IMF Executive Board Concludes 2010 Article IV Consultation with The Gambia

Public Information Notice (PIN) No. 10/118
August, 27, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On August 25, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Gambia.1


Despite challenging global, and by extension domestic, conditions, the Gambian economy has performed well in recent years. Real Gross Domestic Product (GDP) grew by an average of 6.0 percent a year during 2007-09, up from an average of 3.6 percent during 2004–06. Even during the global economic crisis in 2009, real GDP growth was strong at 5.6 percent led by a continued rebound in agricultural production, which helped cushion the impact of sharp drops in tourism and remittances from Gambians working abroad. Throughout this period, inflation was held to low single-digit rates, as the Central Bank of The Gambia (CBG) generally exercised monetary restraint. In 2009, inflation fell to 2.8 percent. Inflation edged up marginally in early 2010 (4.1 percent in May), but is expected to remain low (about 5 percent) for the year as a whole.

Despite having received extensive debt relief in late 2007, The Gambia still faces a heavy debt burden. As of end-2009, external debt stood at 34 percent of GDP, while total public sector debt was 54 percent of GDP, reflecting substantial—and costly—domestic borrowing. Interest on debt consumed nearly 20 percent of government revenues in 2009, most of which was paid on domestic debt. Moreover, domestic debt consists almost entirely of short-term T-bills, which poses high roll-over risks.

Since late 2008, fiscal performance has deteriorated, which led to more domestic borrowing and upward pressure on T-bill yields. In 2009, the basic fiscal balance was in deficit by nearly 2 percent of GDP—compared to a small surplus targeted in the budget. Spending overruns, including supplementary expenditures that were not financed by additional revenues or fiscal savings, were the main cause of the fiscal slippage. In the first half of 2010, fiscal performance suffered from revenue shortfalls, while spending was contained within budget limits. In large part, the shortfalls were due to rising world fuel prices that eroded revenues from fuel taxes. In June, fuel prices were raised, which has helped to restore revenues.

The number of banks in The Gambia has doubled to 14 since 2007, contributing to a rapid expansion of much needed financial services. But it has also strained the CBG’s resources for banking supervision. Moreover, competition among the high number of banks in a relatively small market has added to risks to the banking system, especially in the current environment with weaknesses in key sectors of the economy. This is evidenced in a recent weakening of credit quality, profitability, and capital adequacy.

The Gambia’s external current account deficit, excluding official transfers, has widened in recent years. In 2009, a recovery in foreign direct investment (FDI) inflows—in part due to the entry of foreign banks—and increased donor grants, together with the Special Drawing Rights (SDR)allocation more than financed this deficit, allowing a substantial buildup in official reserves to a comfortable level of 6.4 months of imports by end year. In 2010, however, delays in expected disbursements of donors’ budget support has weighed on the overall balance of payments.

The Gambia has made impressive progress implementing structural reforms, particularly in the areas of public financial management, debt management, and financial sector development. Good progress has also been achieved toward meeting several of the Millennium Development Goals, most notably in health and education. However, poverty is still widespread.

The Gambia’s macroeconomic policies have been supported by an arrangement with the IMF under the Extended Credit Facility (ECF) since February 2007. The program’s objectives draw on the strategic priorities set out in The Gambia’s second Poverty Reduction Strategy Paper which include: (i) macroeconomic stability and effective management of public resources; (ii) pro-poor growth and employment through development of the private sector; and (iii) improved provision of basic services. While the performance under the ECF has been broadly satisfactory, recent fiscal slippages have led to the postponement of the seventh review.

Executive Board Assessment

Executive Directors noted that the Gambian economy has performed well through the global crisis with relatively strong growth and low inflation, despite a sharp drop in tourism and remittance receipts. Directors observed that the outlook for the economy is generally positive provided a sound macroeconomic policy framework is maintained. They also stressed the importance of continued progress toward meeting the Millennium Development Goals (MDGs) and targets on poverty reducing expenditures.

Directors expressed concern about the fiscal slippages over the past year and a half. Further slippages would pose major risks to the economy by increasing the already high cost of domestic debt, especially given the large roll-over needs of the mostly short-term debt. Directors therefore welcomed the recent turnaround in the basic fiscal balance and called for continued strengthening of fiscal performance to anchor macroeconomic stability and reduce the debt burden. This could generate significant fiscal savings which could be directed to other spending priorities.

Directors noted that revenue shortfalls have been the main source of fiscal slippages in 2010. They commended the authorities for recent revenue measures, including the increase in fuel prices, and encouraged them to further widen the tax base. Directors strongly supported tax reform centered around the introduction of a VAT by 2013, which would bolster revenues and improve the business environment over the medium term. To achieve a smooth transition to a VAT, it would be necessary to adopt appropriate tax policy and revenue administration measures in the 2011 budget.

Executive Directors commended the authorities for actively pursuing public financial management reforms. They particularly welcomed the plans for more effective budget procedures and efforts to strengthen execution. Ensuring that the 2011 budget fully covers all ministries and spending agencies would be critical for guarding against spending overruns. Directors supported recent improvements in debt management and stressed the importance of debt sustainability as the guiding principle for future financing options to address infrastructure needs.

Directors emphasized that a healthy central bank balance sheet provides a solid foundation for monetary policy. They welcomed the authorities’ commitment to observe statutory limits on government overdrafts. Directors agreed that a floating exchange rate policy has served The Gambia well. They encouraged the authorities to allow the exchange rate to adjust to ensure sustainable external balances and preserve competitiveness.

Directors observed that rapid expansion of the banking system creates opportunities for the economy, but also carries risks. They supported steps to improve bank soundness, notably the timely increase in the minimum capital requirement, and stressed that building capacity in bank supervision should be given high priority.

The Gambia: Selected Economic Indicators

  2006 2007 2008 2009

National income and prices (percentage change)

  • GDP at constant prices

3.6 6.0 6.3 5.6
  • Inflation (period average)

2.1 5.4 4.5 4.6

External sector

  • Current account balance including official transfers

  • (percent of GDP)

-10.2 -9.7 -12.7 -10.5
  • Exports, f.o.b. (percent change in US$ value)

3.9 8.8 -4.4 8.5
  • Imports, f.o.b. (percent change in US$ value)

-0.6 18.4 17.4 -3.7
  • Real effective exchange rate (percent change)

-0.3 9.6 7.5 -10.2
  • Gross official reserves (US$ millions)

118.6 141.6 115.6 186.0
  • Months of imports

5.5 5.5 3.8 6.4

Money and credit (in percent change of beginning of the year broad money)

  • Broad money

26.2 6.7 18.4 19.4
  • Credit to the private sector

8.3 4.8 6.8 3.5
  • Yield on 91-day treasury bill (percent per year)

11.3 11.9 11.8 12.0

Central government budget (percent of GDP)

  • Domestic revenues

16.2 16.9 15.2 15.1
  • Grants

1.0 0.9 1.1 3.5
  • Total expenditure and net lending

22.5 17.7 18.0 22.0
  • Overall balance

-6.0 0.4 -1.8 -2.0
  • Basic balance 1

1.6 3.0 -0.6 -1.8

Nominal stock of public debt (% of GDP)

  • Domestic

26.3 23.9 24.9 23.8
  • External

101.7 36.2 31.7 34.1

1 Domestic revenues minus expenditure and net lending, excluding externally financed capital expenditure.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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