by Dr. Ousman Gajigo
The Minister of Finance, Mambury Njie, just announced a 50% increase in the salary of government workers. If we had any hope of fiscal responsibility under Mambury Njie as a Minister of Finance, it can now be put to rest. This is an irresponsible pronouncement by an entity that should have demonstrated and be the steward of restraint and responsibility. Some of us saw this unfortunate development coming.
Make no mistake about it: Gambian government workers deserve a salary increase. Adjusted for inflation, public sector salaries have actually been declining in real terms. Without attractive compensation that ensure quality living standards, we will forever be stuck with a low-quality public sector.
But there are better ways to solve this problem. It does not involve taking in more debt or over-taxing the citizens. Before embarking on any solution, we must do a stock-taking of our current circumstances.
The Gambia is currently highly indebted. In fact, our debt level remains at 120% of GDP. By any definition, the Gambia is a debt distressed country. So, any extra expenditures that involve taking on further debt is a non-starter. During the last regime, of which Mambury Njie was a senior official, the government took on a lot of debt, a big part of which was domestic. This was achieved through excessive issuing of treasury bills. This raised the Gambia government’s domestic borrowing rate to a level in excess of 20%, which resulted in chasing private businesses from any access to credit. Without any access to credit, businesses almost ceased to expand or being created, with predictable consequences for the economy.
There is no scope for increasing tax revenues. Tax revenues collected as a share of our GDP is one of the highest among developing countries and is currently about 17% of our GDP. The government should not myopically focus only on the volume of tax revenue collected this year but rather, how the tax base can be expanded so that the economy can generate greater tax revenue over the long term.
The total amount of tax revenue collected by the government is a function of three variables: (i)the tax rate, (ii)the collection efficiency and (iii)the tax base. The first one is the easiest for the government to manipulate because all that is required is changes to the tax code without implementing any major reform. The second one is based on the capability of the tax collection agency, which is the GRA in the case of The Gambia. This second part is also a function of tax compliance by tax-paying entities. The third item, the tax base, is the biggest determinant of tax revenue collected by the government in the long term. The tax base is the value of the economic activity that can be taxed. It is also the one variable that neither the tax authority nor the government at large can change easily or quickly. That is because it is based on the entry and growth of value-generating businesses that depend on the business enabling environment of which tax administration is a major component.
Given these constraints, the government is left with a few feasible options to increase expenditures in some areas while consolidating them in others. While there is no easy way for the government to increase the salary of public sector workers for a government that is budget constrained but there exist feasible solutions. Specifically, there are solutions that do not entail getting the country further in debt or excessively taxing the population. All that is required is for the government to prioritize expenditures, close or restructure unnecessary ministries and consolidate expenditures.
1. Closing the Ministry of Defense:
The most wasteful expenditure in The Gambia is the budget allocation for the Ministry of Defense. This ministry consumes about GMD 700 million annually. This is a huge amount of waste for a ministry that is not needed at all by the country. The ultimate goal of a military is for the external defence of a country. Given the unique geographic feature of The Gambia, we are safe from external threat. The best way to safeguard the security of The Gambia is for greater economic integration with Senegal. As long as The Gambia maintains good relations with Senegal, this neighbour provides us with the necessary security buffer against any external threat. There is no other justification for a military in The Gambia. What the country needs is better internal security. So, the resources currently allocated to the military are better spent on internal law enforcement.
2. Merging the Ministry of Higher Education with MOBSE into a Single Ministry of Education:
The Gambia has no need for a separate Ministry of Higher Education that is separated from the Ministry of Basic and Secondary Education (MOBSE). All this separation has achieved is the duplication of expensive high-level positions. The country has a small higher education sector that is best positioned within one single Ministry of Education for an effective and integrated education sector. The current budget for the Ministry of Higher Education is approximately GMD 150 million. While this amount is small relative to the budget for MOBSE, the amount would be better spent in the Ministry of Education and devoted to more urgent problems such as low teachers’ salaries.
3. Reduce the Size of the External Affairs Ministry:
Cultivating and maintaining relations with other countries is vital for any country. And The Gambia is no exception. However, given our limited resources, the country should be very selective in which countries it opens embassies. Lately, some of the countries where we have established diplomatic relations make no sense strategically. This includes Armenia and Russia. This is in addition to countries such as Cuba and Venezuela where we have long existing embassies. It makes no strategic sense for The Gambia to maintain embassies in these countries. Foreign embassies are quite expensive to staff and maintain. Reducing and rationalizing our foreign embassies has been one of the fiscal measures recommended by the IMF, which the government has in fact committed to on paper but so far does not seem fit to implement. What adds to the staffing cost of these embassies has been the recent unnecessary practice of the government embedding SIS staff, as well as appointing military attaches. Given how unnecessary the military is in the first place, it is doubly nonsensical for the country to be appointing military attaches in embassies.
Dr Ousman Gajigo is an Economist.
He has held positions with the African Development Bank, the UN, the World Bank and Columbia University. He holds a PhD in development economics. He is currently an international consultant and also runs a farm in The Gambia.