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Thursday, February 7, 2013

Gambian Dalasi continues to weaken against major currencies, slight growth in GDP

Vegetable sellers and buyers at local market in Serrekunda, The Gambia

Gambia’s Central Bank Monetary Policy Committee (MPC) has confirmed the continuous weakening of the Dalasi against all major international currencies traded in the foreign exchange market.

Year-on-year as of December 2012, the local dalasi currency depreciated against the US dollar by 11.6 percent, pound sterling (18.0 percent) and Euro (11.5 percent), the MPC said on February 4, 2013.

Despite the significant drop in value of the currency, the Gambia Bureau of Statistics, GBOS, projected a growth of 4.0 percent in real Grass Domestic Product (GDP) of The Gambian economy in 2012.

The slight growth followed a contraction of 4.3 percent in 2011.

“Preliminary projections indicate that output would expand by 10.0 percent in 2013 premised on strong growth of agriculture and tourism,” GBOS projected.

The Gambia’s real GDP grew by 6.7% in 2009, declining to 5.5% in 2010 and further decreased to 3.3% in 2011 – as a result of a a decline in tourism and agricultural especially the total crop failure that gripped the country in 2011.
English: Serrekunda, horse cart
At the bottom of the economy: A man on Donkey cart grappeling to make ends meet on the streets of Serrekunda (Photo credit: Wikipedia)

On Monday, the MPC said money supply failed to grow to its estimated target of 8.5 percent; it only grew by 7.8 percent in 2012 compared to 11.0 percent in 2011.

But it said the reserve money, which is the Central Bank’s operating target, rose by 6.8 percent compared to 15.6 percent in 2011. It actually surpassed by 1 percent of a projected growth of 5.8 percent in 2012.

The Committee warns that it is essential to continue strengthening the resilience of banks in order to ensure effective transmission of monetary policy.

“Bank soundness is also critical to protect depositors and other creditors as well as ensuring an appropriate provision of credit to the economy,” they said.

The warning followed the impromptu closure of a major financial institution, Prime Bank, two weeks ago. Prime Bank was forced to close after failed to meet the Central Bank’s (CBG) capital requirement of D200 million
 
But the MPC said the banking industry remains “fundamentally sound”.

In December, an International Monetary Fund (IMF) mission to the country led by Mr. David Dunn revealed that the recent directive by President Yahya Jammeh on the exchange rate and shipments of U.S. dollars led to some “disruptions” in the foreign exchange market and created “uncertainty” about The Gambia’s exchange rate policy.

“The industry’s capital and reserves increased to D3.06 billion in December 2012 compared to D2.63 billion in 2011,” the Committee said.

This, they said, is mainly on account of capital injection totaling D392.4 million.

The MPC also said the average risk-weighted capital adequacy ratio also increased to 33.0 percent compared to 25.1 percent in 2011 and the minimum requirement of 10 percent.

Domestic debt increases

Total industry assets increased to 20.6 billion or 10.5 percent from 2011. Loans and advances, accounting for 26.4 percent of total assets decreased toD5.3 billion, or 2.4 percent from a year ago, they added.

Credit to distributive trade, building and construction and other commercial loans increased by 5.0 percent, 11.0 percent and 26.0 percent respectively.

In contrast, the CBG’s MPC said advances to agriculture, transportation and tourism declined by 3.0 percent, 6.0 percent and 5.0 percent respectively.

 The non-performing loan ratio also decreased to 11.6 percent of gross loans, lower than the 12.6 percent in 2011, while deposit liabilities rose to D13.08 billion, or 2.1 percent over 2011.

But the financial industry’s net profit rose from D12.2 million in 2011 to D102.2 million in D2012. The return on assets and return on equity increase to 1.98 percent and 3.33 percent compared to 0.26 percent and 0.46 percent respectively in 2011.

“The outstanding domestic dept increased to D10.7 billion (37 percent of GDP) in 2012, or 14.3 percent from a year ago,” the CBG, financial industry’s main regulator confirmed.

It said both the Treasury Bills and Sukuk Al-Salam, the Islamic Banking equivalent of Treausry Bill, which accounted for 80.0 percent of the domestic dept rose to D8.6 billion, or 21.0 percent.

“Provisional balance of payments estimates for the first nine months of 2012 indicate an overall deficit of US dollar 9.19 million compared to a surplus of US dollar 64.14 million in the corresponding period a year ago.

“The current account balance, including current transfers, was in a surplus of US dollar 19.16 million, lower than the surplus of US dollar 64.47 million a year ago.

“The deficit in the capital and financial account widened to US dollar 28.35 million from US dollar 0.34 million in the corresponding period in 2011,” the CBG’s monitary monitoring committee said.

Gross international reserves stood at US dollar 184.5 million as at end December 2012, equivalent to about 5.0 months of imports of goods and serves, the MPC added. Volume of transactions in the domestic foreign exchange market, measured by aggregate purchases and sales, increased to US dollar 1.6 billion in 2012 - from US dollar 1.4 billion in 2011.

Inflation

Preliminary estimates of government fiscal operations in 2012 showed a lower deficit (including grants) of 4.4 percent of GDP compared to 4.6 percent of GDP in 2011. Total revenue and grants increased to D6.5 billion (22.5 percent of GDP) or15.7 percent from 2011. Government expenditure and net leading also rose to D7.7 billion 26.9 percent of GDP), or 13.6 percent from 2011.

This bank liquidated in a "financial sound" environment in January  2013
End- period inflation, measured by the National consumer price index (NCPI), increased slight to 4.9 percent in December 2012 from 4.4 percent in December 2011. Average inflation (12-months moving average) was 4.5 percent compared to 5.4 percent a year earlier. Consumer food inflation fell slight to 5.6 percent in December 2012 from 5.7 percent in December 2011. Non-inflation, on the other hand, increased to 4.0 percent from 2.4 in December 2011.

Core inflation, which excludes the prices of energy, utility and volatile food items, increased slightly to 4.9 percent fro 4.3 percent in December 2011.

Meanwhile, inflation is forecast to remain in single digit consistent with the pace of monetary expansion. The MPC said it assesses the balance of risks to the inflation outlook to be on the upside given heightened inflationary expectations.

In the light of these developments, the MPC is of the view that the current monetary policy stance is appropriate and has therefore decide to leave the rediscount rate, the bank’s policy rate, unchanged  at 12.0 percent.

The MPC would continue to monitor price developments and to take action consistent with its mandate to keep inflation low and non-volatile, it said.

Written by Modou S. Joof

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