Dr. Ousman Gajigo, Economist formerly with ADB
By Dr. Ousman Gajigo
You may have noticed a few weeks ago that the Central Bank of The Gambia (CBG) issued a press release. The specific press release came from the Monetary Policy Committee’s (MPC) meetings. This press release did not garner much attention. My guess is that it failed to get public traction mainly because the message it tried to portray was at odds with the actual economic realities in The Gambia.
The MPC is the key monetary policy decision-making body of the Central Bank as it sets the interest rate, which should in principle influence the inflation rate, and ultimately, theemployment levels and influence the overall economy. How and to what degree the MPC’s actions influence all these indicatorsin reality varies considerable across countries. Nonetheless, it should be important what the MPC has to share with the general public.
However, going by the recent press releases of this body of the CBG, one cannot help but be disappointed by the lack of candor in the press release’s description of the Gambian economy. In this criticism of the CBG, I would like to make a distinctionbetween the leadership and general staff. The tone and messaging in such a press release is the responsibility of the leadership rather than the general staff. For some reason, the leadership decide to craft a narrative of the Gambian economy that is inconsistent with reality.
In its description of the local economy, the press release starts with the laughable assertion that the Gambian economy is performing “strongly”. Let’s look at the basic facts. The growth rate of the country is 5.7%. For a country at Gambia’s level ofincome and development, this is low and there is nothing impressive about it. On per capita basis, this growth rate is less than 3%. If one looks at sectoral distribution of this growth rate, there is nothing impressive about it. In fact, at this level of growth rate, The Gambia will remain a low-income country for at least another generation. Is that reality consistent with strong performance ?
Let’s move on to some indicators that are more immediately connected to monetary policy. The interest rates in the countryare high due to the fact that the government continues to borrowexcessively and the borrowing is not being directed into prioritized expenditures. This excessive borrowing on the domestic market is crowding-out lending to the private sector.Without credit to the private sector, there is no economy to speak of. This consequence of a rising interest rate is not given the requisite attention in the press release. Instead, there is too much pushing of misleading portrayal of the situation on the ground.
This false portrayal of the economy is spread throughout the MPC’s press release. Let’s look at what it said with regards to the foreign exchange market where it states that “foreign exchange market continues to function smoothly”. Just a few sentence later completely, the facts inevitably contradicted this failed attempt at projecting a fake narrative.
The dalasi is continuing its depreciation against the US dollar, the euro, the British pound and CFA franc. This slide in value is a continuation of the trend that is evident in all other MPC press releases over the past years. Yet, in all relevant paragraphs of the CBG press release, they always begin with a phrase such as “The dalasi continues to be relatively stable”. In reality, thedalasi has been anything but stable under the current regime.
Consider what the CBG says about the banking sector. It claimed that the sector is characterized by “healthy financial soundness indicators”. No one would argue that the Gambian banking sector is in crisis but the press release’s lack of focus on the relevant banking indicators and their implications for the economy is a glaring omission. The press release only restricted its discussion with the capitalization and liquidity of banks. While it mentioned the non-performing loan (NPL) ratio, which increased from 8.7% to 10.2% over a 4-month period (March to June), there is no follow-up sentence on its implications.
With such a significant increase in the NPL, one would expect that the press release would say something about the assets of banks and which class of assets is responsible for the uptick in default rates. Moreover, with the increase in government borrowing on the domestic market, one would have thought that the CBG would reveal the extent to which the government securities comprise the assets of the commercial banks. But nothing is said about this potentially important point.
Let’s move on to the inflation rate. The MPC’s press release made a wild claim about the inflation rate declining significantly. The leadership of the CBG was particularly desperate for this narrative to pushed to the public. When this messaging was not picked up by the press, the leadership of the CBG went to the extent of convening a meeting with the press to further implore them to play up and amplify their positive spin.
The credibility of the press would have been seriously damaged had they regurgitated this dubious narrative. The quoted inflation rate from the MPC’s press release is at odds with reality. Anyone living in The Gambia should be aware of thecosts of items that constitute the bulk of the consumption basket that is used to estimate the changes in the genera price level. The purported drop in food price inflation is divorced from reality.
It is not unheard off to have governments manipulate inflations statistics because there are few damning indicators of economic mismanagement than rising inflation. However, in almost all cases, the people eventually see through the charade. This should not be surprising. After all, almost every adult needs to make daily purchases and most of these goods are part of the consumption basket that the Gambia Bureau of Statistics (GBOS) is supposed to use to estimate the inflation rate in the country. When official measures of inflation rate diverge from people’s lived experience, it does not take a degree in economics to know something is amiss.
It is quite clear that in each of the sections of the press release that discusses the local economy, the portrayal by the CBG leadership diverges from reality. Ask ourselves this question:Can a country with a slow GDP growth rate, high debt burden, high interest rate, high inflation, deteriorating current account balance and a collapsing currency can be considered to have a strongly performing economy? Does any Gambian today consider our economy to be doing well?