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The Gambia Monthly Economic Bulletin- August 2010

THE GAMBIA MONTHLY

ECONOMIC BULLETIN1

August 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; Lamin Camara, Principal

Economist and Ms. Ceesay Chiel and Alhagi Jalllow, Economists in the Statistics and Special Studies

Division (SSSD), 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 may also be noted 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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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 risks rise1.2Global inflation pressures are generally subdued but diverge

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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 Producers Price Index (PPI)2.5 Government Fiscal Performance2.6 Expected Fiscal Outturn for the Year 20102.7 Domestic Debt and Outstanding Treasury Bills2.8 Treasury Bills Yields2.9 Money Supply

2.10 Performance of Commercial Banks2.11 Commercial Banks Assets2.12 Commercial Banks Liabilities2.13 Interest Rates and Central Banks Policy Rates2.14 BOP, Foreign Exchange Reserves and Exchange Rates2.15 Exchange Rates

13-2913151718192022242526

2728293032

3. Recent Policy Developments and Development Issues 3.1 Budget Call Circular for Preparation of 2011 Budget

3.2 IMF Technical Assistance Missions on VAT Tax Administration andPublic Financial Management (PFM) Reforms

33-363336

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ISPEFG Project and Monthly Economic Bulletin Research Team

Project Supervisor Honorable Mr. Serign Cham,Permanent Secretary

Acting Project Coordinator Mr. Mod Lamin Ceesay,Deputy Permanent Secretary

Acting Director (SSSD)Principal Economist (SSSD)Economist (SSSD)Economist (SSSD)

Mr. Momodou TaalMr. Lamin CamaraMs. Ceesay ChilelMr. Alhagie Jallow

Technical Assistants:Macroeconomic AdviserDebt Adviser

Fiscal/ Financial Adviser

Dr. Tarun DasMr. Adam Aikuta

Mr. Dan Mwanje

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, June 2010.22.The Gambia Monthly Economic Bulletin, pp.1-36, July 2010.

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HIGHLIGHTS

Global Economic Recovery Is Stronger than Expected, but Speed Varies and Risks Rise

The global economic recovery is stronger than expected, but there is greater risk forsustainability and the recovery is uneven across regions. As per the IMF World Economic Outlook

(WEO) Update July 2010, world output is expected to grow by 4.6% in 2010 followed by 4.3% in2011. IMF projects continual global recovery, but cautioned that renewed financial turbulence andeuro area problems cloud the outlook, and advised fiscal consolidation based on credible medium-term plans.

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 2.2% in 2009. Its growthis projected to accelerate to 5% in 2010 and further to 5.9% in 2011.

Global Inflation Pressures are Subdued and Oil Prices are Moderate

The global recession caused a large drop in inflation. Commodity prices have started to rebound dueto higher demand after the global economic recovery. But, the still-low levels of capacity utilization

and well-anchored inflation expectations are expected to keep inflation low and subdued in 2010.Average Brent crude oil prices reached the peak level at $84.98 per barrel in April 2010, but starteddeclining since then and stood at US$74.74 in July 2010, compared to US$68.50 a year ago. In linewith futures market developments, the IMFs baseline petroleum price projection has been reviseddown to $75.3 a barrel for 2010 and $77.5 a barrel for 2011.

Impact on the Gambian Economy

Global recession had adverse impact on the Gambian economy in 2008 leading to decline of exportsand remittances and decline of manufacturing production, distributive trade, transport and telecom .However, thanks to bumper crops and very good performance by electricity, telecom and financialsectors, the real GDP growth improved from 6% in 2007 to 6.3% in 2008.

As per revised estimates by GBOS, real GDP growth in 2009 is estimated to be 5.6% supported by agrowth of 9.8% in agriculture, 2.1% by industry and 4.3% in services production. With expectednormal monsoons, real GDP growth in 2010 is projected to be 5% aided by a growth of 4.6% inagriculture, 5.1% by industrial production and 4.9% in services production.

CPI Inflation

Annual point-to-point CPI inflation accelerated significantly from 4% (food 4.1% and non-food 3.8%)in July 2009 to 6.2% (food 8.2% and non-food 2.9%) in July 2010. However, the 12-month averageinflation rate decelerated from 6.1% in July 2009 to 3.6% in July 2010. Among other groups,transport recorded an inflation of 24.3%, clothing 2%, utilities 1.9%, restaurants and hotels 9% andmiscellaneous items 7.1% in July 2010.

Government Fiscal Performance

Governments fiscal performance was not satisfactory in Jan-July 2010 compared with Jan-July2009. Tax revenues declined by 0.6% in Jan-July 2010 over Jan-July 2009 compared with a growthof 16.2% in Jan-July 2009 over Jan-July 2008. However, there was better performance of non-taxrevenues in Jan-July 2010 than in Jan-July 2009.

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Despite significant contraction of expenditure, fiscal balance was negative at (-) 0.1% of GDP andoverall fiscal deficit at 1.6% of GDP in Jan-July 2010 was significantly higher than the budget target at1% of GDP for the year 2010. Domestic Debt and Treasury Bills Yields

Including CBG support, the total outstanding domestic debt increased to D7.7 billion (27.6%

of GDP) at end-June 2010, from D6.8 billion (27.1% of GDP) a year ago. Outstanding Treasury billsincreased by 7.1% to D5.2 billion and accounted for 67.7% 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 to 9.3%, 10.4%and 12.9% respectively in June 2010.

Money Supply and Commercial Banks Performance

Broad money supply (M2) recorded an annual growth of 21% in June 2010, compared to 21.2% ayear ago. While quasi money increased by a faster pace of 29%, narrow money increased by 12.5%.

On the supply side, growth of broad money in June 2010 was supported by 9.6% growth in currencyin circulation outside banks, 14.1% growth in demand deposits, 15.9% growth in savings depositsand significant growth of 45.3% in time deposits.

On the demand side, growth was due to 5.9% growth in net foreign assets and 27.1% growth in netdomestic assets over a year. Domestic credits increased by 23.7% from D6.9 billion in June 2009 toD8.6 billion in June 2010, supported by 28.4% growth in government borrowing and 29.6% growth incredits to the private sector, while credits to public entities declined by 15.8% over one year.

.(a) The banking industry continues to show increasing signs of resilience with growth in assets,

capital and reserves. The industrys total assets increased to D15.6 billion in June 2010, up by18.4% over a 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.

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Over one year, in July 2010 Dalasi depreciated against US$ by 4.6%, against SEK by 4.5%, against

CHF by 2.5% and against CFA by 1.5%, while it appreciated against Euro by 2.8% and against the

UK marginally by 0.2%.

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At a Glance- August 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 (%) July 2010 Overall 6.2Food 8.2Non-food 2.9

Overall 4.0Food 4.1Non-food 3.8

Expected to remainmoderate around 5percent.

Brent crude oilprice (US$/ brl)

July 2010 AverageUS$74.74

AverageUS$68.50

May stabilize aroundUS$75 in 2010

Growth rate (%) ofDomestic Revenue

Jan-July 2010 1.6 14.7The budget for 2010 hastargeted overall fiscal deficitat (-) 1.1% of GDP andbasic balance at nil.

Zero basic balance may notbe achieved unlessrevenue realizationimproves significantly in thesubsequent months.Government has takenfiscal measures in June2010 for additional revenuerealizations.

