.com/
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    Contents

    Items Page

    Basic Facts about the Gambia 2

    Contents 3

    ISPEFG Project/ Research Team and Document History 4

    Highlights 5-6

    At a Glance 7

    1. Global Economic Outlook

    1.1Global recovery is stronger than expected but speed is uneven1.2Global iflation pressures are generally subdued but diverge

    8-128

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    2. Current State of the Gambian Economy

    2.1 Overall and Sectoral GDP Growth Rates2.2 Consumer Price Index (CPI) and Inflation2.3 Projection of CPI inflation for the year 20102.4 Government Fiscal Performance2.5 Domestic Debt and Outstanding Treasury Bills2.6 Treasury Bills Yields2.7 Money Supply2.8 Performance of Commercial Banks2.9 Commercial Banks Assets

    2.10 Commercial Banks Liabilities2.11 Interest Rates and Central Banks Policy Rates2.12 BOP, Foreign Exchange Reserves and Exchange Rates2.13 Exchange Rates

    13-2913151718202122232425

    262729

    3. Recent Policy Developments and Development Issues 3.1 IMF Executive Board Completes Sixth Review of PRGF

    3.2 Assessment of Quantitative Targets agreed with IMF under PRGF

    30-313031

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    ISPEFG Project and Monthly Economic Bulletin Research Team

    Project Supervisor Honorable Mr. Serign Cham,Permanent Secretary

    Project Coordinator Mr. Momodou Cham

    Macroeconomic AdviserActing Director (SSSD)Economist (SSSD)

    Dr. Tarun DasMomodou TaalMs. Ceesay Chilel

    Document History:

    This report is an update of the following reports prepared by the Research Team:

    1. The Gambia Quarterly Economic Bulletin, pp.1-30, 31 March 2009.2. The Gambia Monthly Economic Abstract, pp.1-16, 31 March 2009.3. The Gambia Monthly Economic Bulletin, pp.1-40, 30 April 2009.4. The Gambia Monthly Economic Abstract, pp.1-16, 30 April 2009.5. The Gambia Monthly Economic Bulletin, pp.1-39, 31 May 2009.6. The Gambia Monthly Economic Abstract, pp.1-15, 31 May 2009.

    7. The Gambia Monthly Economic Bulletin, Part-1, pp.01-22, June 2009.8. The Gambia Monthly Economic Bulletin, Part-2, pp.23-46, June 2009.9. The Gambia Monthly Economic Abstract, pp.1-16, June 2009.10.The Gambia Monthly Economic Bulletin, Part-1, pp.01-22, July 2009.11.The Gambia Monthly Economic Bulletin, Part-2, pp.23-46, July 2009.12.The Gambia Monthly Economic Abstract, pp.1-16, July 2009.13.The Gambia Monthly Economic Abstract, pp.1-16, August 2009.14.The Gambia Monthly Economic Abstract, pp.1-16, September 2009.15.The Gambia Monthly Economic Bulletin, pp.1-25, October 2009.16.The Gambia Monthly Economic Bulletin, pp.1-37, November 2009.17.The Gambia Monthly Economic Bulletin, pp.1-37, December 2009.

    18.The Gambia Monthly Economic Bulletin, pp.1-36, January 2010.19.The Gambia Monthly Economic Bulletin, pp.1-40, February 2010.20.The Gambia Monthly Economic Bulletin, pp.1-40, March 2010.21.The Gambia Monthly Economic Bulletin, pp.1-31, May 2010.

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    HIGHLIGHTS

    Global Economic Recovery Is Stronger than Expected, but Speed Varies

    The global economic recovery is stronger than expected, but the speed of recovery is uneven acrossregions. As per the IMF World Economic Outlook (WEO) April 2010, world output is expected to rise

    by 4 percent in 2010. Economies with a strong start are likely to remain in the lead, as growth inother countries is constrained by lasting damage to financial sectors and household balance sheets.

    Sub-Saharan Africa has weathered the global crisis well and is expected to recover rapidly from theslowdown in 2009. Although some middle-income and oil-exporting economies were hit hard by thecollapse in export and commodity markets, the region managed to grow by 2% in 2009. Its growth isprojected to accelerate to 4.7% in 2010 and to 5.9% in 2011.

    Global Inflation Pressures are Subdued and Oil Prices are Moderate

    The global recession caused a large drop in inflation. The still-low levels of capacity utilization andwell-anchored inflation expectations are expected to keep inflation low in 2010.

    Average Brent crude oil prices declined to $76.25 per barrel in May 2010 from $84.08 per barrel in

    April 2010, and are expected to range around $76 a barrel in 2010 and $82 a barrel in 2011.

    Impact on the Gambian Economy

    The sharp decline in global economic activity had adverse impact on the Gambian economy in 2008leading to decline of exports and remittances and decline of manufacturing production, wholesaleand retail trade, transport and telecom. However, thanks to bumper crops and very goodperformance by electricity, telecom and financial sectors, the real GDP growth at constant 2004market prices improved from 6% in 2007 to 6.3% in 2008.

    Real GDP growth in 2009 is estimated to be 5.6% supported by a growth of 9.8% in agriculturalproduction, 2.1% by industrial production and 4.3% in services production.

    With expected normal monsoons, real GDP growth in 2010 is projected to be 5% aided by a growthof 4.6% in agriculture, 5.1% by industrial production and 4.9% in services production.

    CPI Inflation

    Annual point-to-point CPI inflation decelerated significantly from 5.9% (food 7.1% and non-food4.7%) in May 2009 to 4.1% (food 5.4% and non-food 2.4%) in May 2010. The 12-month averageinflation rate also decelerated from 5.9% in May 2009 to 3.5% in May 2010.

    Among other groups, transport recorded an inflation of 2.5%, clothing 2%, utilities 1.8%, restaurantsand hotels 4.2% and miscellaneous goods and services 7.3% in May 2010.

    Government Fiscal Performance

    Governments fiscal performance was not satisfactory in Jan-May 2010 compared with Jan-May2009. Tax revenues declined by 2.2% in Jan-May 2010 over Jan-May 2009 compared with a growthof 13.8% in Jan-May 2009 over Jan-May 2008. However, there was better performance of non-taxrevenues in Jan-May 2010 than in Jan-May 2009. Basic deficit at 0.3% of GDP in Jan-May 2010 wassignificantly higher than 0.1% of GDP in Jan-May 2009.

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    Domestic Debt and Treasury Bills Yields

    Including CBG support, the total outstanding domestic debt increased to D7.5 billion (26.5% of GDP)at end-May 2010, from D6.6 billion (26.1% of GDP) a year ago. Outstanding TBs increased by 8.2%to D5.2 billion and accounted for 68.2% of the stock (including TMA overdraft).

    Yields on treasury bills fluctuated widely in recent months. In view of the declining trend of inflationrates, the Monetary Policy Committee reduced the policy rate by 2 percentage points to 14% witheffect from December 2009. As a result, average yields of the 91-day, 182-day and 364-day bills haddeclining trend since then and fell from 11%, 12.9% and 14.3% respectively in December 2009 to9.8%, 10.8% and 13.3% respectively in May 2010.

    Money Supply and Commercial Banks Performance

    Broad money supply (M2) recorded an annual growth of 23.6% in April 2010, compared to 18.8% ayear ago. While quasi money increased by a faster pace of 29.3%, narrow money increased by 17.6percent. On the supply side, 23.6% growth of broad money in April 2010 was supported by 9.6%growth in currency in circulation outside banks, 22.5% growth in demand deposits, 17% growth insavings deposits and significant growth of 44.8% in time deposits.

    On the demand side, growth was due to 1.8% growth in net foreign assets and 34.1% growth in netdomestic assets over a year. Domestic credit increased by 22.3% from D6.7 billion in April 2009 toD8.2 billion in April 2010, supported by 25% growth in government borrowing, 23.3% growth incredits to public entities and 20% growth in credits to the private sector, over a year.

    The banking industry continues to show increasing signs of resilience with growth in assets, capitaland reserves. The industrys total assets increased to D15.5 billion in April 2010, up by 22.8% overa year, and the asset quality is satisfactory.

    The average risk-weighted capital adequacy ratio increased from 18.1% in Dec 2009 to 18.7% inMarch 2010 and was well above the statutory norm at 8%. However, nonperforming loans as a ratioof gross loans deteriorated from 12.0% in December 2009 to 16.9% in March 2010.

    Balance of Payments, Foreign Exchange Reserves and Exchange Rate

    Revised BOP estimates for 2009 indicate a decline in the overall balance from a surplus of

    US$23.35 million in 2008 to a deficit of US$6.79 million. While the current account improved to a

    surplus of US$63.29 million relative to a deficit of US$12.35 million in 2008, the capital and financial

    account balance recorded a deficit over the period relative to the surplus recorded a year ago.

