Press Release
MODERNIZATION OF THE GAMBIA PAYMENTS SYSTEM
Capital Augmentation (INCREASE IN THE MINIMUM CAPITAL REQUIREMENT TO D150.0 MILLION)
Appointment of New Governor
Monetary Policy Committee
PRESS RELEASE JANUARY 31, 2012
1. Since the previous meeting of the Monetary Policy Committee (MPC), the
outlook for the global economy has deteriorated. The sovereign debt
crisis in Europe has intensified, conditions in international financial markets
have tightened and risk aversion has risen.
2. According to the IMF’s latest World Economic Outlook, global growth is
forecast at 3.25 percent in both 2011 and 2012, down from the earlier
projection of 4.3 percent and 4.5 percent respectively.
3. Although growth in emerging and developing economies remain robust, it
is expected to moderate somewhat due to contagion from the European
crisis as well as policies aimed at curbing domestic demand pressures.
4. Global consumer price inflation is projected to ease as demand softens
and commodity prices stabilize or recede. In major advanced
economies, ample economic slack and well anchored inflationary
expectations kept prices subdued. Inflation is projected to decelerate to
1.5 percent in 2012, down from the peak of 2.8 percent in 2011. In
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emerging and developing economies, inflationary pressures are also
expected to decline slightly from 7.3 percent in 2011 to 6.3 percent in
2012. Going forward, three factors will determine the path of inflation
namely energy and food prices, output gaps and the credibility of policy
makers.
5. Data from The Gambia Bureau of Statistics indicate that the Gambian
economy grew by 5.4 percent in 2011, slightly lower than the 5.5 percent
and 6.7 percent in 2010 and 2009 respectively. Agricultural output grew
at a slower pace of 4 percent compared to 12.1 percent in 2010. Industry
value-added is estimated at 1.3 percent, lower than the 2.6 percent in
2010 attributed to the decrease in the output of mining and quarrying and
electricity, gas and water to 1.6 percent and 1.4 percent from 14.2
percent and 7.7 percent respectively in 2010. Manufacturing valueadded
rose to 3.9 percent from 0.4 percent in 2010. Construction output
shrank by 2.9 percent on top of the contraction of 3.7 percent in 2010.
Services value-added grew by a robust 8.5 percent, significantly higher
than the 1.2 percent in 2010. All the services sub-sectors grew strongly
with the highest growth rates recorded by communication (14.0 percent)
and wholesale and retail (9.7 percent).
6. Broad money increased by 11.0 percent in 2011, lower than the 13.7
percent in 2010 and the target of 13.1 percent. Of the determinants of
broad money, the net foreign assets (NFA) and the net domestic assets
(NDA) of the banking sector grew by 13.1 percent and 10.1 percent
compared with 3.9 percent and 19.0 percent respectively in 2010.
Reserve money, the Bank’s operating target, increased by 12.3 percent,
higher than the 10.5 percent in 2010 and the target of 5.0 percent.
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7. Provisional data indicate an improved Government fiscal position in 2011.
Revenue and grants increased to D5.2 billion (16.1 percent of GDP),
higher than the D5.0 billion (17.1 percent of GDP) in 2010. Domestic
revenue, comprising tax and non-tax revenue rose to D4.2 billion, or 6.9
percent. Tax receipts amounted to D3.7 billion of which D1.8 billion was
on account of international trade taxes. Non-tax revenue also rose to
D499.6 million, or 7.4 percent. Total expenditure and net lending
amounted to D6.1 billion compared to D6.0 billion in 2010. Current
expenditure totaled D4.4 billion, or an increase of 13.3 percent. In
contrast, capital expenditure contracted to D1.7 billion, or 20.8 percent
from 2010.
8. The overall budget balance, including grants, was a deficit of D910.0
million (2.8 percent of GDP), lower than the D1.04 billion (3.5 percent of
GDP) in 2010.
9. Preliminary balance of payments estimates for the first three quarters of
2011 indicate an overall surplus of US$20.1 million, lower than the US$52.5
million recorded in the corresponding period of 2010. The current
account is estimated at a surplus of US$38.3 million, higher than the surplus
of US$17.7 million in the first nine months of 2010. The capital and financial
account balance registered a deficit of US$18.2 million relative to the
surplus of US$34.8 million in the corresponding period in 2010.