Growth rate (%) ofExp & Net Lending

Jan-July 2010 9.4 26.6

Revenue & grantsas % of GDP

Jan-July 2010 10.1 10.6

Exp & Net Lendingas % of GDP

Jan-July 2010 11.7 11.8

Overall fiscal bal.as % of GDP

Jan-July 2010 (-) 1.6 (-) 1.3

Basic balance as% of GDP

Jan-July 2010 (-) 0.1 (-) 0.4

Basic Primary bal.as % of GDP

Jan-July 2010 1.7 1.4

Domestic debtas % of GDP

End-June 2010 27.6 27.1 Likely to decline at theend of December 2010.

Yield on 91-daysTBs (%)

June 2010 9.3 13.0Yields may come downfurther as CPI inflation ismoderate.

Yield on 182-days TBs (%)

June 201010.4

13.8

Yield on 364-days TBs (%)

June 2010 12.9 15.6

GR of Moneysupply (M2) (%)

June 2010 21.0 21.2 Money growth rate islikely to remain high.

Banks assets(Billion Dalasi)

End-June 2010 15.63 13.20 Likely to increase

CBG policy rate(%)

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

Overall BOPBalance (Mln $)

2010-Q1 27.7 (-) 32.8 BOP situation is likely toremain comfortable in2010 due to revival ofexports, tourist income,remittances and foreigninvestment.

Current A/CBalance (Mln $)

2010-Q1 23.8 (-) 4.1

Capital-Fin. A/CBalance (Mln $)

2010-Q1 3.9 (-) 28.7

Dalasi/ UK End-Jul 2010 43.20 43.31 Dalasi is expected todepreciate against majorcurrencies in 2010.

Dalasi/ US$ End-Jul 2010 28.03 26.79Dalasi/ Euro End-Jul 2010 36.97 38.08

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1. Global Economic Outlook

1.1 World Recovery Continues, But Risks Increase, Says IMF

Global economic recovery is stronger than expected, but the speed is uneven across countriesand regions. As per the IMF World Economic Outlook (WEO) Update2, April 2010, world output

is expected to grow by 4.6% in 2010 followed by 4.3% in 2011. IMF forecasts continuing globalrecovery, but cautioned that renewed financial turbulence and euro area problems cloud theoutlook. IMF advised countries to continue with implementation of policies to rebuild confidenceand stability, particularly in the euro area. More generally, policy efforts in advanced economiesshould focus on credible fiscal consolidation, notably measures that enhance medium-rungrowth prospects, such as reforms to entitlement and tax systems. Supported byaccommodative monetary conditions, fiscal actions should be complemented by financial sectorreform and structural reforms to enhance growth and competitiveness. Policies in emergingeconomies should also help rebalance global demand, including through structural reforms and,in some cases, greater exchange rate flexibility.

Global activity in terms of trade, production and retail sales has rebounded. Employmentcontinues to contract in advanced economies but is expanding in emerging economies, helpedby strong potential growth. Industrial confidence has returned to pre-crisis levels, but householdconfidence in advanced economies continues to lag due to subdued employment.

Emerging and Developing Economies: Activity in emerging and developing economies isleading the global recovery. In key emerging Asian economies, particularly in China and India,output already exceeds pre-crisis levels by a wide margin, and the output growth in thesecountries, averaging about 10% 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 expectedto recover rapidly from the slowdown in 2009. Although some oil-exporting economies were hithard by the collapse in export and commodity markets, the region managed to grow by 2.2% in2009. Its growth is projected to accelerate to 5% in 2010 and to 5.9% in 2011. The regionsquick recovery is due to the relatively limited integration of the most low-income economies intothe global economy and the limited impact on their terms of trade, the rapid normalization inglobal trade and commodity prices, and the use of countercyclical fiscal policies. Remittancesand official aid flows have also been less adversely affected than anticipated by the recessionsin advanced economies.

Banking sectors, in general, remained resilient, and private capital inflows resumed into theregions more integrated economies. Shocks from the global crisis hit sub-Saharan Africa mainlythrough the trade channel. Reflecting their greater openness to trade, the regions middle-income economies like the South Africa were among the hardest hit.

2 World Economic Outlook: Update, Restoring Confidence without Harming Recovery, IMF,

Washington D.C.,

7 July 2010.

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Table-2.1 World Economic Outlook, Update, July 2010

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1.2 Inflation Pressures Are Generally Subdued but Diverge

Inflation pressures are expected to remain subdued in advanced economies. The still-low levelsof capacity utilization and well anchored inflation expectations should contain inflation pressuresin advanced economies, where headline inflation is expected to remain around 1-1 percentin 2010 and 2011. In a number of advanced economies, the risks of deflation remain pertinent in

light of the relatively weak outlook for growth and the persistence of considerable economicslack. In contrast, in emerging and developing economies, inflation is expected to edge up to6 percent in 2010 before subsiding to 5 percent Inflation pressures are projected to remainlow, held down by high unemployment rates and excess capacity. Inflation has been higher andmore volatile in emerging economies, and inflation pressures could resurface more easily therethan in advanced economies.

Commodity prices are rebounding

Commodity prices have started to rebound due to higher demand after the global economicrecovery (Table 1.2). Average Brent crude oil prices reached peak level at $84.98 per barrel inApril 2010, but started declining since then and stood at US$74.74 in July 2010, compared toUS$68.50 a year ago. Looking ahead, commodity prices are expected to rise a bit furthersupported by the strength of global demand, especially from emerging economies. However,

this upward pressure is expected to be modest, given the above-average inventory levels andsubstantial spare capacity in many commodity sectors. In line with futures marketdevelopments, the IMFs baseline petroleum price projection has been revised down to $75.3 abarrel for 2010 and $77.5 a barrel for 2011 (from $80 and $83, respectively, in the April 2010WEO). Projections for the non-fuel commodity price index have remained broadly unchanged,partly reflecting stronger-than expected market conditions through April 2010.

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Table-1.2 Trends of World Commodity Prices

Source: World Bank Pink Sheet August 2010

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Source: World Bank Pink Sheet August 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 inflationaccelerated significantly from 4% in July 2009 to 6.2% in July 2010. However, the 12-month average inflation rate decelerated from 6.1% in July 2009 to 3.6% in July 2010.

Food and drinks (with weights of 55.1% in overall CPI) recorded an annual point-to-pointinflation rate of 8.2% in July 2010, up from 4.1% a year ago, and contributed 70.7% tooverall inflation in July 2010.

Non-food items (with weights of 44.9% in overall CPI) recorded annual inflation rate of2.9% in July 2010, down from 3.8% a year ago and contributed 29.3% to total inflation.

Among other groups, transport recorded an inflation of 24.3%, clothing 2%, utilities1.9%, restaurants and hotels 9% and miscellaneous items 7.1% in July 2010.

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

Wi (%)July 2009

IndexJuly 2010

IndexInflation

(%)Wi (CPIi1

CPIi0)Contributio

n3 (%)Overall 100.0 120.84 128.32 6.19 804.9 100.0Food 55.1 125.96 136.29 8.20 568.7 70.7Tobacco 0.7 106.26 106.91 0.61 0.4 0.1Clothing 11.2 111.46 113.68 1.99 25.0 3.1Utilities 3.4 122.40 124.76 1.93 8.0 1.0Furnishing 5.2 115.45 116.71 1.09 6.6 0.8Health 1.2 101.80 101.83 0.03 0.0 0.0Transport 4.4 119.95 149.12 24.32 128.4 16.0Telecom 3.0 102.02 102.54 0.51 1.5 0.2Recreation 8.1 104.95 105.97 0.97 8.2 1.0

Education 1.5 102.27 102.95 0.66 1.0 0.1Hotels 0.4 116.73 127.29 9.05 3.8 0.5Misc. 5.9 126.22 135.18 7.10 53.1 6.6Non-food 44.9 114.53 117.89 2.93 151.0 29.3

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 588.7 / 804.9 = 73.3%.