    The year 2010 has started with a significant improvement in the overall BOP situation as comparedwith that in the first quarter of 2009. Current account recorded a surplus of D642 million in 2010-Q1compared to a deficit of (-) D108 million in 2009-Q1, and the overall balance of payments showed asurplus of D746 million in 2010-Q1 compared with a deficit at (-)D859 in 2009Q1.

    At end-April 2010, gross international reserves, including the SDR allocations, stood at US$178.63million, equivalent to 7.0 months of import cover.

    Over one year, in May 2010 Dalasi depreciated against US$ by 7.4%, against SEK by 8.3%, against

    CHF by 14.6% and against CFA by 5.6%, while it appreciated against the UK by 5.5% and against

    Euro marginally by 0.7%.

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    At a Glance- May 2010

    EconomicIndicators

    LatestReference

    Period

    Status in thelatest reference

    period

    Status in theCorresponding

    period a year ago

    Outlook for 2010

    Real GDP (MP)Growth rate (%)

    2009 Overall 5.6Agriculture 9.8Industry 2.1Services 4.3

    Overall 6.3Agriculture 26.6Industry (-) 1.2Services 4.2

    Overall 5.0Agriculture 4.6Industry 5.1Services 4.9

    CPI inflation (%) May 2010 Overall 4.1Food 5.4Non-food 2.4

    Overall 5.9Food 7.1Non-food 4.7

    Expected to remainmoderate in the range of4 to 5.5 percent.

    Brent crude oilprice (US$/ brl)

    May 2010 AverageUS$76.25

    AverageUS$57.94

    May stabilize aroundUS$76 in 2010

    Growth rate (%) ofRevenue & grants

    Jan-May 2010 (-) 0.9 18.0The budget for 2010 hastargeted overall fiscal deficitat (-) 1.1% of GDP andbasic balance at zero.

    However, fiscalperformance in Jan-May2010 was not better thanJan-May 2009.Zero basic balance may notbe achieved unlessrevenue realizationimproves significantly in thesubsequent months.

    Growth rate (%) ofExp & Net Lending

    Jan-May 2010 (-) 0.7 37.1

    Revenue & grantsas % of GDP

    Jan-May 2010 6.7 7.6

    Exp & Net Lendingas % of GDP

    Jan-May 2010 7.5 8.5

    Overall fiscal bal.as % of GDP

    Jan-May 2010 (-) 0.8 (-) 0.9

    Basic balance as% of GDP

    Jan-May 2010 (-) 0.3 (-) 0.1

    Basic Primary bal.as % of GDP

    Jan-May 2010 1.0 1.3

    Domestic debtas % of GDP

    End-May 2010 26.5 26.1 Likely to decline in 2010.

    Yield on 91-daysTBs (%)

    May 2010 9.8 12.5 Yields may come downfurther as CPI inflation is

    moderate.Yield on 182-days TBs (%)

    May 2010 10.8 13.8

    Yield on 364-days TBs (%)

    May 2010 13.3 15.3

    GR of Moneysupply (M2) (%)

    April 2010 23.6 18.8 Money growth rate islikely to remain high.

    Banks assets(Billion Dalasi)

    End-April 2010 15.50 12.62 Likely to increase

    CBG policy rate(%)

    June 2010 14 16 MPC reduced policyrate to 14% in Dec 2009.

    Overall BOPBalance (Mln D)

    2009 (-) 6.8 23.35 BOP situation is likely toremain comfortable in2010 due to revival of

    exports, tourist income,remittances and foreigninvestment.

    Current A/C

    Balance (Mln D)

    2009 63.29 (-) 12.35

    Capital-Fin. A/CBalance (Mln D)

    2009 (-) 70.1 35.70

    Dalasi/ UK End-May 2010 39.11 41.40 Dalasi is expected todepreciate against majorcurrencies in 2010.

    Dalasi/ US$ End-May 2010 28.73 26.74Dalasi/ Euro End-May 2010 36.72 37.00

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    1. Global Economic Outlook

    1.1 Global Economic Recovery Is Stronger than Expected, but Speed Varies

    Global economic recovery is stronger than expected, but the speed is uneven across countries andregions. As per the IMF World Economic Outlook (WEO2), April 2010, world output is expected to grow

    by 4.2% in 2010 followed by 4.3% in 2011. Economies with a strong start are likely to remain in thelead, while growth in other countries is constrained by lasting damage to financial sectors andhousehold balance sheets.

    Global activity has rebounded, as evidenced by accelerating world trade, industrial production, andretail sales. Employment continues to contract in advanced economies but is expanding again inemerging economies, helped by strong potential growth. Industrial confidence has returned to pre-crisislevels, but household confidence in advanced economies continues to lag due to subdued employment.

    Economic activities still depend on highly accommodative macro-economic policies and are subject todownside risks due to sharp declines in the countercyclical fiscal measures. IMF advises that themonetary, fiscal, and financial policymakers will need to ensure a smooth transition of demand from the

    government to the private sector and from economies with excessive external deficits to those withexcessive surpluses. In most advanced economies, fiscal and monetary policies should maintain asupportive thrust this year to further sustain growth and employment. But many of these economiesalso need to urgently adopt credible strategies to contain public debt and later bring it down to more

    prudent levels. Financial sector repair and reform are also high-priority requirements.

    Emerging and Developing Economies: Activity in emerging and developing economies is leading theglobal recovery. In key emerging Asian economies, particularly in China and India, output alreadyexceeds pre-crisis levels by a wide margin, and the output growth in these countries, averaging about10% in Q2Q4 of 2009,is outpacing estimates of full-capacity (potential) output growth.

    Sub-Saharan Africa: Sub-Saharan Africa has weathered the global crisis well and is expected to

    recover rapidly from the slowdown in 2009. Although some middle-income and oil-exporting economieswere hit hard by the collapse in export and commodity markets, the region managed to grow by 2% in2009. Its growth is projected to accelerate to 4.7% in 2010 and to 5.9% in 2011.

    The regions quick recovery is due to the relatively limited integration of the most low-incomeeconomies into the global economy and the limited impact on their terms of trade, the rapidnormalization in global trade and commodity prices, and the use of countercyclical fiscal policies.Remittances and official aid flows have also been less adversely affected than anticipated by therecessions in advanced economies.

    Banking sectors, in general, remained resilient, and private capital inflows resumed into the regionsmore integrated economies. Shocks from the global crisis hit sub-Saharan Africa mainly through the

    trade channel. Reflecting their greater openness to trade, the regions middle-income economies likethe South Africa were among the hardest hit.

    2 World Economic Outlook: Rebalancing Growth, IMF, Washington D.C., April 2010.

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    1.2 Inflation Pressures Are Generally Subdued but Diverge

    The global recession caused a large drop in inflation and rising concern about mild deflation.The still-low levels of capacity utilization and well-anchored inflation expectations are expectedto keep inflation low in 2010. The decline in inflation in many advanced economies is puzzlinggiven the exceptionally large falls in output. Core inflation in the United States is running around

    1 percent, down from 2 percent; and in the United Kingdom it appears to have movedsideways. In Japan, price dynamics led to very low to negative inflation, which slightly exceeded1 percent in February 2010. In general, the correlation between the drop in core inflation from its2008 peaks and the increase in unemployment rates is weaker than that in 2001 recession.

    Inflation pressures are projected to remain low, held down by high unemployment rates andexcess capacity. Inflation has been higher and more volatile in emerging economies, andinflation pressures could resurface more easily there than in advanced economies.

    Commodity prices are rebounding

    Commodity prices have rebounded ahead of the recovery (Table 1.2). Average Brent crude oilprices declined to $76.25 per barrel in May 2010 from $84.08 per barrel in April 2010. Lookingahead, commodity prices are expected to rise a bit further supported by the strength of globaldemand, especially from emerging economies. However, this upward pressure is expected tobe modest, given the above-average inventory levels and substantial spare capacity in manycommodity sectors. Accordingly, the IMFs baseline petroleum price projection is unchanged at$76 a barrel for 2010 and revised up to $82 a barrel in 2011. Other non-fuel commodity priceshave also been marked up modestly by the IMF WEO April 2010.

    Table-1.2 Trends of World Commodity Prices

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    Source: World Bank Pink Sheet June 2010

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    Source: World Bank Pink Sheet June 2010

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    2. Current State of the Gambian Economy2.1 Overall and Sectoral GDP Growth Rates

    The sharp decline in global economic activity had adverse impact on the Gambianeconomy in 2008 leading to decline of exports and remittances and decline ofmanufacturing production, wholesale and retail trade, transport and telecom (Table-2.1).

    However, thanks to bumper crops contributed by favorable monsoon at home and highinternational prices of food grains, and very good performance by electricity, telecomand financial sectors, the real GDP growth at constant 2004 market prices improvedfrom 6% in 2007 to 6.3% in 2008 (Table-2.1 and Figure-2.1).