10. As at end-December 2011, the gross international reserves of the Central
Bank of The Gambia was US$182.50 million, equivalent to 5.1 months of
import cover.
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11.Activity in the domestic foreign exchange market continued to be
vibrant, despite the contraction in the volumes of transactions in 2011. In
the year to end-December 2011, volume of transactions totaled US$1.43
billion, lower than the US$1.67 billion in 2010.
12.The Dalasi, though broadly stable, depreciated against all the major
currencies. As at end-December 2011, the Dalasi weakened against the
US Dollar by 7.7 percent, Pound Sterling (6.9 percent) and Euro (8.8
percent) from December 2010. In nominal effective exchange rate terms,
the Dalasi weakened by 6.5 percent, higher than the 1.9 percent in 2010.
13. According to key financial soundness indicators, the banking sector
remains sound. The average capital adequacy ratio decreased slightly to
25.4 percent in 2011 from 25.9 percent in 2010, but was significantly higher
than the minimum requirement of 10 percent.
14.Total assets increased to D18.7 billion (64.0 percent of GDP), or 5.3 percent
from 2010. Gross loans and advances, accounting for 29.2 percent of
total assets rose modestly to D5.45 billion (18.7 percent of GDP), or 3.1
percent. The non-performing loans ratio decreased to 12.9 percent, lower
than the 14.5 percent in 2010.
15.The industry remains highly liquid. The liquidity ratio was 70.3 percent
compared to 69.8 percent in 2010 and higher than the minimum
requirement of 30 percent. Treasury bills holdings accounted for 67.3
percent of the liquid assets. Deposit liabilities rose robustly to D12.4 billion,
or 10.2 percent from 2010.
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16.The industry’s profits totaled D12.2 million compared to a loss of D17.7
million in 2010. The return on equity and return on assets was 3.0 percent
and 0.3 percent compared to 1.8 percent and -0.5 percent respectively in
2010.
17. According to readings of the Private Sector Business Sentiment Survey,
most respondents (54 percent) reported that economic activity was
higher in the fourth quarter of 2011 relative to the third quarter compared
to only 4 percent that reported lower activity resulting in a diffusion index
of (+50 percent). At the company level, 67 percent of respondents
indicated that activity was higher compared to 8 percent that reported
lower activity.
18. As at end-December 2011, the outstanding domestic debt increased to
D9.4 billion, or 8.6 percent from 2010. Treasury bills and Sukuk-Al-Salaam
bills combined, accounting for 75.1 percent of the debt stock, rose to D7.1
billion, or 15.9 percent.
19.According to data on the maturity structure of Treasury bills, the 364-day,
182-day and 91-day bills accounted for 65.1 percent, 20.5 percent and
14.4 percent of the outstanding stock respectively.
20. The yield on all the maturities declined in 2011. The yield on the 91-day,
182-day and 364-day bills declined to 8.07 percent, 10.18 percent and
11.85 percent from 10.10 percent, 10.53 percent and 13.09 percent
respectively.
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21. Consumer price inflation, measured by the National Consumer Price
Index (NCPI), decelerated to 4.4 percent in December 2011, lower than
the 5.8 percent in December 2010. Average inflation (12-month moving
average) also declined, albeit slightly to 4.8 percent from 5.0 percent in
December 2010. Food price inflation decreased to 5.7 percent, lower
than the 8.3 percent in December 2010. Non-food prices, on the other
hand, rose to 2.5 percent from 1.9 percent in December 2010.
22. Core inflation, which excludes the prices of energy, utilities and volatile
food items, declined to 4.3 percent from 5.7 percent in December 2010.
23. Inflation Outlook
The decline in headline inflation is consistent with the deceleration in money
supply and the stability of the Dalasi. Inflation is expected to remain in single
digit in 2012 predicated on prudent implementation of monetary and fiscal
policies as well as the easing of global food prices.
24.Decision
Taking the above factors into consideration, including the inflation outlook
and the lack of demand pressures from the slowing of the domestic
economy, the MPC has decided to reduce the policy rate by 1.0
percentage point to 13 percent. The expectation is that other interest rates,
particularly lending rates, would be reduced