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6.28.2

0.62.0 1.9

1.10.0

24.3

0.5 1.0 0.7

9.07.1

2.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Ove

rall

Food

Toba

cco

Clot

hing

Utilit

ies

Furn

ishin

g

Heal

th

Tran

spor

Tele

com

Recr

eatio

n

Educ

atio

n

Hote

ls

Misc

.

non-

food

Series1

Contribution to Inflation in J uly 2010 (%)

Food

70%

Clothing

3%

Transport

16%

Utility

1%

Other

9%

Recreation1%

Food

Clothing

Transport

Utility

Other

Recreation

0.0

2.0

4.0

6.0

8.0

10.0

12.0

07-Ja

Mar

May

Jul

Sp

Nv

08-Ja

Mar

May

Jul

Sp

Nv

09-Ja

Mar

May

Jul

Sp

Nv

10-Ja

Mar

May

Food Non-Food All

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2.3 Projection of CPI inflation for the year 2010

On the basis of CPI trends until July 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, Aug 2010 CPI is estimated by the following formula:

Projected CPI for Aug 2010 = July 2010 CPI + [Aug 2009 CPI July 2009 CPI + Aug 2008 CPIJuly 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 Aug 2010 is estimated by the following formula:

Projected CPI for Aug 2010 = July 2010 CPI+ (Aug 2009 CPI July 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 remain inthe range of 3.6% to 6.5% during 2010, and the year-end 12-month average inflation rate isexpected to be around 5.2%.

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

120.61 126.02

126.02

2.2 5.4 4.5 4.5 4.5

July 111.95

116.21

120.84 128.32

128.32

3.8 4.0 6.2 6.2 6.2

Aug 112.0

9

117.6

5

121.15 129.20 128.63 5.0 3.0 6.6 6.2 6.4

Sep 111.86

118.96

121.75 130.15 129.23 6.3 2.3 6.9 6.1 6.5

Oct 111.95

119.29

121.99 130.44 129.47 6.6 2.3 6.9 6.1 6.5

Nov 112.13

119.54

122.7 130.92

130.18 6.6 2.6 6.7 6.1 6.4

Dec 112.2 119.9 123.1 131.3 130.67 6.8 2.7 6.6 6.1 6.3

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6 3 9 6Q1 107.7 112.5 120.2 124.8 124.8 4.4 6.9 3.8 3.8 3.8Q2 111.9 113.8 120.5 125.6 125.6 1.7 5.8 4.2 4.2 4.2Q3 112.0 117.6 121.2 129.2 128.7 5.0 3.1 6.6 6.2 6.4Q4 112.1 119.6 122.6 130.9 130.1 6.7 2.5 6.7 6.1 6.4Ave

110.9 115.9 121.1 127.6 127.3 4.5 4.6 5.3 5.1 5.2Note: Projections are made by the Research Team. Alternative projections 1, 2 and 3 are defined in thetext above.

2.4 Producer Price Index (PPP) for March 2010

Starting with March 2010 the GBOS has decided to prepare and publish the Producer PriceIndex (PPI) on quarterly basis. The PPI indicates the average increase of basic producer pricefor domestic industries and excludes prices of exports. The definition and concepts employed byGBOS are in conformity with other International Economic Standard; but adapted to Gambiaspecification (ISIC, Rev 3.1 of 1990). The basket of goods and services are drawn from the listof manufacturing establishments covered during the 2005/2006 Economic Census comprising of108 large manufacturing enterprises employing at least 10 people, whose output is mainly soldon the domestic market or for export. Currently, the PPI covers 182 items of goods andservices, out of which 32% are food and 68% are non-food. The point of pricing is theestablishment and the price is the selling price received by the producer for the selected productas it leaves the factory gate. Thus the PPI is not affected by changes in taxes and duties, andprices quoted are exclusive of all taxes on products but inclusive of subsidies. As indicated inTable-2.4, the overall annual inflation in terms of PPI was 9.9% in March 2010 contributedby 10.9% inflation in food products and 11.9% inflation in non-food products.

Table-2.4: Producer Price Index (Base 2009=100)

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2.5Government Fiscal Performance in January-July 2010

Columns (4), (5) and (6) ofTable-2.5.1 present major item-wise revenue realization andexpenditure of the government in the first 7 months (i.e. Jan-July) of 2008, 2009 and 2010respectively. Columns (7) and (8) indicate annual percentage changes of major items ofrevenues and expenditure in Jan-July 2009 and Jan-July 2010 respectively over those in the

corresponding period of the previous year.

Governments fiscal performance was not satisfactory in Jan-July 2010 compared withJan-July 2009. Tax revenues declined by 0.6% in Jan-July 2010 over Jan-July 2009compared with a growth of 16.2% in Jan-July 2009 over Jan-July 2008. However, there wasbetter performance of non-tax revenues in Jan-July 2010 than in Jan-July 2009.

In Jan-July 2010, total expenditures & net lending increased by 9.4% over Jan-July 2009compared to 26.6% growth in Jan-July 2009. Overall there was a fiscal deficit of (-) D465.8million in Jan-July 2010, higher than fiscal deficit of (-) D322.6 million in Jan-July 2009.

Despite significant contraction of expenditure, Basic Balance was in deficit at (-)D22.1million in Jan-July 2010 mainly due to shortfalls in corporate taxes and domestic sales tax.However, Basic Primary Surplus at D480 million in Jan-July 2010 was higher than that atD365 million in Jan-July 2009.

Table-2.5.1 Government Financial Performance in Jan-July 2010 (Million Dalasi)Items 2009

Actual2010

Budget2008

Jan-July2009

Jan-July2010

Jan-July

Ja-Jul-09% ch overJa-Jul 08

Ja-Jul-10% ch overJa-Jul-09

(1) (2) (3) (4) (5) (6) (7) (8)Revenue and grants 4893.0 5474.1 2215.4 2724.5 2867.6 23.0 5.3

Domestic Revenue 3904.9 4413.2 2115.8 2427.2 2466.6 14.7 1.6Tax Revenue 3517.5 3991.3 1885.5 2190.5 2177.6 16.2 -0.6Nontax Revenue 387.4 421.9 230.4 236.7 289.0 2.7 22.1

Grants 988.1 1061.0 99.5 297.4 401.0 198.8 34.9Exp & Net Lending 5631.9 5769.7 2406.8 3047.1 3333.5 26.6 9.4Current Expenditure 3625.1 4013.7 1854.2 2099.0 2238.3 13.2 6.6Personnel Emoluments 1191.8 1499.3 533.0 649.9 816.7 21.9 25.7

Other Charges 1691.9 1752.0 865.3 980.7 919.8 13.3 -6.2Interest 741.4 762.4 455.8 468.5 501.8 2.8 7.1

External 153.2 176.3 101.2 100.4 108.8 -0.8 8.3Domestic 588.3 586.1 354.6 368.1 393.0 3.8 6.8

Cap Exp & Net Lending 2006.8 1756.0 552.6 948.1 1095.2 71.6 15.5Capital Expenditure 1889.1 1692.0 471.6 855.4 1106.2 81.4 29.3

Externally financed 1300.1 1360.0 290.7 516.9 844.7 77.8 63.4Net Lending 117.7 64.0 81.0 92.7 -11.0 14.4 -111.9

Overall Fiscal Balance -739.0 -295.6 -191.5 -322.6 -465.8 68.5 44.4Basic Balance -427.0 3.4 -0.3 -103.0 -22.1 34,155.3 -78.5

Basic Primary Balance 314.5 765.8 455.5 365.4 479.7 -19.8 31.3Nominal GDP (GBOS) 25805 28425 22978 25805 28425 12.3 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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Government has taken a number of fiscal measures since June 2010 to improve fiscalbalance. These include (a) Reinstating the collection of domestic excise taxes, includingGMD 11 per liter on beer; (b) Reforming the mechanism for setting retail prices forpetroleum fuels, which incorporates a GMD 5 per liter increase on premium motor spiritsand GMD1 per liter on diesel and a general sales tax of 15 percent on all petroleum basedfuels; (c) a freeze on non-priority hiring in the public sector; and (d) reducing the monthlycash allocations to spending agencies in line with the requirements to achieve a cumulativebasic balance of D265.1 million by end-September 2010.

