IMF Executive Board Concludes 2013 Article IV Consultation with The Gambia

Press Release No. 13/343
September 13, 2013

On September 11, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Gambia.1

The Gambian economy has generally performed well over the past several years, although it is still recovering from the 2011 drought. The drought led to a large drop in crop production and a sharp contraction in real Gross Domestic Production (GDP) in 2011. Although growth has been picking up, weaknesses in the balance of payments have persisted, leading to depreciation pressures on the Gambian dalasi. Most recently, inconsistent economic policies have intensified these pressures.

Large fiscal deficits—financed mostly by domestic borrowing—have added to the government’s heavy debt burden. Interest on debt has consumed a rising share of government resources in recent years, reaching 22½ percent of government revenues in 2012, most of which was paid on domestic debt. As outlined in the authorities’ Programme for Accelerated Growth and Employment (PAGE) launched in December 2011, the government aims to gradually reduce the fiscal deficit and ease its heavy debt burden.

Prior to the drought, The Gambia made significant progress in the fight against poverty; however, poverty is still widespread. Execution of the PAGE, supported by commitments from development partners, would help to further reduce poverty, especially in rural areas, given a strong focus on agriculture.

The banking sector remains adequately capitalized, following a two-step increase in the minimum capital requirement implemented at end-2010 and end-2012; however, non-performing loans have remained high.

Despite near-term uncertainties, the medium-term outlook for growth is generally favorable. Real GDP growth is projected to increase slightly to 6-6½ percent in 2013, driven by a further recovery in agriculture. Inflation has been rising, but is expected to fall back to around 5 percent a year over the medium term, as the Central Bank of The Gambia exercises monetary restraint. The main downside risk arises from possible fiscal slippages. There is also strong upside potential if critical reforms are achieved.

Executive Board Assessment

The Executive Directors welcomed The Gambia’s ongoing economic recovery from the 2011 drought and commended the authorities for achieving robust growth and significant poverty reduction in recent years. However, Directors expressed concern that recent fiscal slippages and inconsistent policies have increased risks and vulnerabilities. A return to the path envisaged by the authorities’ Programme for Accelerated Growth and Employment (PAGE) is needed to regain stability and foster inclusive growth.

Directors noted that recent exchange rate directives have disrupted the foreign exchange market, encouraged capital flight, and dampened remittances from abroad. They cautioned that a prolonged overvalued exchange rate would risk damaging The Gambia’s international competitiveness. Directors therefore urged the authorities to maintain a flexible exchange rate policy, which has served The Gambia well, and to tighten monetary and fiscal policies to ensure stability and preserve adequate reserve levels.

Directors considered that undertaking the strong fiscal adjustment outlined in the PAGE would reduce domestic borrowing needs and the cost and risks of the heavy public debt burden. They commended the successful implementation of the VAT and the progress made in phasing out fuel subsidies. However, further tax reforms will be needed over the medium term to strengthen revenues and address costly tax expenditures, while improving international competitiveness. Directors encouraged the authorities to enhance the budget process, strengthen expenditure control, and rein in extra-budgetary expenditure. They welcomed recent progress in managing the government’s external debt burden, and agreed that the authorities should continue to rely on grants or highly concessional financing to minimize exposure to external debt risks.

Directors called for a consistent implementation of monetary policy. They encouraged using market-based monetary policy tools rather than reserve requirements on deposits, noting that a gradual return to lower reserve requirements would help lower the high cost of financial intermediation. Directors considered that the banking system is well capitalized and liquid, and welcomed progress in areas of supervision, capacity building, and cross-border monitoring. However, still-high non-performing loans require vigilance, including through intensive supervision for individual banks as needed.

Directors noted that poor economic data remains an impediment to economic policymaking. They welcomed ongoing initiatives, together with development partners, to strengthen economic statistics, notably for the balance of payments, which will require adequate funding and staffing.


The Gambia: Selected Economic Indicators
 
    2010 2011 2012 2013 2014 2015 2016 2017 2018
    Act. Act. Prel. Proj. Proj. Proj. Proj. Proj. Proj.
 

National account and prices

  (Percent change; unless otherwise indicated)

Nominal GDP (millions of dalasi)

  26,662 26,465 29,108 32,886 37,659 42,015 46,459 51,379 56,842

Nominal GDP

  11.1 -0.7 10.0 13.0 14.5 11.6 10.6 10.6 10.6

GDP at constant prices

  6.5 -4.3 5.3 6.4 8.5 6.5 5.5 5.5 5.5

GDP per capita (US$)

  558 508 497 478 486 511 534 558 584

GDP deflator

  4.3 3.7 4.5 6.2 5.6 4.7 4.8 4.8 4.8

Consumer prices (average)

  5.0 4.8 4.6 6.0 6.0 5.0 5.0 5.0 5.0

Consumer prices (end of period)

  5.8 4.4 4.9 7.0 5.0 5.0 5.0 5.0 5.0

External sector

                   

Exports, f.o.b.

