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Diagnosis and analysis of Gambia’s Economic/ Social problem and the

possible solutions to the problem.

One of the most visible economic problem my country, The Gambia is facing is inflation. Inflati
on has rocked my country since the turn of the millennium and it had never recovered from it sin
ce then. Year in year out, the prices of basic and inelastic commodities are ever-increasing while
the purchasing power of the Dalasis (Gambian Currency) continue to shrink in value.

The Gambia, as a tax-based economy, relied heavily on tax, as bulk of the state revenue comes
from the collection of taxes. However, despite being a tax-based economy, the country has
enjoyed price stability in the eighties and early nineties. The turn of the millennium to date has
seen the country struggle with inflation and as consequence, the standard of living for an average
Gambian has been somewhat horrendous.

Majority of Gambians today cannot afford two standard meals per day. The cost of living has far
outweighed the average monthly wage. The high prices of commodities couple with the alarming
dwindling purchasing power of the Dalasis means most Gambians including myself, had to resort
to one standard meal per day.

What were/are the causes of inflation in The Gambia since the turn of the millennium? Why has
the government of The Gambia failed to successfully combat or regulate it?

The primary cause of inflation in The Gambia in my opinion has been the inability of the country
moving from a tax-based economy to an agrarian or manufacturing economy.

The turn of the 21st century has seen a demographic percentage increase globally and The
Gambia was no exception. The demand for goods and services has since triple. It was apparent
that with supply of good and services not corresponding to the demand, the prices of basic
commodities would begin to rise hence attracting what is called “demand-pull inflation”.

As a country heavily dependent on tax revenue, the massive rise in demography means more
Government expenditure and for the Government to maintain revenue ~ expenditure equilibrium,
it has to raise the rate of taxes. This rise in tax therefore provokes increment in the cost of
production for firms and as a consequence, the percentage increment in taxes reflects in the final
product of consumable goods as firms attempt to maintain their profit margins, hence inviting
what is called “cost-push inflation”.

Further, being neither agrarian nor manufacturing economy means most of our consumable
goods are imported. Increment in tax rate means a rise in import duty and as a result, the prices
of these imported commodities are elevated in order to consume or absorb the high import duty
levied against them. This correlation between high import duty and imported commodities
transmute into exorbitant prices.
In light of the foregoing, one may wonder why is the Government been unable to combat
inflation or regulate it. Many pressure groups and trade unions have been advocating for an
augmentation in the pay scale of public servants. Though everyone would love a pay rise but the
economic reality of The Gambia is more than just low pay cheque. It is about what your money
can afford you irrespective of the quantity of it you have. And that reality is paying huge amount
of money for a basic commodity or service.

In this regard, the only long term solution to combat inflation in The Gambia in my opinion is
moving away from a tax-based economy to an agrarian or manufacturing economy. It is high
time my Government set a measurable and clear vision to do away with tax dependency and to
transform the economy that would put to work all the factors of production. More produce of
agriculture would translate into increase in exports and could also attract manufacturing firms to
operate in the country. When this happens, import would fall, the prices of commodities in the
country would be affordable, the value of the currency would appreciate and most of all more
jobs would be created.

In the short term, inflation could be regulated by implementing the following policies;

• Monetary policy – Higher interest rates. This increases the cost of borrowing and discourages
spending. Higher interest rate discourages people from taking loans and this generally
reduces the velocity of money circulation. If the velocity of money circulation is reduced,
inflation is controlled. Remember, if money is in excess supply, it loses its value and
consumer surplus points to inflation.

• Tight fiscal policy – Higher income tax and/or lower government spending, will reduce
aggregate demand, leading to lower growth and less demand pull inflation.

• Supply side policies – this aim to increase long-term competitiveness, e.g. privatization and
deregulation may help reduce costs of business, leading to lower inflation.