Column (2) to (6) of Table-2.5.2 indicates the item-wise fiscal performance of thegovernment, as percentage of GDP, for 2009-outturn, 2010-Budget, Jan-July 2008, Jan-July2009 and Jan-July 2010 outturn respectively. It is observed from the table that in terms ofpercentages of GDP the fiscal performance in Jan-July 2010 is not satisfactory. The 2010Budget has targeted at zero basic balance as per commitment under the IMF ECF fundedProgram. But, there was a Basic deficit at (-) 0.1% of GDP in Jan-July 2010.

The Budget for 2010 has targeted total revenue and grants at 19.3% of GDP (higherthan 19% in 2009-Outturn) and total expenditure and net lending at 20.3% of GDP (lowerthan 21.8% of GDP in 2009-Outturn) resulting in an overall fiscal deficit at 1% of GDP(compared to fiscal deficit of 2.9% of GDP recorded in 2009-Outturn). Significant reductionin total expenditure is sought to be achieved through drastic cut in capital expenditure from7.3% of GDP in 2009-Outturn to 6% of GDP in 2010 Budget. Such a cut in capitalexpenditure may be good to maintain fiscal sustainability, but may affect adverselydevelopment activities unless funds are supplemented by donors aid.

Table-2.5.2 Government Financial Performance in 2009 and Jan-July 2010(As % of GDP at current market prices)

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

(1) (2) (3) (4) (5) (6)

Revenue and grants 19.0 19.3 9.6 10.6 10.1Domestic Revenue 15.1 15.5 9.2 9.4 8.7

Tax Revenue 13.6 14.0 8.2 8.5 7.7Nontax Revenue 1.5 1.5 1.0 0.9 1.0

Grants 3.8 3.7 0.4 1.2 1.4Exp & Net Lending 21.8 20.3 10.5 11.8 11.7

Current Expenditure 14.0 14.1 8.1 8.1 7.9Personnel Emoluments 4.6 5.3 2.3 2.5 2.9

Other Charges 6.6 6.2 3.8 3.8 3.2Interest 2.9 2.7 2.0 1.8 1.8

External 0.6 0.6 0.4 0.4 0.4Domestic 2.3 2.1 1.5 1.4 1.4

Cap Exp & Net Lending 7.8 6.2 2.4 3.7 3.9Capital Expenditure 7.3 6.0 2.1 3.3 3.9

Externally financed 5.0 4.8 1.3 2.0 3.0Net Lending 0.5 0.2 0.4 0.4 0.0

Overall Bal Inc. grants -2.9 -1.0 -0.8 -1.3 -1.6

Basic Balance -1.7 0.0 0.0 -0.4 -0.1

Basic Primary Balance 1.2 2.7 2.0 1.4 1.7

Source: Statistics and Special Studies Division, MOF.Notes: For definitions of overall fiscal, basic and primary balance, see footnotes in Table 2.5.1.

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2.6 Projection of Fiscal Outturn for the Year 2010

Column (2) of the Table-2.6 below presents detailed item-wise revenues and expenditure inJan-July 2010. The ratios of actual realization for any item in Jan-July to the final outturn for theitem during the last five years viz. 2005, 2006, 2007, 2008 and 2009 are presented in columns(3) to (7) respectively. Item-wise average ratios for Jan-July of these five years are presented in

column (8). By taking these ratios as norms to take care of monthly seasonality over the year,expected revenue and expenditure outcomes for the full year 2010 are estimated by thefollowing simple formula and are presented in column (9) of the Table-2.6.

Expected outturn for an item in 2010 = 100 X (actual realization in Jan-July 2010) /average realization ratio (in percentage) in Jan-July in the last five years (2005-2009)

Comparison of the expected outcome given in Column (9) with the budget estimates given inColumn (10) leads to the following conclusions:

(a) Tax revenue target given in the Budget 2010 will not berealized, unless tax revenuecollections improve significantly in the subsequent months in 2010.

(b) However, Non-tax revenue realization is expected to meet the budgeted targets.(c) Grants may also fall short of budget estimates unless their inflows and disbursement are

augmented significantly in the subsequent months in 2010.(d) Both the current and capital expenditure are expected to remain within budget estimates.(e) It is a matter of serious concern that, despite significant expenditure cuts, the overall

fiscal deficit is likely to be (-) D887 million (3.1% of GDP) compared to budgeted fiscaldeficit at D296 million (1% of GDP). It is basically due to revenue shortfalls.

(f) The Basic balance is likely to generate a deficit of (-) 0.7% of GDP compared to budgettarget of 0% of GDP. Basic Primary Surplus is likely to be 2.1% of GDP, lower than theBudgeted Primary Surplus at 2.7% of GDP.

2.6 Government Fiscal Performance in Jan-July 2010 and Expected Outturn for 2010

Items 2010-Jan-July

Actual

Ratio of Jan-July performance inAnnual Outturn (in Percentage)

Ave.ratioJan-July2005-2009

2010Proj.Out-turn4

2010Budget

Esti-mate

2005-Jan-July

2006-Jan-July

2007-Jan-July

2008-Jan-July

2009-Jan-July

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)1.Rev & grants (2+5) 2867.6 59.6 60.1 62.2 59.2 55.7 4469.7 5473.92.Dom. Revenue (3+4) 2466.6 58.9 60.9 64.1 60.5 62.2 4019.7 4412.93.Tax Rev (3.1+3.2) 2177.6 59.2 61.2 63.0 59.9 62.3 3560.3 3991.03.1 Direct Tax (a to e) 748.5 56.8 65.2 73.3 64.8 68.7 1122.5 1185.0

(a) Personal 344.5 69.1 65.5 64.0 63.3 61.7 64.7 532.5(b) Corporate 321.8 47.4 64.8 78.4 70.4 73.0 66.8 481.7(c) Capital Gains 25.2 66.1 45.4 73.7 37.4 53.8 55.3 45.5

(d) Payroll 37.5 89.9 91.1 91.7 72.8 94.4 88.0 42.6(e) Other 19.6 94.4 96.4 99.1 97.6 97.9 97.1 20.2

2.6 Government Fiscal Performance in Jan-July 2010 and Expected Outturn for 2010Items 2010-

Jan-Ratio of Jan-July performance inAnnual Outturn (in Percentage)

Ave.ratio

2010Proj.

2010Budget

4Expected outturn for an item in 2010 = 100 X (actual realization in Jan 2010) / average realization ratio(in percentage) in Jan in the last five years (2005-2009).

