Statement by an IMF Mission to The Gambia for Discussions of the First Review of the ECF ArrangementPress Release No. 12/317
September 18, 2012
An IMF mission led by Mr. David Dunn visited The Gambia during September 5-18, 2012, to discuss performance under the authorities’ macroeconomic and financial program that is supported by the IMF under its Extended Credit Facility (ECF). The mission met with Minister of Finance and Economic Affairs Abdou Kolley, Governor of the Central Bank of The Gambia (CBG) Amadou Colley, and other senior officials. It also met with representatives of the private sector, civil society, and development partners.
At the conclusion of the visit, Mr. Dunn made the following statement in Banjul:
“Last year’s severe crop failure, caused by drought throughout the region, led to a sharp contraction in the Gambian economy. In 2011, The Gambia’s real gross domestic product (GDP) fell by about 5 percent. Economic activity remained weak for much of 2012, but is expected to pick up substantially in the final quarter, as the upcoming harvest points to a strong rebound in crops and growth in the tourism sector continues. The relief effort by the Government of The Gambia, international aid agencies, and bilateral donors appears to have helped to mitigate the impact of the drought on vulnerable families and provided critical support to farmers. For 2012 as a whole, real GDP is projected to be about 4 percent, while inflation has remained under control at about 4½ percent (year-on-year).
“Based on a projected further rebound in agriculture in 2013, which anticipates that crop production will have fully recovered to pre-drought levels, real GDP growth could surge to about 10 percent next year, before returning to its longer-term trend of about 5½ percent a year over the medium term. There are downside risks to this outlook, as well as greater upside potential. In particular, the possibility of prolonged weaknesses in the global economy or strong shocks to food and fuel prices could dampen growth in key sectors of the Gambian economy. At the same time, sound macroeconomic policies combined with a structural agenda that seeks to promote productive private sector investment in infrastructure—as envisaged in the authorities’ Programme for Accelerated Growth and Employment (PAGE)—could boost longer-term growth trends. Strengthening The Gambia’s relations with the regional and international communities would be important for building confidence in the economy and generating greater support from development partners for PAGE priorities.
“The Government has taken some initial steps toward addressing its heavy debt burden. During the first half of 2012, Government’s net domestic borrowing (NDB) was reduced to 1.2 percent of annual GDP, compared with 2.3 percent of annual real GDP during the same period in 2011. Moreover, the Government remains committed to ceilings on NDB of 2½ percent of GDP for 2012 as a whole and 1 percent of GDP in 2013. By easing pressure on the domestic financial market and T-bill yields, it is projected that Government’s interest payments on domestic debt relative to its revenues would fall from 18½ percent in 2011, to 18 percent in 2012, to just under 15½ percent in 2013. Updated external debt indicators also show progress has been made toward reducing The Gambia’s debt vulnerability.
“In line with commitments to ECOWAS (Economic Community of West African States) The Government is committed to replacing the general sales tax with a value-added tax (VAT) on January 1, 2013, which is expected to lead to a boost in revenue collections. Beyond the VAT, the Government seeks to pursue a comprehensive tax reform that broadens the tax base, simplifies procedures, and lowers tax rates, while preserving revenues. However, fuel subsidies continue to cut into potential tax revenues, as little progress has been achieved toward eliminating them, despite monthly price adjustments.
“Growth of credit to the private sector and deposits in commercial banks has slowed considerably in 2012. In May, with inflation pressures contained, the Central Bank of The Gambia (CBG) acted to ease its monetary policy stance by reducing the reserve requirement on deposits by two percentage point (to 10 percent). Also, the CBG continues to strengthen banking supervision. In preparation for the upcoming increase in the minimum capital requirement at the end of 2012, the CBG has reviewed banks’ plans for meeting the new requirement and stands ready to strictly enforce the new measure.
“Preliminary data indicate that all performance criteria for the first review of the new ECF-supported program were met. In addition, understandings were reached on several key policy issues. The mission will return to IMF Headquarters, but will remain in close contact with the Gambian authorities to conclude discussions as soon as possible.
“The mission thanks the authorities for candid and constructive policy discussions and expresses its appreciation for the excellent cooperation during its visit.”