Late rains to affect Economic Growth Performance in 2014 Says Central Bank Governor

By Muhammad Bah

The Governor of the Central Bank of the Gambia (CBG), Mr. Amadou Colley, on Tuesday, 4th of November 2014, submitted the Bank’s end of year 2013 report for consideration and adoption by the joint session of the Public Accounts and Public Enterprises Committee (PAC/PEC) of the National Assembly.

In presenting the report, the CBG Governor, told the lawmakers that the primary objective of the Bank is to maintain price stability and that it is mandated to maintain the stability of the currency of the Gambia and to regulate the financial systems that are aimed at facilitating the sustainable economic development of the country.

Governor Colley said the Gambian economy has recovered from the 2011 drought-induced recession coming to 2013. He said in 2012, growth recovered to 5.9 percent but moderated slightly to 4.6 % in 2013, adding that the performance is still below the pre-drought level of 6.5 %.

According to Colley, the economic growth performance in 2014 is expected to be marred by yet another year of uneven rain distribution with the late start of rain expected to adversely affect crop production to some degree.

He said the economic growth out looked would also be the damaging effect due to the Ebola outbreak within the sub-region, adding that despite the Gambia being Ebola free, it is estimated that the news around the sub-region will lead to a drop in services through decline in tourism with re-export trade also severely affected as countries tighten border controls.

Accordingly, he said, the lower agriculture output and a decline in tourism receipts and the second round effects on the banking sector, transportation and telecommunication, is expected to slow growth performances in 2014.

The Central Bank Governor maintained that the bank’s decision to keep monetary conditions very tight despite developments in the real sector was bold and difficult but it is necessary to maintain micro-economic stability. According to him, the exchange rate of the dalasi is stabilized and inflation is under control albeit slight increases in recent months.

Governor Colley noted that exchange rates and prices would depend largely on the stance of fiscal policy and demand for imports of food and energy, adding that the demand and pressures from food imports largely depend on domestic agriculture.

He said the bank pursued the monetary policy through the Monetary Policy Committee (MPC) framework and that through the MPC, the bank monitored developments in the various sectors of the economy and the variable affecting money supply. He said appropriate response measures were taken which sought to contain inflationary pressures and that the MPC increased the rediscount rate during the year in May, June and August 2013.

The Governor continued that the interest rates trended upwards, reflecting the tight monetary policy stance of the Bank. He said the overall Net Open Position (NOP) which reflects the foreign currency exposure of banks was lowered from 25 percent to 15 percent and the individual foreign currency holding was lowered from 15% to 10%.

Governor Colley said the bank revised the foreign exchange guidelines to ensure an orderly functioning of the domestic exchange market.

On inflation, the Governor said the target was to contain inflation below 6.0 percent. He said monetary policy in 2013 is conducted in a challenging environment which includes expansionary fiscal policy and high domestic debt and the uncertain global economy.

According to the Central Bank Governor, the high domestic debt limits the ability of monetary policy to have the desired results, adding that in 2013 the National Consumer Price Index increased to 5. 6 % while it was 4.9 % in 2012. He said the cause was due to the depreciation of the exchange rate fueled by the high cost of energy imports and expansionary alongside distressed fiscal conditions.

He said the consumer food inflation rose to 6.7 % in 2013 compared to 5.6 % in 2012, adding that the non-food inflation declined to 3.7 percent in December 2013 from 4.0 percent in the year before.

Governor Colley said core inflation increased to 5.7 percent in December 2013 from 4.9 percent in December 2012.