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JulyActual

Jan-July2005-2009

Out-turn5

Esti-mate

2005-Jan-July

2006-Jan-July

2007-Jan-July

2008-Jan-July

2009-Jan-July

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

3.2 Indirect Tax 1429.1 60.2 59.6 58.8 57.2 59.8 2437.8 2806.0

3.2.1 Dom Tax on G&S 388.4 63.9 60.1 63.4 61.7 61.9 628.3 1572

(a) Stamp Duties 13.5 57.8 73.7 65.0 77.9 60.3 66.9 20.2(b) Excise Duties 88.0 52.4 54.1 54.6 59.0 59.8 56.0 157.1(c) Dom Sales Tax 286.9 66.0 61.4 66.7 61.2 62.8 63.6 450.9

3.2.2 Tax on Ext Trade 1040.7 59.0 59.4 57.3 55.2 59.2 1809.6 1234(a) Duty (i+ii) 518.1 60.2 63.5 55.5 54.8 61.2 885.6

(i) Oil 224.7 55.2 67.9 51.1 51.7 65.8 58.3 385.1(ii) Non-oil 293.4 62.1 61.0 57.9 56.3 55.7 58.6 500.5

(b) Sale tax on imp (i+ii) 522.6 57.8 54.6 59.1 55.6 56.2 924.0(i) Oil 114.1 56.0 58.4 61.3 60.9 52.7 57.9 197.3(ii) Non-oil 408.5 58.3 53.5 58.6 53.7 57.0 56.2 726.7

4. Nontax Rev (a to d) 289.0 56.4 72.3 65.1 61.1 62.4 459.4 421.9(a) Govt Charges 46.2 65.7 80.5 80.6 89.9 77.9 78.9 58.5(b) NTR from CRD 3.8 70.1 69.5 59.4 48.1 62.9 62.0 6.1(c) NTR from CED 70.6 70.0 56.3 58.9 54.9 59.8 60.0 117.7

(d) Others 168.4 55.0 59.1 84.4 52.0 53.5 60.8 277.05. Grants 401.0 68.0 47.8 27.7 40.7 30.1 42.9 450.0 1061.06. Exp & Net Lend (7+8) 3333.5 67.1 60.3 55.2 55.6 54.1 5357.0 5769.77. Cur. .Exp (7.1 to 7.3) 2238.3 62.1 61.4 54.7 58.2 57.9 3851.0 4013.77.1 Pers. Emoluments 816.7 56.2 55.0 57.1 54.2 54.5 55.4 1474.1 1499.3

7.2 Other Charges 919.8 63.7 60.5 50.0 58.0 58.0 58.0 1584.7 1752.07.3 Interest (a+b) 501.8 63.8 66.9 58.9 63.9 63.2 792.1 762.4

(a) External 108.8 66.8 66.6 58.0 65.9 65.6 64.6 168.4 176.3(b) Domestic 393.0 63.0 67.0 59.2 63.3 62.6 63.0 623.7 586.1

8. Cap Exp & Net Lend. 1095.2 73.7 58.7 56.5 48.3 47.2 1506.0 1756.08.1 Capital Exp. (a+b) 1106.2 73.1 61.4 53.1 45.9 45.3 1506.0 1692.0

(a) Ext. Financed (i+ii) 844.7 74.4 62.7 60.1 57.5 39.8 1141.0 1360.0(i) Loans 443.3 76.1 64.8 70.9 56.3 54.3 64.5 691.0 692(ii) Grants 401.4 65.3 47.8 27.7 60.1 26.2 45.4 450.0 668

(b) GLF Capital 261.5 56.1 35.8 24.8 34.7 57.5 41.8 365.0 3658.2 Net lending -11.0 44.6 0.0 100.0 68.8 78.8 58.4 0.0 64.09. Overall fiscal bal (1-6) -465.9 -887.3 -295.910.Basic balance -22.2 -196.3 3.211. Basic Primary Bal. 479.6 595.8 765.6

Memorandum Items: As percentage of IMF Program Nominal GDP (equal to D19904 million)

12. Fiscal bal (1-6)6 -1.6 -3.1 -1.013.Basic balance -0.1 -0.7 0.014. Basic Primary Bal. 1.7 2.1 2.7

5 Expected outturn for an item in 2010 = 100 X (actual realization in Jan 2010) / average realization ratio (inpercentage) in Jan in the last five years (2005-2009).6(1) Overall balance = (Revenue and Grants) minus (Expenditure and Net Lending); (2) Basic Balance = (DomesticRevenue) less (Expenditure and Net Lending excluding externally financed capital expenditure) and(3) BasicPrimary Balance = Basic Balanceplus interest payments

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2.7 Domestic Debt and Treasury Bills Outstanding

(a) Including CBG support, the total outstanding domestic debt increased to D7.7 billion(27.6% of GDP) at end-June 2010, from D6.8 billion (27.1% of GDP) a year ago.Outstanding Treasury bills increased by 7.1 percent to D5.2 billion and accounted for 67.7percent of the stock (including TMA overdraft).

(b) The share of Treasury bills declined from 70.9% at end-June 2009 to 67.7% at end-June2010, that of Sukuk Al-Salam increased from 1.2% to 1.6%, that of Govt. bonds declinedfrom 4.9% to 4.7%, that of NIB treasury bills declined from 8% to 6.5% while share of TMAoverdraft increased from 15% to 19.6% over the same period.

Table-2.7-A Outstanding Domestic Public Debt as on 30 June 2010Type of debt Million Dalasi % change

in June 2010over June 2009

Composition (in %)

30 June2009

30 June2010

30 June2009

30 June2010

Treasury bills 4,854 5,200 7.1 70.9 67.7

Sukuk Al-Salam85 125 46.9

1.2 1.6

Marketable GovtBonds

0 25 0.0 0.3

Non-marketableGNPC

85 85 0.0 1.2 1.1

Non-mark.Govt Bond 250 250 0.0 3.7 3.3

NIB Treasury Notes 547 496 -9.3 8.0 6.5

TMA Overdrawn 1,027 1,503 46.3 15.0 19.6

Total dom. Debt 6,848 7,685 12.2 100.0 100.0

Nominal GDP 25313 27885 10.2

As % of GDP 27.1 27.6

Excluding overdraft 23.0 22.2

Sustainability of Public Debt

As judged by selected sustainability indices given in Table-2.7-B the public debt situation ofGambia is manageable and cannot be considered to be unsustainable over time. However,government needs to continue with sound macroeconomic policies and strict fiscal disciplinewhich act as the first line of defense against any debt trap.

Table-2.7-B Selected Sustainability Indicators for Public Debt (in percentage)Item 2005 2006 2007 2008 2009 2010

Estd.

1. Public debt/GDP ratio 125.1 126.2 58.4 57.1 61.1 57.22. External debt/GDP ratio 99.0 101.7 36.2 31.4 37.1 35.13. Domestic debt/GDP ratio 26.1 24.5 22.1 25.7 24.0 22.0

4. Interest/revenue ratio 43.4 30.5 23.5 20.5 19.4 18.05. Debt service/revenue ratio 59.2 46.3 41.0 32.0 33.1 28.26.Ext.debt service to exports ratio 11.9 12.1 10.8 6.5 7.1 6.7Source: Estimated by the Modeling Team.

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2.8 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 9.3%,10.4% and 12.9% respectively in June 2010.

Table-2.8 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 9.3 10.4 12.9

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

0

2

4

6

8

10

12

14

16

18

J-07M-07 M-07 J-07 S-07 N-07 J-08M-08M-08 J-08 S-08 N-08 J-09M-09 M-09 J-09 S-09 N-09 J-10M-10M-10

91-D 162-D 364-D

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2.9 Money Supply

Broad money supply (M2) recorded an annual growth of 21% in June 2010, compared to21.2% a year ago. While quasi money increased by a faster pace of 29%, narrow moneyincreased by 12.5 percent.

