Letter to the Finance Minister: On the Consequences of Fiscal Profligacy

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Honourbale Minister and my dear brother,

I greet you with the salutation of Peace “Salam” in this holy month of Ramadan.

I penned my first missive addressed to you titled “On the Proposed Salary Increment: letter to the Finance Minister” almost 6 moths ago;
and I am yet to receive a response from you.

It was  but a note of caution regarding the unusually bold move you spearheaded to increase civil servants’ salaries by the huge proportion of 50%. While acknowledging the need to increase salaries, I did aver that a major jump of the magnitude you proposed would create unintended consequences that could actually negate the perceived welfare increase envisaged form the salary hike.

Alas, you dug in and went ahead with your audacious fiscal misadventure. The fundamental question in my letter was the issue of funding the proposed salary increase within a highly taxed business environment. I received no answer from you but the quantum jump in excise taxes was a clear indication of where you were trying to source the extra resources for your fiscal binge.

Mambury Njie Finance Minister of The Gambia, 2011 at the Annual Meetings of the World Bank-IMF in Washington, DC

Given the natural lag effect of policy moves on the obvious macroeconomic variables concerned, I was waiting for the half-year mark to elapse before I write another sequel to my letter but the natural laws of economics were not to be too kind to your misadventure and so the results started to kick in much earlier than I had anticipated. I don’t know which marabout you are visiting to cure this malaise but his answer to you should be from the words of the Nigerian author Ola Rotimi: “the gods are not to blame!”

With an unprecedented excise tax hike of up to 650% on alcoholic beverages, our trademark national brewery has no choice but to start packing up and close shop because the tax burden will certainly be unbearable. With a projected loss of 200 jobs and further negative effects on our very fragile tourism industry, your costly fiscal bravado (if you don’t reverse course) will surely hurt thousands of workers in an economy where unemployment is already too high.

With the latest media reports indicating that your ministry intends to negotiate a solution to this problem with the management of the directly affected company, Banjul Breweries, I would say “better late than never!” But then the question will arise as to where would you source further tax revenue to compensate for any reduction in the excise tax revenue that would be lost if you reduce the excise tax rate?

Momodou Sabally and Gambian President Adama Barrow

Which other sector or industry is going to be your target to slap exhorbitant tax rates on to compensate for the loss of revenue to be naturally anticipated should your consultations with the brewery lead to the expected conclusion?

A May 9, 2019 report on Foroya newspaper states that your Ministry has already increased “prices of petrol and diesel … for the third time in 2019”. This move, and its obvious pervasive effect on the general price level, is symbolic of the tough times ahead for our macroeconomic situation. Even if such price hikes are induced by exogenous factors, such scenarios should not come as a surprise for the international macroeconomic environment is a critical factor to consider in coming up with your budget estimates. With endogenous and exogenous factors rearing their ugly (inflationary) heads so early in your budget implementation schedule, do you have a message for Gambian businesses and the masses other than the ‘maa tei’ narrative coming from your permanent secretary?

This situation is really worrisome. The whole country stands to suffer because of your wrong fiscal moves and the effects will not be limited to the brewery and its stakeholders. This is a very sad and unfortunate situation you have visited on an economy that is already struggling with the effects of unrealized revenue projections anticipated from grants.

Honourable Minister, may have inherited last year’s Supplementary Appropriation Bill that created a firestorm, even tough you handled it in the worst way possible; but the excise tax imbroglio and the attendant effect it has created in the beverage (and by collateral damage (eventually) the tourism/entertainment sector) is entirely your making because the 2019 budget is your budget and you went ahead with this fiscal misadventure knowing very well that the fiscal our turn of the previous year was all but satisfactory.

And one more thing before I bid you good bye, please do not go ahead with your suspected alleged plans to remove that young senior staff at your ministry who is bold and honest enough to disagree with you based on professional/policy grounds. Last time your tried that kind of game, it did not end well- the collateral damage was overwhelming. Let us learn from our past mistakes and chart a fresh path of policy sanity with broad, open, and tolerant mindsets regarding our diverse opinions on the way forward in our common and collective task of nation building.

Yours, in the service of the nation,

Momodou Sabally
Former National Budget Director, research economist.

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