    As per the Revised Estimates of the GBOS, real GDP growth in 2009 at constant marketprices is estimated to be 5.6% supported by a growth of 9.8% in agricultural production,2.1% by industrial production and 4.3% in services production.

    With expected normal monsoons, agricultural production is expected to perform well in2010. However, given the high base already achieved, the agricultural growth is likely todecelerate. Consequently, real GDP growth in 2010 at constant market prices isprojected to be 5% supported by a growth of 4.6% in agricultural production, 5.1% byindustrial production and 4.9% in services production.

    Share of agriculture in GDP at constant factor cost increased from 21.6% in 2007 to26.2% in 2010, while share of industry declined from 14.7% to 13% and that of servicesdeclined from 63.7% to 60.7% during the same period. Increase of agricultural sharewas contributed by increase in share of crops, while decline in industrial share was dueto decline in shares of manufacturing and construction, and decline of services sharewas mainly due to decline of share of wholesale and retail trade, hotels and restaurants,and transport and communications.

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    Figure-2.1: Trends of sectoral growth rates during 2001-2010 (in percentage)

    Table-2.1: Sectoral Growth Rates and Shares in GDP in the Gambia in 2007-2010 (in %)

    Sectoral Growth Rates(in percentage) Sectoral Shares in GDP-FC(in percentage)Items 2007

    Actual2008

    Actual2009

    Actual2010Proj.

    2007Actual

    2008Actual

    2009Actual

    2010Proj.

    GDP at 2004 basic price 6.0 6.3 5.6 5.0 107.5 105.6 105.7 105.9Agriculture and allied -1.9 26.6 9.8 4.6 21.6 25.3 26.3 26.2

    -- Crops -15.2 55.2 14.3 4.6 9.5 13.6 14.8 14.8-- Livestock 11.9 4.3 4.5 4.5 9.4 9.0 8.9 8.9-- Forestry -4.0 1.0 0.7 2.0 0.6 0.6 0.5 0.5-- Fishing 18.0 3.5 5.1 5.5 2.1 2.0 2.0 2.0

    Industry 2.5 -1.2 2.1 5.1 14.7 13.4 13.0 13.0-- Mining and quarrying -14.1 8.8 12.0 10.0 1.9 1.9 2.1 2.2

    -- Manufacturing 3.9 -8.3 -2.8 3.2 7.0 5.9 5.4 5.4-- Electricity, gas, water 59.1 1.7 6.2 10.0 1.6 1.5 1.5 1.6-- Construction -4.3 5.0 3.0 1.0 4.2 4.1 4.0 3.8

    Services 8.3 4.2 4.3 4.9 63.7 61.3 60.7 60.7-- Wholesale/retail trade 9.7 -2.3 6.0 1.0 29.5 26.6 26.7 25.7-- Hotels/ restaurants 14.3 2.9 -26.8 3.7 3.9 3.7 2.6 2.6-- Transport / telecom 7.0 -8.0 5.0 7.6 13.0 11.0 11.0 11.3-- Financial -0.9 28.2 13.2 8.0 7.0 8.3 9.0 9.2-- Real est., business 1.4 0.0 2.5 0.1 3.3 3.0 3.0 2.8-- Public administration 12.9 42.1 2.0 8.5 2.8 3.7 3.6 3.7-- Education -6.4 38.2 2.7 16.7 1.4 1.8 1.8 2.0

    -- Health

    28.3 25.4 8.0 15.7 2.0 2.3 2.4 2.6-- Other services 67.4 8.9 2.8 11.0 0.7 0.7 0.7 0.7

    GDP at FC 5.1 8.3 5.4 4.8 100.0 100.0 100.0 100.0

    GDP at Basic Price 5.6 8.4 5.1 5.0 96.6 96.7 96.4 96.6

    Source: Gambian Bureau of Statistics (GBOS) for the years 2006-2009 and projections for 2010 are

    made by the Research Team.

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    2.2 Consumer Price Index and Inflation

    As measured by the Consumer Price Index (CPI), annual point-to-point CPI inflationdecelerated significantly from 5.9% in May 2009 to 4.1% in May 2010. The 12-monthaverage inflation rate also decelerated from 5.9% in May 2009 to 3.5% in May 2010.

    Food and drinks (with weights of 55.1% in overall CPI) recorded an annual point-to-pointinflation rate of 5.4% in May 2010, down from 7.1% a year ago, and contributed 75.3%to overall inflation in May 2010.

    Non-food items (with weights of 44.9% in overall CPI) recorded annual inflation rate of2.4% in May 2010, down from 4.7% a year ago and contributed 24.7% to total inflation.

    Among other groups, transport recorded an inflation of 2.5%, clothing 2%, utilities 1.8%,restaurants and hotels 4.2% and miscellaneous goods and services 7.3% in May 2010.

    Table-2.2 CPI Inflation Rates in May 2010 (in percentage)Items Weights

    Wi (%)May 2009

    IndexMay 2010

    IndexInflation

    (%)Wi (CPIi1

    CPIi0)Contributio

    n3 (%)Overall 100.0 120.51 125.50 4.1 492.5 100.0Food 55.1 125.75 132.49 5.4 371.1 75.3Tobacco 0.7 106.13 106.76 0.6 0.4 0.1Clothing 11.2 111.20 113.38 2.0 24.5 5.0Utilities 3.4 122.11 124.33 1.8 7.5 1.5Furnishing 5.2 114.97 116.45 1.3 7.7 1.6Health 1.2 101.77 101.82 0.0 0.1 0.0Transport 4.4 119.95 122.89 2.5 12.9 2.6Telecom 3.0 101.98 102.5 0.5 1.5 0.3Recreation 8.1 104.67 105.88 1.2 9.8 2.0

    Education 1.5 102.25 102.99 0.7 1.1 0.2Hotels 0.4 116.30 121.13 4.2 1.7 0.4Misc. 5.9 125.79 134.92 7.3 54.1 11.0Non-food 44.9 114.16 116.9 2.4 123.1 24.7

    Source of basic data: Gambian Bureau of Statistics (GBOS). http://www.gbos.gm

    3Contribution of an item to overall inflation is estimated by the following formula:

    Contribution of Item (i) = W i (CPIi1 CPIi0) / Wi (CPIi1 CPIi0) expressed as a percentage.where CPIi1 = Consumer Price Index for Item (i) in the current period

    CPIi0 = Consumer Price Index for Item (i) in the previous period

    Wi = Weights for Item (i) and

    W = Total weights = WiFor example, contribution of food to overall inflation is estimated as 100 X 371.1 / 492.5 = 75.3%.

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    2.3 Projection of CPI inflation for the year 2010

    On the basis of CPI trends until May 2010 and monthly seasonality, we have made threealternative projections of inflation rates for the year 2010, under the following assumptions:

    (1) Alternative-1: It is assumed that the CPI variation for a month over the previous month

    in 2010 will be the average CPI variation for the month over the previous month in lasttwo years (2009 and 2008). Thus, June 2010 CPI is estimated by the following formula:

    Projected CPI for June 2010 = May 2010 CPI + [June 2009 CPI May 2009 CPI + June 2008CPI May 2008 CPI]/ 2. For subsequent months, CPI is projected by the similar formula.

    (2) Alternative-2: It is assumed that the variation of CPI for a month over the previousmonth in 2010 will be the same as that for the respective month over the previous monthin 2009. For example, CPI for June 2010 is estimated by the following formula:

    Projected CPI for June 2010 = May 2010 CPI+ (June 2009 CPI May 2009 CPI). For thesubsequent months, CPI is projected by the similar formula.

    (3) Alternative-3: Average of inflation rates underAlternatives 1 and 2.

    Results are presented in Table 2.3 which indicates that inflation rate is expected to remainmoderate in the range of 4.1% to 5.7% during 2010, and the year-end 12-month averageinflation rate is expected to be around 4.5%.