On the supply side, 21% growth of broad money in June 2010 was supported by 9.6%growth in currency in circulation outside banks, 14.1% growth in demand deposits,15.9% growth in savings deposits and significant growth of 45.3% in time deposits.

On the demand side, growth was due to 5.9% growth in net foreign assets and 27.1%growth in net domestic assets over a year.

Domestic credits increased by 23.7% from D6.9 billion in June 2009 to D8.6 billion inJune 2010, supported by 28.4% growth in government borrowing and 29.6% growth incredits to the private sector, while credits to public entities declined by 15.8% over oneyear.

Table-2.7 Money Supply and Demand in June 2010

Components June2008

MillionDalasi

June2009

MillionDalasi

June2010

MillionDalasi

June2009

%share

June2010

%share

June-09% ch.over

June-08

June-10% ch.over

June-09

1.Money Supply (M3) (2+3) 8495 10298 12458 100 100 21.2 21.0

2.Narrow Money (2.1+2.2) 4132 5009 5636 49 45 21.2 12.52.1 Currency 1,484 1,753 1,921 17 15 18.1 9.62.2 Demand deposits 2,648 3,256 3,715 32 30 23.0 14.13.Quasi money (3.1+3.2) 4363 5290 6822 51 55 21.2 29.0

3.1 Savings deposits2,603 2,935 3,401

29 27 12.8 15.9

3.2 Time deposits 1,760 2,354 3,421 23 27 33.8 45.3Demands for money (1+2) 8495 10298 12458 100 100 21.2 21.0

1.Net foreign assets (1.1+1.2) 3807 2959 3133 29 25 -22.3 5.91.1 Monetary Authorities 2,926 2,233 2760 22 22 -23.7 23.6

1.2 Commercial banks 881 726 372 7 3 -17.6 -48.7

2.Net Dom. Assets (2.1+2.2) 4688 7340 9325 71 75 56.6 27.12.1 Domestic credit 5261 6929 8567 67 69 31.7 23.7

(a) Credits to government 1,959 2,858 3671 28 29 45.9 28.4

(b) Credits to public entities 381 835 703 8 6 119.4 -15.8

(c) Credits to private sector 2,738 3,236 4193 31 34 18.2 29.6

(d) Credits to forex bureau 183 0 0 0 0 -100.0 -

2.2 Other items, net -573 411 758 4 6 -171.7 84.5Source: Central Bank of Gambia

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2.10 Performance by Commercial Banks

(b) The Gambian banking industry now consists of 14 banks compared to 13 banks in 2009.However, the industry is dominated by three large banks holding 61 percent of the totalassets, although their share has declined over the years.

(c) The banking industry continues to show increasing signs of resilience with growth inassets, capital and reserves. The industrys total assets increased to D15.6 billion in June2010, up by 18.4% over a year, and the asset quality is satisfactory.

(d) 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.

(e) 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.

(f) Loans and advances to the private sector, accounting for 51% of total domestic credit,increased by 10.5% to D4.9 billion in June 2010 from D4.4 billion in December 2009.

(g) Credit to agriculture, manufacturing, tourism and financial sectors increased by 27%,25.4%, 27.2% and 29% respectively. Similarly, credit to distributive trade, transportationand other commercial loans rose by 10.4%, 11.7% and 43.6% during the same period.

(h) In contrast, loans and advances to fishing and personal purpose declined by 12.1% and31.9% respectively.

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

Items

December

2009June2010

Composition (%)GR (%) of

June-2010 Over

Dec-2009Dec-2009June-2010

Agriculture 262.5 333.5 5.9 6.8 27.0

Fishing 16.9 14.9 0.4 0.3 -12.1

Manufacturing 217.4 272.6 4.9 5.6 25.4

Construction 499.0 507.4 11.3 10.4 1.7

Transportation 312.7 349.2 7.1 7.2 11.7

Trade 1160.7 1280.9 26.3 26.3 10.4

Tourism 211.2 268.7 4.8 5.5 27.2

Financial 146.4 188.9 3.3 3.9 29.0

Personal loans 816.8 556.5 18.5 11.4 -31.9

Others 769.3 1105.1 17.4 22.7 43.6

Total 4413.0 4877.7 100.0 100.0 10.5Source: Central Bank of Gambia (CBG)

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2.11 Commercial Banks Assets

Total assets of the commercial banks increased by 18.4% on year-on-year basis fromD13.2 billion at end-June 2009 to D15.6 billion at end-June 2010.

Gambian banks do not have large exposure to foreign assets or foreign liabilities. Atend-June 2010, foreign assets constituted only 8% of total assets (foreign exchange1.9%, balances abroad 4.9% and foreign investment 1.3%), down from 8.8% a year ago(foreign exchange 1.4%, balances abroad 6.4% and foreign investment 1%).

Gambian banks also do not have large contingent liabilities. At end-June 2010contingent liabilities increased by only 1.4% over one year and constituted only 11.8% oftotal liabilities, down from 13.8% a year ago.

At end-June 2010, loans and advances increased by 22.5% over a year and constituted29.1% of total assets, compared to 28.1% a year ago.

At end-June 2010, investments in government Treasury Bills by the banks increased by22.8% over a year and constituted 24.9% of their total assets. As expected, three largebanks had the dominant share.

At end-June 2010, loans and advances to the public sector decline by 17.6% over ayear, while those to the private sector increased by 32.6% over a year ago.

Table-2.11 Commercial Banks Assets at the end-June 2010 (Million Dalasi)

Jun-2009 Jun-2010

1. Notes and coins 170.4 194.0 250.6 1.5 1.6 13.9 29.2

2. Foreign exchange 174.6 186.7 289.9 1.4 1.9 6.9 55.3

3. Local Bank balance 953.8 1,013.3 1,560.4 7.7 10.0 6.2 54.0

ii. CBG 942.3 933.0 1,334.8 7.1 8.5 -1.0 43.1iii. Banks locally 11.5 80.3 225.5 0.6 1.4 599.3 181.0

4. Balances abroad 890.7 846.4 762.9 6.4 4.9 -5.0 -9.9

5. Bills purchased 18.1 112.1 92.8 0.8 0.6 519.6 -17.2

6. Loans and advances 2,757.2 3,711.7 4,545.0 28.1 29.1 34.6 22.5

i. Public sector 243.8 750.6 618.5 5.7 4.0 207.8 -17.6

ii. Private sector 2,513.3 2,961.1 3,926.5 22.4 25.1 17.8 32.6

7. Investments 3,384.1 3,421.2 4,224.2 25.9 27.0 1.1 23.5

i. Govt Treas ury Bills 3,074.4 3,174.3 3,898.2 24.1 24.9 3.3 22.8

ii. Others 166.2 117.3 129.4 0.9 0.8 -29.4 10.3

iii Foreign Invest. 143.4 129.6 196.6 1.0 1.3 -9.7 51.7

8. Fixed assets 742.0 979.2 1,186.0 7.4 7.6 32.0 21.1

9. Guarantees 1,311.3 1,824.5 1,849.2 13.8 11.8 39.1 1.4

10. Other assets 889.4 908.2 830.2 6.9 5.3 2.1 -8.6

11. Total assets (1 to 10) 11,291.5 13,197.3 15,630.5 100.0 100.0 16.9 18.4

12. Net Balance (11-9) 9,980.2 11,372.8 13,781.3 86.2 88.2 14.0 21.2

Memo: Foreign As sets 1,208.8 1,162.7 1,249.4 8.8 8.0 -3.8 7.5

% ch.

Jn10 over

Assets (Million Dalasi) Jun-2008 Jun-2009 Jun-2010 Composition (%) % ch.

