How Debts and Tax Dependency Cripple Gambia’s Economy Since Independence
February 18th, 2020 marked exactly 55 years since The Gambia was liberated from the shackles of colonialism under Great Britain. It came following a series of negotiations by the country’s founding fathers with the colonial masters.
The contention of both the British and many analysts at the time had been the slim chances in the economic prospect for The Gambia to be able to survive considering its small geographical size and population.
The country’s lack of diamond or oil resources, with the exception of the Atlantic Ocean and agriculture, left prospects bleak.
But with thousands of hectares of arable land, the politicians at the time insisted that the country will progress.
After independence, groundnut and cotton became the bedrock of the country’s economy with its small population size, while development was only concentrated in the urban area.
“When the population started growing, in the 80’s we had a problem because there was a global oil crisis that triggered an economic downturn globally and Gambia suffered significantly,” Nyang Njie, an economist, recalled in an exclusive interview with The Chronicle.
To stabilize the economy, the government of the country’s founding president Sir Dawda Kaira Jawara introduced Economic Recovery Program (ERP) in 1986. During this period, Gambia was advised to restructure and diversify its economy from exclusive agriculture to expand into tourism.
“This was when we started spending more on tourism infrastructure and also to make sure that we streamline the civil service because the government was the major employer when it should have been the private sector. So that was the first step of realigning the economy to growth and prosperity,” he said.
Njie recalled that Gambia’s reexport trade started registering high numbers after the ERP until the 1994 coup by the country’s second leader, Yahya Jammeh.
“Jammeh’s program created some economic isolation whereby travel ban and other things were issued. This travel ban slowed the economy and changed the direction of the economy.”
He argued that Jammeh’s 22-year rule caused a stunted growth to the economy despite bringing several projects into being.
“We [referring to Jammeh administration] built more schools, we built more roads, we erected more street lights, but the pocket of the average Gambian didn’t change much even though we have gone through what we called Poverty Reduction Strategy Paper (PRSP) with the World Bank,” said the economist.
He also blamed Jammeh’s government for increasing the growth of domestic debt while the country was not able to sustain the repayment of such debt. Hence, it was affecting the national budget which doesn’t have much for agriculture, health, infrastructure and education.
Assessing Adama Barrow’s economic strategy, Njie considers the fact of inheriting a country with enormous liabilities caused by what he calls “Jammeh expansionary government”.
“It was [referring to Jammeh era economy] growing and the growth was not sustainable. We were growing using debts. So, this government inherited an economy that was debt-ridden,” he said.
He challenges the government to put in place programs that will manage debts, restructure it, and that will also cut the appetite to spend money that they don’t have as a country.
Poverty on the rise
According to Gambia Bureau of Statistics (GBOS) survey published in 2017, The Gambia’s national poverty rate rose slightly between 2010 and 2015-16 with an increase of 0.5 percent while the number of people living in poverty went up from 0.79 million in 2010 to 0.94 million in 2015-16.
Nyang Njie believes that rapid population growth is a key factor.
“In 1970, Gambia was less than 700,000 and in 1990 it was almost 1.1 million and today we are 2.3 million. So, population also feeds into our rate of poverty because we don’t have enough economic and social opportunities for people.”
He suggested the need for economic diversification to avoid completely relying on one sector to fight national poverty.
“What it means is if we have financial service sector growing, we have the tourism sector growing, we have the fisheries sector growing, we have the agribusiness growing, if any of these sectors happens to do bad the other sectors will smoother it.”
The stock of the country’s domestic debt has increased to D31.2 billion as at end of December 2018 from D29.7 billion in the corresponding period a year ago, according to Central Bank of The Gambia.
The governor of the bank, Bakary Jammeh, justified that the increased domestic debt is as a result of a decrease in grant flows principally from the country’s development partners during the period.
When presenting the 2020 fiscal year budget for approval, the Finance and Economic Affairs Minister, Mambury Njie, told lawmakers in December: “Debt interest payment is projected to consume around 40 percent of the government’s tax revenues in 2020, compared to 26 percent in 2019, moving from D2.702 billion in 2019 to 4.648 in 2020.”
A veteran politician, Sidia Jatta, criticized the government’s ambitious loan taking, stating that it’s sacrificing the country’s sovereignty.
“As long as we talk about the importance of certain sectors without addressing them, we will keep on begging and taking loans and will keep on sacrificing the sovereignty of this country,” he said of debts at the national assembly.
The lawmaker said it’s not a strategic planning and budgeting for every D100 to be spent in the country when D41 or D42 will go to debt servicing.
“If you add what goes into debt servicing and serious commitment, you are only left with 10% of the country’s budget. Where do you go with 10% of the budget?”
For Nyang Njie, the government should immediately restructure and reschedule debts as the country’s owing power increases, with most of the deadlines being short term.
“Gambia needs to come up with a strategy that will give us medium to long term repayment schedules that will give us breathing space to reorganize our economy and make sure that we have more to spend on social sectors, IT, agriculture, health and education and that will help reduce poverty.”
Tax hikes in businesses
Gambia is witnessing an impressive growth of the business sector, with many start-ups registering creating jobs. But The Gambia’s status as a tax-based economy is not helping many businesses.
The 2018 African Economic Outlook Country Note indicated Gambia’s tax revenue increment to GDP from 17.3 in 2017 to 17.6 in 2018 and 2019.
A food items retailer and wholesaler in Banjul, Ali Faal, lamented the tax charges on his commodities such as milk, sugar, rice tomato pastes. He has been in business since 1984.
“The main problem we’re facing is that the custom tax is expensive. If we have enough sales, we are not much bothered, but many times it’s difficult to achieve that. This slows our gains a lot and it surely hinders our business. So, tax is a serious burden on us because it’s expensive,” he told The Chronicle.
World Mobile is among the first technology giants in the country since the advent of modern mobile phones. It does both selling phones and its parts as well as repairing it. The shop today is struggling due to high tax imposed on it.
“For me, the issue of tax should be brought down considering the earnings of the people and look at the value of goods compared to what they are taxing businesses. I’m paying rent yearly D260,000 and you look at the value of the shop, you have to eat, pay rent at home, give fish money, pay workers, all this is really hard,” Mamadou Gaye, a senior worker at World Mobile told The Chronicle.
“I think they should be discussing the issue of tax now, to see how best they can make the tax favorable for us businessmen, because we can’t afford not to pay tax too but actually it is hard.”
According to economic help, to achieve economic growth, the government should consider expansionary fiscal policy which includes cutting taxes to increase disposable income and encourage spending while expansionary monetary policy should also be explored by the Central Bank that will cut interest rates to boost domestic demand.