    Table-2.3: Projections of CPI inflation for the year 2010 (in percentage)2007Index

    2008Index

    2009Index

    2010-Alt1

    2010-Alt2

    2008Inf.rate

    2009Inf.rate

    2010-Alt1

    2010-Alt2

    2010Alt3

    Jan 106.86

    112.31

    120.13

    124.42

    124.42

    5.1 7.0 3.6 3.6 3.6

    Feb 107.01

    112.34

    120.25

    124.78

    124.78

    5.0 7.0 3.8 3.8 3.8

    Mar 109.36

    112.73

    120.30

    125.08

    125.08

    3.1 6.7 4.0 4.0 4.0

    Apr 111.64

    113.21

    120.36 125.30

    125.30

    1.4 6.3 4.1 4.1 4.1

    May 112.05

    113.83

    120.51 125.50

    125.50

    1.6 5.9 4.1 4.1 4.1

    Jun 111.98

    114.48

    120.61 125.88 125.60 2.2 5.4 4.4 4.1 4.3

    July 111.95

    116.21

    120.84 126.86 125.83 3.8 4.0 5.0 4.1 4.6

    Aug 112.0

    9

    117.6

    5

    121.15 127.73 126.14 5.0 3.0 5.4 4.1 4.8

    Sep 111.86

    118.96

    121.75 128.69 126.74 6.3 2.3 5.7 4.1 4.9

    Oct 111.95

    119.29

    121.99 128.97 126.98 6.6 2.3 5.7 4.1 4.9

    Nov 112.13

    119.54

    122.7 129.45

    127.69 6.6 2.6 5.5 4.1 4.8

    Dec 112.2 119.9 123.1 129.8 128.18 6.8 2.7 5.4 4.1 4.7

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    6 3 9 9Q1 107.7 112.5 120.2 124.8 124.8 4.4 6.9 3.8 3.8 3.8Q2 111.9 113.8 120.5 125.6 125.5 1.7 5.8 4.2 4.1 4.2Q3 112.0 117.6 121.2 127.8 126.2 5.0 3.1 5.4 4.1 4.7Q4 112.1 119.6 122.6 129.4 127.6 6.7 2.5 5.6 4.1 4.8Ave

    110.9 115.9 121.1 126.9 126.0 4.5 4.6 4.7 4.0 4.4Note: Projections are made by the Research Team. Alternative projections 1, 2 and 3 are defined in thetext above.

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    2.4Government Fiscal Performance in January-May 2010

    Columns (4), (5) and (6) ofTable-2.4.1 present major item-wise revenue realization andexpenditure of the government in the first five months (i.e. Jan-May) of 2008, 2009 and 2010respectively. Columns (7) and (8) indicate annual percentage changes of major items ofrevenues and expenditure in Jan-May 2009 and Jan-May 2010 respectively over those in

    the corresponding period of the previous year.

    Governments fiscal performance was not satisfactory in Jan-May 2010 compared withJan-May 2009. Tax revenues declined by 2.2% in Jan-May 2010 over Jan-May 2009compared with a growth of 13.8% in Jan-May 2009 over Jan-May 2008. However, there wasbetter performance of non-tax revenues in Jan-May 2010 than in Jan-May 2009.

    In Jan-May 2010, total expenditures & net lending declined marginally by 0.7% over Jan-May 2009 due to 24.1% decline of capital expenditure and net lending, while currentexpenditure increased by only 10% over Jan-May 2009.

    Overall there was a fiscal deficit of (-) D233.2 million in Jan-May 2010, marginally higherthan a fiscal deficit of (-) D231.6 million in Jan-May 2009. Despite contraction ofexpenditure, Basic Balance was in deficit at (-)D80.7 million while Basic Primary Surplusamounted to D280.1 million in Jan-May 2010, lower than Basic Primary Surplus of D324.5million in Jan-May 2009.

    Table-2.4.1 Govt Financial Performance in Jan-May 2010 (Million Dalasi)Items 2009

    Actual2010

    Budget2008

    Jan-May2009

    Jan-May2010

    Jan-May

    Ja-May-09% ch overJa-May 08

    Ja-May-10% ch overJa-May-09

    (1) (2) (3) (4) (5) (6) (7) (8)Revenue and grants 4893.0 5474.1 1624.5 1916.4 1899.8 18.0 -0.9

    Domestic Revenue 3904.9 4413.2 1555.6 1755.1 1765.4 12.8 0.6Tax Revenue 3517.5 3991.3 1386.7 1578.0 1543.8 13.8 -2.2

    Nontax Revenue 387.4 421.9 169.0 177.1 221.6 4.8 25.1Grants 988.1 1061.0 68.8 161.3 134.4 134.3 -16.7

    Exp & Net Lending 5631.9 5772.9 1566.4 2148.0 2133.0 37.1 -0.7Current Expenditure 3625.1 4455.6 1229.6 1472.4 1620.0 19.7 10.0Personnel Emoluments 1191.8 1499.3 373.9 455.8 592.0 21.9 29.9

    Other Charges 1691.9 2193.9 513.2 655.1 667.2 27.6 1.9Interest 741.4 762.4 342.4 361.6 360.8 5.6 -0.2

    External 153.2 176.3 72.7 83.3 72.6 14.7 -12.8Domestic 588.3 586.1 269.7 278.3 288.2 3.2 3.6

    Cap Exp & Net Lending 2006.8 1317.3 336.8 675.7 513.0 100.6 -24.1Capital Expenditure 1889.1 1255.3 288.7 638.5 513.0 121.2 -19.7

    Externally financed 1300.1 1360.0 172.2 355.8 286.9 106.7 -19.4Net Lending 117.7 62.0 48.2 37.1 0.0 -22.9 -100.0

    Overall Fiscal Balance -739.0 -298.7 58.1 -231.6 -233.2 -498.7 0.7

    Basic Balance -427.0 0.3 161.4 -37.1 -80.7 -123.0 117.4Basic Primary Balance 314.5 762.7 503.8 324.5 280.1 -35.6 -13.7Nominal GDP (GBOS) 25313 27885 22978 25313 27885 10.2 10.2

    Source: Statistics and Special Studies Unit, MOF.Notes:(1) Overall balance = (Revenue and Grants) minus (Expenditure and Net Lending);(2) Basic Balance = (Domestic Rev) less (Exp. and Net Lending excluding externally financed capital exp) and(3) Basic Primary Balance = Basic Balanceplus interest payments

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    Column (2) to (6) of Table-2.4.2 indicates the item-wise fiscal performance of thegovernment, as percentage of GDP, for 2009-outturn, 2010-Budget, Jan-May 2008, Jan-May 2009 and Jan-May 2010 outturn respectively.

    It is observed from the table that the fiscal performance in Jan-May 2010 is not betterthan in Jan-May 2009 in terms of percentages of GDP. The 2010 Budget has targeted basicbalance at nil as per commitment to the IMF. But, there was a Basic deficit at (-) 0.3% ofGDP in Jan-May 2010, significantly higher than that at (-) 0.1% of GDP in Jan-May 2009.

    The Budget for 2010 has targeted at total revenue and grants amounting to 19.3% ofGDP (the same as that in 2009-Outturn) and total expenditure and net lending amounting to20.3% of GDP (significantly lower than 22.2% of GDP in 2009-Outturn) resulting in anoverall fiscal deficit amounting to 1.1% of GDP, significantly lower than 2.9% of GDPrecorded in 2009-Outturn.

    Significant reduction in total expenditure is sought to be achieved through drastic cut incapital expenditure from 7.5% of GDP in 2009-Outturn to 4.4% of GDP in 2010 Budget.Such a cut in capital expenditure may be good to maintain fiscal sustainability, but mayaffect adversely development activities unless funds are supplemented by donors aid.

    Table-2.4.2 Govt Financial Performance in 2009 and Jan-May 2010(As % of GDP at current market prices)

    Items 2009 2010 2008 2009 2010Actual Budget Jan-May Jan-May Jan-May

    (1) (2) (3) (4) (5) (6)Revenue and grants 19.3 19.6 7.1 7.6 6.8

    Domestic Revenue 15.4 15.8 6.8 6.9 6.3Tax Revenue 13.9 14.3 6.0 6.2 5.5Nontax Revenue 1.5 1.5 0.7 0.7 0.8

    Grants 3.9 3.8 0.3 0.6 0.5Exp & Net Lending 22.2 20.7 6.8 8.5 7.6

    Current Expenditure 14.3 16.0 5.4 5.8 5.8Personnel Emoluments 4.7 5.4 1.6 1.8 2.1

    Other Charges 6.7 7.9 2.2 2.6 2.4Interest 2.9 2.7 1.5 1.4 1.3

    External 0.6 0.6 0.3 0.3 0.3Domestic 2.3 2.1 1.2 1.1 1.0

    Cap Exp & Net Lending 7.9 4.7 1.5 2.7 1.8Capital Expenditure 7.5 4.5 1.3 2.5 1.8

    Externally financed 5.1 4.9 0.7 1.4 1.0Net Lending 0.5 0.2 0.2 0.1 0.0

    Overall Bal Inc. grants -2.9 -1.1 0.3 -0.9 -0.8

    Basic Balance -1.7 0.0 0.7 -0.1 -0.3

    Basic Primary Balance 1.2 2.7 2.2 1.3 1.0

    Source: Statistics and Special Studies Division, MOF.Notes:(1) Overall balance = (Revenue and Grants) minus (Expenditure and Net Lending);(2) Basic Balance = (Domestic Revenue) less (Expenditure and Net Lending excluding externallyfinanced capital expenditure) and(3) Basic Primary Balance = Basic Balanceplus interest payments

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    2.5 Domestic Debt and Treasury Bills Outstanding

    (a) Including CBG support, the total outstanding domestic debt increased to D7.5 billion(27% of GDP) at end-May 2010, from D6.6 billion (26.1% of GDP) a year ago.Outstanding Treasury bills increased by 8.2 percent to D5.2 billion and accounted for 68.7percent of the stock (including TMA overdraft)..

