By Tabora Bojang
The Central Bank of the Gambia has stated its intention to tighten its monetary policy stance with further increases of the policy rate to fight against inflation, which is expected to remain elevated at 18.5 percent in the Ecowas region in 2022 and will remain largely unchanged in 2023.
Governor Buah Saidy in a statement read on his behalf by CBG´s director of research, Ebrima Wadda at the 42nd joint ordinary meeting of the West Africa Monetary Agency in Banjul Thursday, also announced new measures by the government to support the country’s fragile economic recovery among them the reduction in subsidies to the State Owned Enterprises, ensure infrastructure development is mainly driven by highly foreign financed projects, while domestically financed investment be limited to advancing on-on-going projects.
He said the lingering effects of the Covid-19 pandemic, tight financial conditions, heightened inflationary pressures and the Russia-Ukraine war continues to seriously reverse recent gains made by regional economies in the areas of growth, fiscal consolidation, debt sustainability and curbing inflationary pressures, thus pushing central banks and economies to be aggressive to continue tightening monetary policy in bid to stabilise prices on one hand and supporting the recovery process on the other hand.
According to Governor Saidy, the Gambian economy is projected to grow by 4.5 percent in 2022 and 6.0 percent in 2023, down from initial projections of 5.6 percent and 6.2 percent while growth is projected to stabilise around 5.0 percent in the medium term.
He added: “Given the surging food and energy prices, inflation is expected to remain high in 2022 and 2023 but revert to single digit in the medium term. Although the rise in the cost of living continues to hold back household consumption, public and private construction, agricultural output and tourism supported growth. The Central Bank of the Gambia will further tighten the monetary policy stance as inflationary pressures are expected to persist before moderating gradually towards the end of 2023. Thus, the policy rate will be increased and brought rapidly into positive territory in real terms. The tightening of the monetary policy stance will also support the Bank’s exchange rate policy.”
The bank however did not indicate how high the rates would be ramped up and for how long, in its bid to slow down inflation and restore price stability.
CBG also reported that Gambia’s balance of payment position continues to be under pressure as the current account deficit is forecast to widen further while the deficit in the goods account is expected to narrow due to the slowdown in the growth of imports.
The gross international reserves remain in excess of 4 months of import cover.
The apex bank warned that pressure on the balance of payments and foreign exchange may persist if the spill overs from the Ukraine war intensify, commodity prices remain elevated and an abrupt global slowdown or recession occurs, which would further weaken economic recovery and amplify pressures on inflation, fiscal performance and external stability.
New fiscal disciplinary measures
In the wake of dire economic straits, the Barrow government continues to adopt expansionary measures which economic analysts fear is weakening the economy and the overall financial system amid consistent budget deficit rises to cover travels, emoluments, capital projects and foreign missions.
According to governor Saidy, the government in its bid to narrow the budget deficit and also create fiscal space, will implement several measures to boost domestic revenue collection among others.
He said such measures include improving the degree of fuel price pass through, strengthening the collection of several other tax and non-tax revenue, accelerate digitalisation and expand the tax ledgers cleansing to other categories of taxpayers.
“There would be stronger management of tax arrears, the setting up of a fully functional Internal Affairs Unit at GRA to enhance the internal assurance and integrity mechanism and reduction in the subsidies to the SOEs.”