Statement by an IMF Mission to The GambiaPress Release No. 10/206
May 20, 2010
An International Monetary Fund (IMF) mission led by Mr. David Dunn visited The Gambia during May 7-20, 2010, to conduct discussions for the 2010 Article IV consultation and the seventh review of The Gambia’s program under the Extended Credit Facility (ECF)1. The mission met with Minister of Finance, Momodou Foon, Minister of Trade, Employment, and Regional Integration, Abdou Kolley, Minister of Energy, Mrs. Sira Wally Ndow-Njie, Minister of Information and Communication Infrastructure, Alhaji A. Cham, and Governor of the Central Bank of The Gambia (CBG), Momodou Bamba Saho, other senior officials of the government and the CBG, and representatives of the business community, civil society, and The Gambia’s development partners.
At the conclusion of the visit, Mr. Dunn, mission chief for The Gambia, made the following statement in Banjul:
“The Gambian economy has performed well in recent years. Real Gross Domestic Product (GDP) at factor cost grew by an average of nearly 6½ percent during 2007-2009, while annual inflation averaged less than 5 percent. Despite the global economic crisis in 2009, and a sharp drop in tourism receipts and remittances, real GDP growth remained strong, at just over 5 percent, led by the continued rebound in agriculture. Inflation fell to less than 3 percent at end-2009, largely reflecting a tightened monetary stance for much of the year and steady local prices for food and fuel, even though global prices for these commodities had picked up. Despite a modest up-tick in early 2010, inflation has remained low at 4.1 percent in April. Gross international reserves remain at a comfortable level, after reaching nearly 6½ months of imports at end-2009. Although tourism and remittances are expected to remain soft in 2010, real GDP is projected to grow at about 5 percent, led by solid growth in a number of key sectors, including agriculture. Inflation is expected to remain low at about 5 percent.
“Interest costs, especially on domestic debt, continue to consume a considerable share of government revenues. Overruns in government spending led to a significant fiscal deficit and substantial domestic borrowing in 2009, which added pressure on T-bill yields and interest costs. While the fiscal outturn in the first quarter of 2010 was better than anticipated, it was insufficient to recoup the large fiscal slippages in 2009. As a result, the program target on the ceiling on the cumulative basic fiscal balance for March 2010 was exceeded by nearly GMD 90 million (or about 0.3 percent of GDP). To ease pressure on interest rates and to create savings from a lower debt burden, the government is committed to returning to the programmed fiscal path for 2010.
“The mission welcomed the Central Bank of The Gambia’s commitment to maintaining low inflation. In light of the CBG’s relatively comfortable stock of international reserves, the mission recommended that as its balance sheet grows, the CBG could gradually increase its holding of government securities purchased in the secondary market, rather than accumulate additional international reserves. This would not only allow a modest rebalancing of the CBG’s portfolio, but would also enable the CBG to eventually introduce repo instruments and further improve liquidity management. The CBG is also well placed to use sales of a limited amount of its foreign exchange reserves, rather than sales of T-bills, to sterilize liquidity generated by donor financed government spending.
“As part of the Article IV discussions on surveillance—the main role of the IMF under its original mandate—the mission extensively reviewed developments in the financial sector, including supervision by the CBG. The mission welcomed the expansion of much needed financial services in The Gambia and actions by the CBG, such as the planned increases in the minimum capital requirement, to ensure soundness in the system. In addition, the Gambian authorities have begun work to reconcile the Government’s net position with the CBG and, as set out in the 2008 CBG Act, maintain a strictly formal financial relationship between the two institutions. This will further strengthen the CBG as the foundation of the financial sector.
“With regard to the ECF-supported program, overall performance against the March 2010 targets was good, except for the fiscal slippage. The mission welcomes the authorities’ corrective actions to strengthen fiscal discipline and budget procedures.
“The mission wishes to express its gratitude to the authorities for their hospitality and the constructive spirit in which the discussions were held. The Executive Board of the IMF is expected to discuss the report of the mission in August 2010.”
1 The ECF is a concessional IMF facility for low-income countries. ECF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. ECF loans carry a zero interest rate until end-2011 and an annual interest rate [of no more than 0.5 percent] thereafter, and are repayable over 10 years with a 5½ -year grace period on principal payments.