Jn09 over

Source: Central Bank of Gambia.

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2.12 Commercial Banks Liabilities

As mentioned earlier, Gambian banks do not have large exposure to foreign liabilities.At end-June 2010, external sector related liabilities constituted only 2% of total liabilities(non-residents deposits 1.1%, balances with banks abroad 0.1% and external debt0.8%), up from 1.5% a year ago (non-residents deposits 1.2%, balances with banksabroad 0.1% and external debt 0.2%).

At end-June 2010 bank deposits increased by 23.3% over a year, aided by a growth of14.1% in demand deposits, 15.9% in savings deposits and 45.3% in time deposits.

At end-June 2010 banks capital and reserves increased by 8.8% and bank balancesdeclined by 79.4%, while borrowings increased by more than four times over a year.

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

Jun-2009 Jun-2010

1. Capi tal and reserves 1,457.1 1,514.8 1,647.7 11.5 10.5 4.0 8.8

2. Demand deposits 2,647.8 3,255.5 3,714.5 24.7 23.8 23.0 14.1

i Residents 2,363.4 2,712.1 3,506.1 20.6 22.4 14.8 29.3

ii Non residents 16.7 18.8 24.0 0.1 0.2 12.8 27.5

iii Government entities 267.8 524.6 184.5 4.0 1.2 95.9 -64.8

3. Savings deposits 2,603.1 2,935.2 3,401.5 22.2 21.8 12.8 15.9

i Residents 2,520.6 2,844.7 3,297.9 21.6 21.1 12.9 15.9

ii Non residents 74.8 79.1 89.5 0.6 0.6 5.8 13.1

iii Government entities 7.8 11.3 14.0 0.1 0.1 46.2 23.7

4. Time deposits 1,759.8 2,354.4 3,420.8 17.8 21.9 33.8 45.3

i Residents 1,283.0 1,674.6 2,609.6 12.7 16.7 30.5 55.8

ii Non residents 17.2 65.4 46.1 0.5 0.3 280.1 -29.5

iii Government entities 459.6 614.5 765.1 4.7 4.9 33.7 24.5

Total deposits 7,010.7 8,545.2 10,536.8 64.7 67.4 21.9 23.3

5. Bank Balances 80.6 288.3 59.3 2.2 0.4 257.6 -79.4

i HO & branches 2.4 273.5 44.2 2.1 0.3 11394.5 -83.8

ii Other banks abroad 78.2 14.8 15.0 0.1 0.1 -81.0 1.4

iii. Banks locally - - - 0.0 0.0

6. Borrowings from 278.5 148.5 837.7 1.1 5.4 -46.7 464.1

i Cent. bank of Gambia - - - 0.0 0.0

ii Other banks locally 31.2 - 20.0 0.0 0.1 -100.0

iii HO & branches 113.8 123.5 686.3 0.9 4.4 8.6 455.7

iv Other banks abroad 133.5 25.0 131.4 0.2 0.8 -81.3 425.8

v. Other sources - - - 0.0 0.0

7. Guarantees 1,311.3 1,824.5 1,849.2 13.8 11.8 39.1 1.4

8. Other liabilities 1,153.3 876.1 699.8 6.6 4.5 -24.0 -20.1

9. Total liabilities (1 to 8) 11,291.5 13,197.3 15,630.5 100.0 100.0 16.9 18.4

10. Net balance (9-7) 9,980.2 11,372.8 13,456.9 86.2 86.1 14.0 18.3

Memo: Foreign liabl. 320.4 203.1 306.0 1.5 2.0 -36.6 50.7

Jun-2008 Jun-2009 Jun-2010 % ch.

Ap09 over

% ch.

Ap10 over

Composition (%)Liabilities (Million

Dalasi)

Source: Central Bank of Gambia

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2.13Interest 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 CBGreduced 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 counteremerging inflationary pressures, the CBG raised its rediscount rate by one percentage pointfrom 14% to 15% in June 2007, and further to 16% in October 2008. The rediscount rateremained unchanged at 16% since then until November 2009. In view of the declining trend ofinflation rates, the MPC reduced the policy rate by 2 percentage points to 14% with effect fromDecember 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

to 9.3%, 10.4% and 12.9% respectively in June 2010.

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 10.5% in June 2010. By contrast, commercial banks lendingrates remained sticky above 20% due to high operating costs and high risks of bank credits.

Table-2.13 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 18Bank lending rare- max 24 24 24 36.5 36.5 30 28 27 27 27

Deposit 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 9Deposit rate (SB) 2 2 2 9 7 5 2 2 3 3

Time 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

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2.14 BOP, Foreign Exchange Reserves and Exchange Rates(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 D642million in 2010-Q1 compared to a deficit of (-) D108 million in 2009-Q1, due to significantimprovements 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.

Data from the Gambia Tourism Authority (GTA) indicates that Tourists arrivals in 2010-Q1declined by 33% over 2009-Q1 reflecting the weaker global economic situation. Similarly,data on remittances showed only a modest recovery, lower than expected earlier.

(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 toD16.69 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 a year ago.

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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

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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2.15 Exchange Rate

Over one year, in July 2010 Dalasi depreciated against US$ by 4.6%, against SEK by

4.5%, against CHF by 2.5% and against CFA by 1.5%, while it appreciated against Euro by

2.8% and against the UK marginally by 0.2%.

Table-2.15 End-period mid-market exchange rates (Dalasi per unit offoreign currency)Year Month UK US$ SEK(10

0)CHF CFA(500

0)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 35.32

May 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 37.68Sept 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 39.02

Mar 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

June 41.77 27.86 345.71 24.08 286.26 36.13 July 43.20 28.03 362.19 25.04 281.81 36.97

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 2.1May -5.5 7.4 8.3 14.6 5.6 -0.7

June -3.1 3.7 -0.6 9.7 4.9 -2.4

July -0.2 4.6 4.5 2.5 1.5 -2.8Source: Central Bank of Gambia (CBG)

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3. Recent Policy Developments and Development Issues

3.1 Budget Call Circular for the Preparation of Budget for 2011

As in earlier years the Ministry of Finance has issues a Budget Call Circular to all ministries andbudgetary agencies indicating the policy guidelines and procedures for the preparation of the

fiscal year 2011 budget proposals. The Circular provides the overall macroeconomic and fiscalpolicy framework and the indicative expenditure ceilings for all budgetary agencies for FY 2011;communicates the policy and administrative guidelines and procedures in the preparation of theFY 2011 budget consistent with public financial management reforms; and set the schedule ofbudget preparation activities. All Ministries/Departments/Agencies (MDAs) have been requestedto prepare their Budgets for FY 2011 and submit them to the Ministry of Finance (MOF) not laterthan 6 August 2010 at the latest.

Budget Strategy

The budget shall give priority to major programs/activities that are geared towards achieving thePRSPII objectives and the MDGs. For FY 2011, the focus for funding shall be mostly directed to

the following priority areas, determined in the context of the PRSPII:i) Infrastructure development including roads construction and improvement in

energy supply and accessii) Basic and secondary education services to increase efficiency in deliveryiii) Health services to pave the way for meeting the Millennium Development Goals

(MDGs), especially:a. Increasing population access to the basic clinical care packageb. Increasing the production and retention of skilled health care workersc. Improving essential drugs security in the countryd. Increasing access to public health protection servicese. Gradually meeting the tertiary care needs of the population

iv) Agricultural development to help improve food security, value addition and raisefarmers income and foreign exchange earnings;

v) Further improvement in Information Technology including telecommunicationvi) Deepening public financial management, especially to build capacity of MDAs in

the area of strategic planning and budgetingvii) Human capital formation through job creation programs/activities and the

acceleration of the public service reform processviii) Good governance and respect for the rule of lawix) Environmental development to help establish an effective response to climate

change

Macroeconomic Framework

The preparation of the FY 2011 budget proposals shall be based on the Macroeconomicframework as presented in Table-1 and Table-2.

