By Makutu Manneh
Dr. Ousman Gajigo, a development economist and senior member of the Gambia for All party, says the recent decision by the Central Bank of The Gambia to reduce its benchmark interest rate by 200 basis points is unlikely to produce a meaningful boost to the country’s economic growth.
Speaking Monday on Coffee Time with Peter Gomez, Dr. Gajigo said he does not oppose the rate cut itself but questioned how the move has been presented by authorities, arguing that borrowing costs in the country remain high despite the reduction.
The central bank lowered the monetary policy rate from 16 percent to 14 percent. While such a reduction would be considered substantial in many economies, Dr. Gajigo said the rate remains elevated in the Gambian context.
“When these things are high, then it is very difficult for the private sector to borrow and invest,” he said, noting that the central bank’s policy rate guides the broader structure of interest rates across the economy. “It is this investment which generates output and creates employment.”
Dr. Gajigo argued that persistently high interest rates are closely linked to government borrowing. According to him, a large share of the assets held by commercial banks and microfinance institutions consists of government securities, including Treasury bills and bonds.
As a result, he said, financial institutions often prefer lending to the government rather than to businesses or individuals.
“When that is happening, you basically have the government crowding out the private sector,” Dr. Gajigo said. “The government’s excessive borrowing is what has been driving up the interest rate and forcing banks to lend money to the government as opposed to businesses.”
He also pointed to the limited role of consumer credit in the country’s economy. Unlike in many advanced economies, where households rely heavily on loans for major purchases, Gambian consumers generally conduct transactions on a cash basis.
“So when you lower this interest rate even by 200 basis points, in almost any other advanced country this would be a massive, unprecedented adjustment,” he said. “But in The Gambia, it is not going to move the needle much because the activities of the government already preclude significant movement on the side of business investment.”
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