    (b) The share of Treasury bills declined from 72.2% at end-May 2009 to 68.2% at end-May2010, that of Sukuk Al-Salam increased from 1.2% to 1.8%, that of Govt. bonds declinedfrom 5.1% to 4.7%, that of NIB treasury bills declined from 8.3% to 6.6% while share ofTMA overdraft increased from 13.4% to 18.1% over the same period.

    Table-2.5-A Outstanding Domestic Public Debt as on 31 May 2010Type of debt Million Dalasi % change

    in May 2010over May 2009

    Composition (in %)

    31 May2009

    31 May2010

    31 May2009

    31 May2010

    Treasury bills 4,772 5,162 8.2 72.2 68.7

    Sukuk Al-Salam76 135 77.3

    1.2 1.8

    Marketable GovtBonds

    0 25 -- 0.0 0.3

    Non-marketableGNPC

    85 85 0.0 1.3 1.1

    Non-mark.Govt Bond 250 250 0.0 3.8 3.3

    NIB Treasury Notes 547 496 -9.3 8.3 6.6

    TMA Overdrawn 883 1,364 54.4 13.4 18.1

    Total dom. Debt 6,613 7,517 13.7 100.0 100.0

    Nominal GDP 25313 27885 10.2

    As % of GDP 26.1 27.0 3.2

    Excluding overdraft 22.6 22.1 -2.5

    Domestic Debt Sustainability

    As per the analysis made by the CBG, the current level of Gambias domestic debt is notsustainable. Out of the three sustainability indicators given in Table-2.5-B, one indicator viz.debt service to revenue ratio is not satisfied.

    Table-2.5-B Primary Benchmarks for Domestic Debt Sustainability Ratios (%)

    Item Threshold 2006 2007 2008 2009 2010

    1. Debt service/Rev ratio 28-63 142 124 118 91 952. Debt /GDP ratio 20-25 24.5 22.1 25.7 24.5 22.9

    3. Debt/ Revenue ratio 92-167 151.5 131.1 169.6 154.5 154.8Note: (1) Debt service is the sum of interest payments plus the amortization (i.e. repayment of principal)including the rollover of treasury Bills. (2) There are no internationally agreed levels of thresholds. Thethresholds used here are those used by the Debt Relief International (DRI) for many HIPC countries.Source: Central Bank of Gambia

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    2.6 Treasury Bills Yields

    Yields on treasury bills fluctuated widely in recent months. As expected, the higher thematurity of treasury bills, the higher is the yield. However, despite stability in depositrates and significant decline of annual point-to-point CPI inflation rate from 7% in Jan2009 to 2.8% in Dec 2009, average yields on the 91-day bills increased from 10.5% in

    Jan 2009 to 11% in Dec 2009 and yield on 182-day bills from 12.1% in Jan 2009 to12.9% in Dec 2009.

    In view of the declining trend of inflation rates, the Monetary Policy Committee reducedthe policy rate by 2 percentage points to 14% with effect from December 2009. As aresult, average yields of the 91-day, 182-day and 364-day bills had declining trend sincethen and fell from 11%, 12.9% and 14.3% respectively in December 2009 to 9.8%,10.8% and 13.3% respectively in May 2010.

    Table-2.6 Average yields on treasury bills (in percentage per annum)

    2008 2009 201091-D 162-D 364-D 91-D 182-D 364-D 91-D 182-D 364-D

    Jan 10.6 11.4 13.6 10.5 12.1 14.4 10.3 12.0 13.6Feb 10.9 11.9 13.7 11.1 12.8 14.4 10.7 11.7 13.2

    Mar 11.0 12.1 13.6 11.4 12.7 14.4 11.3 11.5 12.9

    Apr 10.9 11.9 13.3 12.0 13.0 14.6 11.0 11.5 13.1

    May 10.2 11.3 13.0 12.5 13.8 15.3 9.8 10.8 13.3

    Jun 10.0 11.2 13.3 13.0 13.8 15.6

    Jul 9.6 10.6 12.6 11.5 12.0 14.4

    Aug 8.8 10.2 12.1 10.2 11.2 13.3

    Sep 8.9 11.0 13.1 10.4 11.7 14.3

    Oct 10.3 11.4 13.6 10.8 12.1 14.2

    Nov 10.1 13.4 13.7 10.8 12.3 14.0

    Dec 9.9 12.5 14.0 11.0 12.9 14.3Trends of Yields of Treasury Bills during 2007-2010

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    2.7 Money Supply

    Broad money supply (M2) recorded an annual growth of 23.6% in April 2010, comparedto 18.8% a year ago. While quasi money increased by a faster pace of 29.3%, narrowmoney increased by 17.6 percent.

    On the supply side, 23.6% growth of broad money in April 2010 was supported by 9.6%growth in currency in circulation outside banks, 22.5% growth in demand deposits, 17%growth in savings deposits and significant growth of 44.8% in time deposits.

    On the demand side, growth was due to 1.8% growth in net foreign assets and 34.1%growth in net domestic assets over a year.

    Domestic credit increased by 22.3% from D6.7 billion in April 2009 to D8.2 billion in April2010, supported by 25% growth in government borrowing, 23.3% growth in credits topublic entities and 20% growth in credits to the private sector, over a year.

    Table-2.7 Money Supply and Demand in April 2010

    Components April2008

    MillionDalasi

    April2009

    MillionDalasi

    April2010

    MillionDalasi

    April2009

    %share

    April2010

    %share

    April-09% ch.over

    April-08

    April-10% ch.over

    April-09

    1.Money Supply (M3) (2+3) 8307 9870 12201 100 100 18.8 23.6

    2.Narrow Money (2.1+2.2) 4041 4806 5653 49 46 18.9 17.62.1 Currency 1535 1,808 1,981 18 16 17.8 9.62.2 Demand deposits 2507 2998 3,672 30 30 19.6 22.53.Quasi money (3.1+3.2) 4265 5064 6547 51 54 18.7 29.33.1 Savings deposits 2530 2,823 3,301 29 27 11.6 17.0

    3.2 Time deposits 1736 2,241 3,246 23 27 29.1 44.8Demands for money (1+2) 8307 9870 12201 100 100 18.8 23.61.Net foreign assets (1.1+1.2) 3113 3214 3272 33 27 3.2 1.81.1 Monetary Authorities 2,403 2,424 3058 25 25 0.9 26.11.2 Commercial banks 711 790 214 8 2 11.1 -72.92.Net Dom. Assets (2.1+2.2) 5193 6656 8929 67 73 28.2 34.12.1 Domestic credit 5054 6665 8150 68 67 31.9 22.3

    (a) Credits to government 1844 2,693 3365 27 28 46.0 25.0(b) Credits to public entities 273 554 683 6 6 103.3 23.3

    (c) Credits to private sector 2754 3418 4102 35 34 24.1 20.0(d) Credits to forex bureau 183 0 0 0 0 -100.0 0

    2.2 Other items, net 140 -9 778 0 6 -106.6 -8606.2

    Source: Central Bank of Gambia

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    2.8 Performance by Commercial Banks

    (a) The Gambian banking industry consists of 13 banks with highly skewed distribution ofassets. The industry is dominated by three large banks holding almost two-thirds of thetotal assets, although their share has declined over the years.

    (b) The banking industry continues to show increasing signs of resilience with growth inassets, capital and reserves. The industrys total assets increased to D15.5 billion in April2010, up by 22.8% over a year, and the asset quality is satisfactory.

    (c) The average risk-weighted capital adequacy ratio increased from 18.1% in Dec 2009 to18.7% in March 2010 and was well above the statutory norm at 8% and all the bankssatisfied the minimum requirement.

    (d) However, nonperforming loans as a ratio of gross loans deteriorated from 12.0% inDecember 2009 to 16.9% in March 2010. This was due to the Central Banks inclusion ofrestructured loans in non-performing category. However, all loans were adequatelyprovisioned.

    (e) Loans and advances to the private sector, accounting for 51% of total domestic credit,increased to D4.7 billion in March 2010 from D3.4 billion in March 2009.

    (f)Credit to agriculture, manufacturing and building and construction increased by 30.0%,47.0% and 28.3% respectively. Similarly, credit to distributive trade and other commercialloans rose by 41.6% and 24.1% during the same period.

    (g) In contrast, loans and advances to fishing and tourism declined marginally by 0.25%and 0.1% respectively.