Fiscal Framework: Table-3 presents the fiscal envelope for 2011 Budget.

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Table-1: Key Macroeconomic Parameters/Assumptions for 2011

Parameter2009(actual)

2010(estimate)

2011(projected)

1 GDP real growth % 5.6 5.0 5.4

2 Inflation % 4.6 3.9 5.0

3 91 days TB rate % 11.3 10.0 9.5

4Foreign Exchange(Dalasi/USD)

26.68 27.48 28.30

5GDP (million dalasi, IMFestimate)

25,805 28,425 31,434

6 Debt to GDP ratio % 61.1 57.2 53.3

- External debt 37.1 35.1 33.6

- Domestic debt 24.0 22.0 19.7

Source: MEPID, GBOS, CBG, IMF and SSSD/MOF

Table-2: Sectoral Growth Rates and Shares in GDP at factor cost (in

percentage)

Sectors Growth Rates (%) Sectoral Shares (%)

2009 2010 2011 2009 2010 2011

Agriculture 9.8 4.3 4.3 26.3 26.2 26.0

Crops 14.3 4.5 4.5 14.8 14.8 14.7

Livestock 4.5 4.0 4.0 8.9 8.9 8.8

Forestry 0.7 2.0 2.0 0.5 0.5 0.5

Fishing 5.1 4.3 4.3 2.0 2.0 2.0

Industry 2.1 5.1 4.7 13.0 13.1 13.0

Mining & Quar. 12.0 11.5 11.5 2.1 2.2 2.3Manufacturing -2.8 3.1 3.1 5.4 5.4 5.3

Utilities 6.2 11.6 11.6 1.5 1.6 1.7

Construction 3.0 1.0 1.0 4.0 3.8 3.7

Services 4.3 4.8 5.3 60.7 60.7 60.9

Trade 6.0 1.3 2.0 26.7 25.9 25.1

Hotels -26.8 1.0 1.5 2.6 2.5 2.4 Transport &Comm.

5.0 8.0 8.511.0 11.3 11.7

Financial 13.2 7.0 7.0 9.0 9.2 9.3

Real estate2.5 3.0 3.0

3.0 2.9 2.9Public admin 2.0 9.0 9.0 3.6 3.8 3.9

Education 2.7 11.5 11.5 1.8 1.9 2.0

Health 8.0 12.7 12.7 2.4 2.5 2.7

Community 2.8 12.4 12.4 0.7 0.7 0.8Source: GBOS and SSSD/MOF.

Table 3: Indicative GLF Resource Envelope for FY 2011 (in Million Dalasi)

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Outturn2009

Budget2010

Projected 2011

Variance

2010/11

Variance %

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1 Revenue and Grants 4,069 4,838 4,844 6 0.1%

- Tax 3,391 3,991 4,228 237 5.9%

- Non Tax revenue 380 422 443 21 5.0%

- Grants 298 425 173 (252) -59.3%

2a Expenditure & NetLending 3,870 4,428 4,907 478 10.8%

- Debt interest 845 762 773 11 1.4%

- External 147 176 194 18 10.0%

- Domestic 698 586 579 (7) -1.2%

2b Other expenditure 2,968 3,604 4,084 480 13.3%

- Personnel 1,035 1,486 1,472 (14) -0.9%

- Other current 1,583 1,752 1,611 (141) -8.0%

- Capital GLF 350 365 1,000 635 173.8%

2c Net Lending andInvestment 57 62 50 (12) -19.4%

- Investments 86 84 88 4 4.8%

- Net Lending (29) (22) (38) (16) 72.7%3 Gross Surplus/Deficit 199 410 (63) (472) -115.3%

4 Financing (199) (392) (399) (7) 1.7%- Domestic borrowing(net) 167 (10) (91) (81) 808.6%

- Amortization (303) (336) (372) (36) 10.6%

- Arrears (117) (110) - 110 -100.0%

- Capital revenue 55 64 64 - 0.0%

5 Net surplus/deficit 0 17.2 (462) (445)-

2790.6%

6 MDA resourceenvelope 3,172 3,815 3,710 (105) -2.8%

Annual increase inresource envelope -1.5% 20.3% -2.8%

Memorandum Items:GDP (nominal, MD, IMFest)

25,805 28,425 31,434

Revenue/GDP ratio 15.8% 17.0% 15.4% 10.6%

Expenditure/GDP ratio 15.0% 15.6% 15.6%Gross deficit/surplus toGDP 0.8% 1.4% -0.2%

Net deficit/surplus toGDP 0.0% 0.1% -1.5%

Resource envelope toGDP 12.3% 13.4% 11.8%

Source: MOF

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3.2 Tax Policy Measures Taken in June 2010

As mentioned earlier, the fiscal performance during the first half of 2010 was not satisfactorydue to shortfalls of government revenues, although the expenditures were within the budgetedallocations. In order to improve revenue realizations and to achieve positive basic balance at theend of the year, the government introduced the following measures in June 2010:

a) Reinstated domestic excise taxes of GMD 11 per liter of beer which will raise about

GMD 19 million in 2010;

b)Reformed the mechanism for setting retail prices for petroleum fuels, which

incorporates an excise tax of GMD 5 per liter on premium motor spirits and GMD 1 per

liter on diesel, and applies the general sales tax rate of 15 percent on all petroleum

based fuels. The new formula for retail prices will be adjusted at regular intervals to

allow the pass-through of changes in world fuel prices and the exchange rate.

c) Allowed business class air travel for only ministers and others having higher ranks;

d) Put a freeze on non-priority hiring in the public sector; and

e) Reduced monthly cash allocations to spending agencies in line with the requirements to

achieve a cumulative basic balance of D265.1 million by end-September 2010.

3.2 IMF Technical Missions

At the request of the authorities of the Gambia an IMF Technical Assistance Mission (MSA)on revenue administration comprising David Kloden (Head), Patrick Fossat and Maureen Kiddvisited Banjul during April 30-May 13, 2010 and produced a report entitled The Gambia-

Building on the Gambia Revenue Authority (GRA) Success- a Tax Reform Program Anchoredon VAT. The missions purpose was to evaluate the state of revenue administration with aspecific focus on the administrative measures and preparations necessary to launch andimplement VAT by January 2013 in accordance with the regional commitments under theEconomic Community of West African States (ECOWAS). The mission has given valuablesuggestions and advice on tax policy and designs, tax administration, restructuring GRA,particularly strengthening the customs administration, and VAT administration plan.

In response to a request by the Honorable Finance minister another IMF Technical AssistanceMission (MSA) on public financial management comprising Duncan Last, Florence Kuteesaand Camille Karamaga visited Banjul during June 14 to 24, 2010 to advise on strengthening thebudget preparation process, as well as the prioritization and sequencing of the public financial

management (PFM) reform strategy over the medium term. The mission held a half dayworkshop on budget reforms attended by senior officers of ministries and local governments.The mission advised that as a first step towards PFM reforms, the MOF may implementprogram budgeting within the Medium Term Expenditure Framework (MTEF) in three pilotministries in 2012 budget, and then rolling over to other ministries during 2013-2014. TheMission has produced a report entitled The Gambia- Strengthening Budgetary Managementand sequencing Reformswith detailed action plans and time lines.