At 56, Gambia Still Does Not Have A National Stock Exchange
The Gambian economy is now in intensive care. Its fiscal deficit hit a record D5.995 billion in 2020 which is 5.6 percent of Gross Domestic Product (GDP) and is still rising. A fiscal deficit is the excess of government spending over its revenues. A wider deficit generally means huge borrowing by the government thus increasing the
growing public debt stock which has now risen to D67.6 billion-more than 70 percent of GDP- thus resulting in a marked deviation from the fiscal consolidation roadmap set to be achieved this year.
After 56 years of independence, the Gambia is faced with a mountain of debts and is still engaged in a high quantum of borrowing heavily from the commercial banks to finance the widening deficit whilst paying little attention to the high-interest charges of the banks. Servicing these debts will cost taxpayers a whopping D6 billion or 17 percent of GDP this year.
A huge public debt poses a greater risk of precipitating a fiscal crisis, squeezes out funding for other functions of government and, unless some quick remedial measures are not taken, it can create pressures for higher taxes and reduced domestic savings leaving policymakers less able to address future risks that require significant short-term deficit spending.
The lack of an organized market to mobilize savings for investments and promote economic activities in such sectors as agriculture, tourism, infrastructure, trade, and the industry is restricting the expansionary role the private sector can play as an engine of economic growth. A stock exchange can provide the necessary impetus for growth and expansion in our economy, mobilizes and pool savings, produces information on possible investments so that resources can be channeled to their most productive use as well as facilitating the exchange of goods and services.
As an organized and regulated financial market where securities (bonds, notes, shares) are bought and sold at prices governed by the forces of demand and supply, a properly functional stock market will serve as (1) Primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and (2) Secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system.
When a government needs money to finance infrastructural development or pay some of its outstanding debt obligations, it can easily raise the necessary funds from the stock markets thus creating wider investment opportunities for the public. It can also help the central bank to reduce its current holdings of government T-bills and shift the financing of government deficit away from the commercial banks to the stock markets.
As people withdraw their savings from the banks and invest in shares it usually leads to rational allocation of resources because funds, which could have been consumed or kept idle as deposits with banks, are mobilized and redirected to help companies finance their organization’s activities. This may promote business activity benefiting several economic sectors. It can also provide the necessary impetus for growth and expansion in our economy, produces information on possible investments so that resources can be channeled to their most productive use whilst at the same time facilitate trading and ease the exchange of goods and services.
Public companies traded on stock exchanges tend to have better management records than those private companies where shares are not publicly traded. By having a wide and varied scope of owners, companies generally tend to improve corporate practices and efficiency to satisfy the demands of their shareholders as well as complying with stringent rules imposed by national stock exchanges. Shareholders of under-performing firms with poor financial, ethical, or managerial records; are often penalized by significant share price decline, and they can dismiss any incompetent management team. Also, Media scrutiny and accurate financial reporting are essential ingredients of maintaining share prices
Without a functioning stock exchange to provide cheaper and alternative sources of funds to, not only the government but also to allow the multitude of private businesses and companies to access necessary funds for business expansion and growth; financing the fiscal gap from domestic sources will continue to create unnecessary pressures on interest rates thus crowding out investments in the domestic markets. There are over 30 Stock Exchanges in Africa located in different capitals across the continent. It is, therefore, undiscerning to argue that the Gambia is not yet ready to have a stock exchange.
The wheels of economic activities have been grinding slowly over the years with the fiscal deficit consistently rising year on year. The government has just signed another SMP with the IMF putting our economic programs under the monitoring radar of the lending arm of the World Bank. This means that there are specified structural and economic targets to be met within a specified period before we can be qualified for further financial assistance from the Fund to get the country out of intensive care with the prescribed stringent economic measures necessary for our recovery.
If we want to free ourselves from the strangulations of debts and become one of the most economically progressive countries in West Africa, we should create the environment necessary to access cheap credit to spur the economy and facilitate the exchange of goods and services. The best way to achieve these objectives is through the establishment of a world-class national stock market.
Written by: Alieu O. Faal, Ph.D.