    Table-2.8 Sectoral Distribution of Bank Loans (Million Dalasi)

    Items March March Composition (%) GR (%)

    2009 2010 Mar-2009 Mar-2010 Mar-2010

    Agriculture 283.2 404.5 8.3 8.6 30.0

    Fishing 14.4 14.4 0.4 0.3 -0.3

    Manufacturing 137.9 260.3 4.0 5.5 47.0

    Construction 364.4 508.2 10.6 10.8 28.3

    Transportation 322.4 320.2 9.4 6.8 -0.7

    Trade 695.9 1191.6 20.3 25.3 41.6

    Tourisum 229.1 228.8 6.7 4.9 -0.1

    Financial 122.0 179.2 3.6 3.8 31.9Personal loans 636.6 775.0 18.6 16.5 17.9

    Others 622.9 820.7 18.2 17.4 24.1

    Total 3428.7 4703.0 100.0 100.0 25.2

    Source: Central Bank of Gambia (CBG)

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    2.9 Commercial Banks Assets

    Total assets of the commercial banks increased by 22.8% on year-on-year basis fromD12.6 billion at end-April 2009 to D15.5 billion at end-April 2010.

    Gambian banks do not have large exposure to foreign assets or foreign liabilities. Atend-April 2010, foreign assets constituted only 6.9% of total assets (foreign exchange1.1%, balances abroad 5.5% and foreign investment 0.3%), down from 8.9% a year ago(foreign exchange 1.7%, balances abroad 6.3% and foreign investment 0.9%).

    Gambian banks also do not have large contingent liabilities. At end-April 2010 contingentliabilities increased by 24.5% over one year and constituted only 13.2% of total liabilities,marginally up from 13% a year ago.

    At end-April 2010, loans and advances increased by 27.5% over a year and constituted28.6% of total assets, compared to 27.6% a year ago.

    At end-April 2010, investments in government Treasury Bills by the banks increased by30.7% over a year and constituted 25% of their total assets. As expected, three largebanks had the dominant share.

    At end-April 2010, loans and advances to the public sector increased by 27.5% over ayear, while those to the private sector also increased by 27.5% over a year ago.

    Table-2.9 Commercial Banks Assets at the end-April 2010 (Million Dalasi)

    Apr-2009 Apr-2010

    1. Notes and coins 173.5 165.1 236.0 1.3 1.5 -4.8 42

    2. Foreign exchange 201.8 216.8 176.6 1.7 1.1 7.4 -18

    3. Local Bank balance 879.5 954.0 1,525.4 7.6 9.8 8.5 59ii. CBG 850.1 951.8 1,291.6 7.5 8.3 12.0 35

    iii. Banks locally 29.4 2.2 233.9 0.0 1.5 -92.5 10530.

    4. Balances abroad 785.6 798 850.4 6.3 5.5 1.6 6

    5. Bills purchased 21.9 185.5 88.8 1.5 0.6 747.0 -52

    6. Loans and advances 2,668.2 3,478.7 4,436.2 27.6 28.6 30.4 27

    i. Public sector 135.7 469.5 598.7 3.7 3.9 246.0 27

    ii. Private sector 2,532.50 3,009.20 3,837.5 23.8 24.8 18.8 27

    7. Investments 3,150.8 3,250.9 4,049.8 25.8 26.1 3.2 24

    i. Govt Treasury Bills 2,892.80 2,960.40 3,868.4 23.5 25.0 2.3 30

    ii. Others 160.6 180.9 131.6 1.4 0.8 12.6 -27

    iii Foreign Invest. 97.4 109.6 49.8 0.9 0.3 12.5 -54

    8. Fixed assets 609.7 889.7 1,191.4 7.0 7.7 45.9 33

    9. Guarantees 1,071.90 1,641.20 2,043.0 13.0 13.2 53.1 24

    10. Other assets 867.6 1,040.10 902.4 8.2 5.8 19.9 -13

    11. Total assets (1 to 10) 10,430.5 12,620.0 15,499.9 100.0 100.0 21.0 22

    12. Net Balance (11-9) 9,358.6 10,978.8 13,456.9 87.0 86.8 17.3 22

    % ch. Ap1

    over Apr0

    Assets (Million

    Dalasi)

    Apr-2008 Apr-2009 Apr-2010 Composition (%) % ch. Ap09

    over Apr08

    Source: Central Bank of Gambia.

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    2.10 Commercial Banks Liabilities

    As mentioned earlier, Gambian banks do not have large exposure to foreign liabilities.At end-April 2010, external sector related liabilities constituted only 2% of total liabilities(non-residents deposits 1.2%, balances with banks abroad 0.1% and external debt0.7%), up from 1.7% a year ago (non-residents deposits 1.5%, balances with banksabroad 0.1% and external debt 0.2%).

    At end-April 2010 bank deposits increased by 26.8% over a year, aided by a growth of22.5% in demand deposits, 17% in savings deposits and 44.8% in time deposits.

    At end-April 2010 banks capital and reserves increased by 12.7% and bank balancesdeclined by 31%, while borrowings increased by more than four times over a year.

    Table-2.10 Commercial Banks Liabilities at the end-April 2010 (MillionDalasi)

    Apr-2009 Apr-2010

    1. Capital and reserves 1,238.00 1,501.50 1,692.2 11.9 10.9 21.3 12

    2. Demand deposits 2,506.9 2,998.1 3,672.1 23.8 23.7 19.6 22

    i Residents 2,217.60 2,588.00 3,338.3 20.5 21.5 16.7 29

    ii Non residents 30.8 28.4 30.7 0.2 0.2 -7.8 8

    iii Government entities 258.5 381.7 303.0 3.0 2.0 47.7 -20

    3. Savings deposits 2,529.6 2,822.8 3,301.4 22.4 21.3 11.6 17

    i Residents 2,445.80 2,718.80 3,204.7 21.5 20.7 11.2 17

    ii Non residents 68.9 72.1 90.8 0.6 0.6 4.6 25

    iii Government entities 14.9 31.9 6.0 0.3 0.0 114.1 -81

    4. Time deposits 1,735.7 2,241.2 3,245.8 17.8 20.9 29.1 44

    i Residents 1,255.50 1,567.90 2,275.1 12.4 14.7 24.9 45

    ii Non residents 17.2 89.2 64.1 0.7 0.4 418.6 -28iii Government entities 463 584.1 906.6 4.6 5.8 26.2 55

    Total deposits 6,772.2 8,062.1 10,219.3 63.9 65.9 19.0 26

    5. Bank Balances 136.2 189.4 130.7 1.5 0.8 39.1 -31

    i HO & branches 8.6 179 120.2 1.4 0.8 1981.4 -32

    ii Other banks abroad 127.6 10.4 10.5 0.1 0.1 -91.8 1

    iii. Banks locally 0 0 - 0.0 0.0 -

    6. Borrowings from 237.8 145.5 751.9 1.2 4.9 -38.8 416

    i Cent. bank of Gambia 0 0 - 0.0 0.0

    ii Other banks locally 0 0 20.1 0.0 0.1

    iii HO & branches 114.2 125.1 622.5 1.0 4.0 9.5 397

    iv Other banks abroad 123.6 20.4 109.3 0.2 0.7 436

    v. Other sources 0 0 - 0.0 0.0

    7. Guarantees 1,071.90 1,641.20 2,043.0 13.0 13.2 53.1 24

    8. Other liabilities 974.3 1,080.50 662.8 8.6 4.3 10.9 -38

    9. Total liabilities (1 to 8) 10,430.50 12,620.10 15,499.9 100.0 100.0 21.0 22

    10. Net balance (9-7) 9,358.60 10,978.90 13,456.9 87.0 86.8 17.3 22

    % ch. Ap1

    over Apr0

    Composition (%)Liabilities (Million

    Dalasi)

    Apr-2008 Apr-2009 Apr-2010 % ch. Ap09

    over Apr08

    Source: Central Bank of Gambia

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    2.11Interest Rates and Central Bank Policy Rates

    Interest rate on treasury bills declined from 31% in 2003 to 14.9% in 2006 and further to 13.7%in 2007. It ranged in between 13.1% to 14.7% in 2008 and between 12.3% to 14.3% in 2009.The bank rate of the CBG declined from 29% in 2003 to 9% in 2007, but was raised to 10% atthe end of 2007 to check effective demand and inflationary pressures on the economy. It has

    remained at 10% since then. However, with the introduction of the Monetary Policy Committee(MPC) Policy Rate, the Bank rate has become ineffective and non-operational.

    In response to tight monetary conditions and against a backdrop of falling inflation, the CBG

    reduced the statutory minimum reserve requirement of banks from 16% to 14% in March 2008.