  0.9 16.3 -8.8 9.5 8.9 7.6 7.5 8.1 8.3

Of which: domestic exports

  1.2 34.7 -57.6 74.9 29.2 13.2 11.0 11.0 11.0

Imports, f.o.b.

  5.3 7.1 8.7 -2.1 4.1 6.4 6.2 6.5 6.6

Terms of trade (deterioration -)

  -1.4 1.8 3.7 3.9 3.5 2.7 2.0 1.8 2.7

NEER change (depreciation -)1

  -1.2 -6.5 -7.1

REER (depreciation -)1

  0.6 -5.7 -5.4

Money and credit

  (Percent change; in beginning-of-year broad money)

Broad money

  13.7 11.0 7.8 7.0 13.1 12.6 11.6 11.6 11.6

Net foreign assets

  1.3 5.6 2.3 3.6 5.8 6.4 7.0 7.0 5.8

Net domestic assets, of which:

  12.3 5.4 5.5 3.4 7.3 6.2 4.6 4.6 5.8

Credit to the government (net)

  16.8 8.2 6.1 3.8 0.8 0.8 0.8 0.8 0.8

Credit to the private sector (net)

  4.7 2.8 1.3 2.6 6.5 5.5 4.3 4.3 4.3

Other items (net)

  -10.1 -5.2 -1.7 -1.9 -0.1 -0.1 -0.1 -0.1 -0.1

Velocity (level)

  2.0 1.8 1.8 1.9 2.0 1.9 1.9 1.9 1.9

Average treasury bill rate (in percent)2

  11.3 10.0 10.4 ... ... ... ... ... ...

Central government budget

  (In percent of GDP; unless otherwise indicated)

Domestic revenue (taxes and other revenues)

  14.9 16.1 16.4 17.1 17.6 17.6 17.5 17.5 17.5

Grants

  4.0 5.1 9.0 5.0 5.1 5.0 4.9 4.7 4.6

Total expenditures and net acquisition of financial assets

  24.9 25.8 29.9 24.8 24.5 24.4 24.0 23.8 23.6

Net incurrence of liabilities

  5.8 4.3 4.3 2.7 1.8 1.8 1.5 1.5 1.4

Foreign

  1.5 0.8 1.1 0.9 1.3 1.3 1.0 1.0 1.0

Domestic

  4.4 3.5 3.2 1.7 0.5 0.5 0.5 0.5 0.5

Basic balance

  -3.3 -2.1 -2.1 -2.1 -1.3 -1.4 -1.4 -1.3 -1.9

Public debt

  69.6 77.3 77.2 77.4 70.8 66.5 62.8 59.4 56.1

Domestic public debt

  29.4 33.2 33.4 31.3 27.8 25.4 23.5 21.7 20.1

External public debt

  40.2 44.1 43.8 46.1 43.0 41.1 39.3 37.6 36.0

External public debt (millions of US$)

  377.6 386.2 375.8 384.2 396.5 409.6 421.0 433.2 445.1

External sector

                   

Current account balance

                   

Excluding budget support

  -16.0 -15.5 -19.4 -16.9 -16.4 -16.0 -16.0 -15.9 -15.8

Including budget support

  -16.0 -15.5 -17.0 -16.2 -15.6 -15.2 -15.3 -15.4 -15.3

Current account balance

  (Millions of U.S. dollars; unless otherwise indicated)

Excluding budget support

  -154.3 -140.3 -175.9 -151.7 -153.5 -162.0 -173.8 -185.9 -198.6

Including budget support

  -154.3 -140.3 -154.4 -145.1 -146.1 -154.4 -166.8 -179.5 -191.8

Overall balance of payments

  -23.8 8.4 0.1 -5.6 15.8 17.8 24.5 26.2 29.4

Gross official reserves

  157.6 169.7 183.8 181.9 199.3 216.0 233.9 252.0 272.8

in months of next year's imports of goods and services

  4.4 4.4 4.8 4.5 4.7 4.8 4.9 4.9 5.0

Use of Fund resources

  (Millions of SDRs)

Disbursements

  2.0 2.3 9.3 3.1 3.1 3.1 0.0 0.0 0.0

Repayments

  0.0 0.0 -0.2 -0.6 -2.1 -3.8 -4.3 -5.2 -5.5

Financing gap (possible ECF financing)

  0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
 

Sources:: Gambian authorities and IMF staff estimates and projections

1 Percentage change between December of the previous year and December of the current year.

2 Average for the month of December.


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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



IMF COMMUNICATIONS DEPARTMENT

Public Affairs    Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100