    The CBG rediscount rate declined from 34% in 2003 to 14% in 2004. In order to counter

    emerging inflationary pressures, the CBG raised its rediscount rate by one percentage point

    from 14% to 15% in June 2007, and further to 16% in October 2008. The rediscount rate

    remained unchanged at 16% since then until November 2009. In view of the declining trend of

    inflation rates, the MPC reduced the policy rate by 2 percentage points to 14% with effect from

    December 2009. As a result, the yield on the 91-day and 182-day Treasury bills declined to

    9.19% and 10.24% in May 2010 from 10.14% and 12.13% in December 2009. Similarly, theyield on the 364-day bills decreased to 13.0% from 13.65% during the same period.

    Despite significant fall of the yields on treasury bills in recent years, maximum short-termdeposit rates and commercial banks lending rates remain very high, and there exist wideinterest rate spreads. Successful disinflation allowed the weighted yield on treasury bills to fallfrom over 25% in early 2005 to 10.9% in May 2010. By contrast, commercial banks lendingrates remained sticky above 20% due to high operating costs and high risks of bank credits.

    Table-2.11 Trends of Nominal Interest rates (per cent per annum, end period)Items 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

    Bank lending rare- min 18 18 17 21 21 21 18 18 18 18

    Bank lending rare- max 24 24 24 36.5 36.5 30 28 27 27 27Deposit rate (SB) min 8 8 8 8 10 5 5 5 4 4Deposit rate (SB) max 10 10 10 17 17 10 7 7 7 7Time dep (3 months) min 9.5 9.5 6 7 8 5 5 5 5 5Time dep (3 months) max 12.5 12.5 13 22 22 14 8.5 12.9 13.6 15.5Time dep (6 months) min 10 10 6 8 8 7 6 6 6 6Time dep (6 months) max 12.5 12.5 13 22 22 15 13 12.9 13.6 15.5Time dep (12 month) min 11 11 7 10 12 7 6 7 7 6Time dep (12 month) max 12.5 12.5 13 22 23 13 13 12.9 13.6 15.5Govt. treasury bills 12 15 20 31 30 16 12.8 13.7 13.6 14.2CBG Bank Rate 10 13 18 29 28 14 9 10 10 10CBG Rediscount Rate 15 18 23 34 33 19 14 15 16 16

    Range = Maximum-MinimumBank lending rate 6 6 7 15.5 15.5 9 10 9 9 9

    Deposit rate (SB) 2 2 2 9 7 5 2 2 3 3Time deposits (3 months) 3 3 7 15 14 9 3.5 7.9 8.6 9.5Time deposits (6 months) 2.5 2.5 7 14 14 8 7 6.9 7.6 9.5Time deposits (12 month) 1.5 1.5 6 12 11 6 7 5.9 6.6 9.5

    Factors Influencing Interest RatesInflation (GDP-Deflator) 3.6 14.9 15.0 22.9 13.6 3.9 0.0 2.0 8.0 4.7CPI-Inflation 0.9 4.5 8.6 17.0 14.3 5.0 2.1 5.4 4.9 4.5Real GDP-Growth Rate 5.5 5.7 0.7 2.4 2.1 -0.1 3.1 6.3 6.3 5.0Exch. Rate change (%) 12.2 22.7 27.0 43.2 5.3 -4.8 -1.8 -11.4 -9.8 15.9

    2.12 BOP, Foreign Exchange Reserves and Exchange Rates

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    (a) BOP Situation in 2009

    The overall BOP situation in 2009 was better than expected earlier. The revised balance of

    payments estimates for 2009 indicate an improvement in the overall BOP situation from a

    deficit of US$23.35 million in 2008 to a surplus of US$6.79 million in 2009.

    While the current account improved to a surplus of US$63.29 million compared to a surplus

    of US$12.35 million in 2008, the capital and financial account balance recorded a decline

    from US$11 million in 2008 to (-) US$70.08 in 2009.

    The goods account worsened from a deficit of US$68.25 million in 2008 to US$85.98 million

    in 2009, but below the 2009 projection of US$141.20 million. Exports and imports declined

    by 8.5% and 3.7% to US$170.91 million and US$261.10 million compared to a year ago.

    Net services declined from US$33.37 million in 2008 to US$21.65 million in 2009, net

    income improved from a deficit of US$34.26 million in 2008 to a lower deficit of US$8.13

    million in 2009, while net transfers improved significantly from US$89.49 million in 2008 to

    US$135.75 million in 2009 due to increase of both official and non-official transfers

    including remittances by the Gambians living abroad.

    (b)BOP Situation in 2010-Q1

    The year 2010 has started with a significant improvement in the overall BOP situation ascompared with that in the first quarter of 2009.

    Current account recorded a surplus of D642 million in 2010-Q1 compared to a deficit of (-)D108 million in 2009-Q1, due to significant improvements in exports and current transfers in

    2010-Q1.

    Capital and financial accounts also recorded an increase from (-)D751.31 Dalasi to D104million in 2010-Q1.

    Consequently, the overall balance of payments showed a surplus of D746 million in 2010-Q1 compared with a deficit at (-)D859 in 2009Q1.

    (c) Foreign Exchange Reserves

    Volume of transactions in the domestic foreign exchange market, measured by aggregatesales and purchases of foreign exchange in the first five months of 2010 amounted to

    D16.69 billion or US$691.02 million compared to D13.72 billion or US$520.50 million in2009.

    As at end-April 2010, gross international reserves, including the SDR allocations, stood atUS$177.63 million, equivalent to 7.0 months of import cover compared to US$116.3 millionor 4.9 months of import cover.

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    Table-2.12 Balance of Payments in 2008-2009 and 2010Q1 in Million GDand US$

    Period

    2008Million

    GD

    2008MlnUS$

    2009Q1Million

    GD

    2009Q1MlnUS$

    2009million

    GD

    2009MlnUS$

    2010Q1million

    GD

    2010Q1mlnUSD

    1.Current A/C=2+3+4+5 207.1 12.3 (107.6) (4.1) 1,692.7 63.3 642.5 23.8

    2.Goods (2.1+2.2) (1,558.4) (68.2) (683.9) (26.1) (2,282.5) (86.0) (416.7) (15.5)2.1 Exports FOB 4,536.5 202.8 934.5 35.7 4,646.0 175.1 1,103.7 41.0

    -- Exports trade stat 1,691.1 76.1 239.1 9.1 1,706.1 64.3 466.9 17.3

    -- Re-exports 2,489.1 110.7 660.9 25.3 2,829.6 106.6 620.9 23.0

    --Goods in transit 356.2 16.0 34.5 1.3 110.3 4.2 15.8 0.6

    2.2 Imports FOB (6,094.8) (271.1) (1,618.4) (61.8) (6,928.5) (261.1) (1,520.4) (56.4)

    --Imports trade stat (7,111.8) (316.3) (1,888.4) (72.2) (8,084.6) (304.6) (1,774.1) (65.9)

    --For re-exports 1,017.0 45.2 270.0 10.3 1,156.1 43.6 253.7 9.4

    3. Services 713.5 33.4 367.2 14.0 571.1 21.7 156.1 5.8

    --Transportation (434.1) (19.4) (123.6) (4.7) (480.2) (18.1) (224.6) (8.3)

    --Travel 1,624.1 73.5 612.7 23.4 1,421.7 53.7 447.4 16.6

    --Communications 214.4 9.8 52.4 2.0 264.0 10.0 93.7 3.5

    --Insurance (146.0) (6.5) (38.0) (1.5) (165.9) (6.3) (33.4) (1.2)--Construction 76.0 3.5 12.9 0.5 66.3 2.5 (2.5) (0.1)

    -- IT (70.9) (2.8) (23.6) (0.9) (35.9) (1.4) - -

    --Other Business (550.0) (24.7) (125.5) (4.8) (499.0) (18.8) (124.5) (4.6)

    4. Income (757.4) (34.3) (74.8) (2.9) (214.9) (8.1) (126.0) (4.7)

    --Investment income (931.4) (42.1) (115.1) (4.4) (374.9) (14.2) (103.4) (3.8)--Compensation of

    labor 174.0 7.8 40.3 1.5 160.0 6.0 (22.5) (0.8)

    5. Current transfers 1,809.3 81.5 283.9 10.8 3,619.1 135.7 1,029.0 38.2

    5.1 Government 137.2 6.3 108.3 4.1 798.6 30.0 248.8 9.2

    5.2 Remittances 1,195.8 52.6 420.0 16.0 1,741.6 65.7 242.6 9.0

    5.3 Other transfers 476.4 22.6 (244.4) (9.3) 1,079.0 40.1 537.6 20.06.Capital-Fin.A/C=7+8 463.4 11.0 (751.3) (28.7) (1,864.3) (70.1) 104.2 3.9

    7. Capital 24.4 1.1 - - - - - -8.Financial=8.1+8.2+8.3 439.1 9.9 (751.3) (28.7) (1,864.3) (70.1) 104.2 3.9

    8.1 FDI 1,555.7 70.1 262.7 10.0 1,050.9 39.6 262.7 9.8

    8.2 Other inv.=A+B+C (1,308.5) (68.1) (827.8) (31.6) (1,029.8) (39.3) 119.1 4.4

    (A) Assets=i+ii 93.5 0.2 (197.1) (7.5) 543.3 20.2 276.5 10.3

    (i) Loans 251.1 11.5 62.8 2.4 378.7 14.2 94.7 3.5

    (ii) Deposits (157.6) (11.3) (259.9) (9.9) 164.7 6.0 181.8 6.7

    (B) Liabilities=i+ii (1,401.9) (68.3) (630.7) (24.1) (1,573.1) (59.6) (157.3) (5.8)

    (i) Trade credits (1,472.0) (69.3) (528.3) (20.2) (2,357.8) (88.9) (595.1) (22.1)

    (ii) Govt Loans=a+b 16.4 0.6 214.2 8.2 526.1 19.8 224.3 8.3(a) Disbusements 339.6 15.1 276.8 10.6 798.5 30.1 292.2 10.8

    (b) Amortization (323.2) (14.5) (62.5) (2.4) (272.4) (10.3) (67.9) (2.5)

    (C) Curr. & dep. 53.7 0.4 (316.7) (12.1) 258.7 9.5 213.5 7.98.3 Reserve Assets(increase if negative) 191.8 7.9 (186.2) (7.1) (1,885.4) (70.3) (277.7) (10.3)Overall Balance(surplus if negative) 670.5 23.4 (858.9) (32.8) (171.6) (6.8) 746.6 27.7

    SOURCE: Central Bank of The Gambia.

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    2.13 Exchange Rate

    From end-December 2009 to end May 2010, the Dalasi depreciated by 2.21% against the

    US dollar, while it appreciated against the Euro by 2.03% and Pound Sterling by 1.3%.

    Over one year, in May 2010 Dalasi depreciated against US$ by 7.4%, against SEK by

    8.3%, against CHF by 14.6% and against CFA by 5.6%, while it appreciated against the

    UK by 5.5% and against Euro marginally by 0.7%.

    Table-2.13 End-period mid-market exchange rates (Dalasi per unit of

    foreign currency)

    Year Month UK US$ SEK(100)

    CHF CFA(5000)

    Euro

    2009 Jan 37.25 26.07 325.12 20.85 262.81 33.52

    Feb 37.38 26.11 305.29 22.04 257.78 33.6

    Mar 38.18 26.38 309.62 23.31 259.30 35.22

    Apr 39.05 26.80 321.49 23.00 262.17 35.32May 41.40 26.74 325.95 22.40 265.98 37.00

    June 43.13 26.87 347.89 21.96 272.87 37.04

    July 43.31 26.79 346.46 24.42 277.53 38.06

    Aug 43.80 26.63 326.25 24.36 281.45 37.68

    Sept 42.99 26.95 325.34 25.47 283.58 38.61

    Oct 43.48 26.91 377.70 26.07 297.13 39.61

    Nov 43.88 26.93 348.88 26.65 295.53 40.15

    Dec 43.04 26.94 348.01 25.81 288.26 39.87

    Ave 41.41 26.68 334.00 23.86 275.37 37.14

    2010 Jan 43.01 26.94 362.62 25.29 289.32 39.03

    Feb 42.32 26.94 372.91 25.27 284.26 39.02Mar 40.79 27.01 364.08 25.09 273.22 37.11

    Apr 41.00 27.25 368.69 25.03 281.41 36.05

    May 39.11 28.73 353.12 25.67 280.85 36.72

    Year Month UK US$ SEK(100)

    CHF CFA(5000)

    Euro

    Rate of appreciation (-) / depreciation (+) of Dalasiover the same period of previous year (in Percentage)

    2009 Oct 7.4 8.1 14.4 29.4 15.1 20.4

    Nov 8.2 2.5 8.5 32.8 14.4 20.6

    Dec 7.2 1.5 -8.3 12.5 11.2 11.8

    2009 Average 0.7 19.3 0.0 19.5 10.6 14.0

    2010 Jan 15.5 3.3 11.5 21.3 10.1 16.4

    Feb 13.2 3.2 22.1 14.6 10.3 16.1

    Mar 6.8 2.4 17.6 7.6 5.4 5.4

    Apr 5.0 1.7 14.7 8.8 7.3 2.1

    May -5.5 7.4 8.3 14.6 5.6 -0.7Source: Central Bank of Gambia (CBG)

    3. Recent Policy Developments and Development Issues

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    3.1 IMF Executive Board Completes Sixth Review Under The Gambias ECF Arrangementand Approves a 12-Month Extension and US$ US$7.1 Million Augmentation

    As per the Press Release No. 10/55 dated February 19, 2010, posted on the InternationalMonetary Fund (IMF) Website, the Executive Board of the IMF completed the sixth review of

    The Gambias economic performance under a program supported by the Extended CreditFacility (ECF)4. The Board approved a waiver for the non-observance of the fiscal performancecriterion based on corrective actions, notably the governments 2010 budget approved by theNational Assembly, which aims for a near-zero basic balance. The Boards decision allows thegovernment to request a further disbursement amounting to SDR 2.0 million (about US$ 3.0million), bringing total disbursements under the ECF to The Gambia to SDR 20.2 million (aboutUS$30.8 million).

    The Executive Board approved an extension for one year and an augmentation by SDR 4.67million (about US$ 7.1 million) of The Gambia's ECF arrangement, originally approved onFebruary 21, 2007 (vide Press Release No. 07/28).

    The IMF Board complemented the Gambian authorities for pursuing satisfactory economicpolicies which contributed to robust economic growth and low inflation despite ongoing globaleconomic crisis. However, they observed that even after extensive debt relief, The Gambiaremains at high risk of debt distress. Besides the yields on Treasury Bills are ruling high mainlydue to fiscal slippages and the governments recourse to domestic borrowing. The governmentsefforts to strengthen its debt management strategy are, therefore, welcome. Until the debtburden is reduced, Government should continue to limit external borrowing to highlyconcessional loans.

    The governments budget for 2010 appropriately targets a near-zero basic balance that willreturn The Gambia to a path of declining domestic debt. Fiscal restraint will ease pressure on T-Bill yields and eventually generate fiscal savings for other spending priorities. However,

    disciplined budget execution will be key to achieve these results, and the governments newaction plan to improve public financial management is in the right direction to achieve such fiscaldiscipline.

    The IMF appreciates the governments commitment to maintain low inflation and to take steps toease pressures on interest rates. The reinforced banking supervisory framework, including thephased-in increase in the minimum capital requirement, will contribute to the development of thesound and efficient banking system.

    4The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fundsmain tool for medium-term financial support to low-income countries by providing a higher level of access to

    financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined

    conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5 years, and a

    final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.

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    3.2 Assessment of Quantitative Targets agreed with IMF under PRGF

    The Gambias three-year Poverty Reduction and Growth Facility (PRGF) arrangement wasapproved by the IMFs Executive Board in February 2007. The third review was completed onSeptember 8, 2008 and the Fourth Review was done in February 2009. The updated Letter ofIntent (LOI) and Memorandum of Economic and Financial Policies (MEFP), and Technical

    Memorandum of Understanding (TMU) were signed jointly by the then honorable FinanceMinister Mr. Mousa Gibril Bala-Gaye and honorable Governor, Central Bank of Gambia, Mr.Momodou Bamba Saho, on February 3, 2009.

    The MEFP reviewed progress in implementing the Governments PRGF supported program in2008, and set out the policies that the Government will pursue in 2009. The Government ofGambia committed that the program, as usual, will continue to be monitored based on agreedquantitative targets and a set of structural performance criteria and benchmarks indicated in theMEFP as per program reviews.

    The quantitative financial targets for endMarch 2009 and end-September 2009 areperformance criteria; and those for endDecember 2008, endJune 2009, and end-December

    2009 are indicative targets.

    Performance of Monitored Variables at the end of December 2009

    With regard to the performance of the monitored variables under the PRGF vis--vis their end-December 2009 targets, the CBG through pro-active, consistent and prudent use of variousmonetary policy instruments, was able to meet comfortably all the quantitative targets. The Netuseable reserves (NUR) totaled US$148.9 million at end-December 2009 and were above theend-December target (floor) by US$0.13 million. Similarly, the Net Domestic Assets (NDA) ofthe Central Bank amounting to D1.4 billion was below target ceiling by D50.9 million.

    The target for basic fiscal balance (floor) was fixed at D685.6 million for the end of December

    2009. However, despite good revenue realization, Government failed to achieve this target dueto expenditure pressures. Government achieved a basic balance of (-)D426.9million at the endof December 2009, which was well below the target.

    Government did not default on the payment of debt services on any external debt. As agreedunder the Program, the government did not contract or guarantee any new non-concessionalexternal loan having maturity exceeding one year. There is also no non-concessional externaldebt outstanding on government account having original maturity exceeding one year.