## Selected Economic Indicators ## Source details **Canonical URL:** [Selected Economic Indicators](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1217.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1217.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1217.pdf.json) --- ### Background: recent performance and inflation - Real GDP growth averaged around 6½ percent a year during 2008–10, driven mainly by agriculture. - Tourism and remittances were hit hard by the global crisis. - Inflation ranged between 2½ and 7 percent (year-on-year); the Central Bank of The Gambia (CBG) generally maintained a restrained monetary stance. - At times, the CBG engaged in extensive mopping up of liquidity generated by central bank financing of fiscal deficits. ### Fiscal developments and risks - Fiscal deficit widened substantially during 2008–10, resulting in a sharp increase in domestic debt. - Revenues: - After peaking at nearly 17½ percent of GDP in 2007, revenues fell to just under 15 percent of GDP in 2010. - Revenue decline reflected erosion in collections from all major taxes. - Expenditures: - Expenditures (excluding donor financed projects) rose from about 14½ percent of GDP to 18 percent of GDP. - Extra-budgetary expenditures, including realized contingent liabilities, were major factors behind the surge in government spending, particularly in 2009 and 2010. - Financing: - Large fiscal deficits were mostly financed with domestic borrowing. - Slippage on the fiscal performance criterion for end-December 2010 caused the Extended Credit Facility arrangement to expire on March 31, 2011 without completion of the final review. ### Debt burden and interest costs - Domestic debt and interest: - As of end-2010, domestic debt had risen to almost 30 percent of GDP. - Interest on domestic debt consumed 18 percent of government revenues in 2011. - Most domestic debt consists of short-term Treasury bills, posing substantial rollover risks. - External debt: - Large reductions under HIPC and MDRI in December 2007, but external debt indicators suggest The Gambia is still at high risk of debt distress. ### Financial sector developments and stability - Banking sector expansion and structure: - Between 2007 and 2010, number of banks doubled (to 14); one bank closed early in 2011 (resulting in 13 banks). - New banks are mostly foreign-owned; intense competition in a small market increased risks. - Financial intermediation: - Credit to the private sector and public enterprises relative to GDP grew by about 4½ percentage points to nearly 17½ percent of GDP (2007–2010). - Growth in private sector credit lagged growth in credit to the government. - Key indicators (selected): - Credit to GDP expanded from 10 percent in 2005 to 17.4 percent in 2010. - Credit growth averaged 23 percent a year over 2005–2010. - Average risk adjusted capital ratio was 25.6 percent as of June 2011. - CAR across 13 banks ranges from 16.9 to 155.6 percent. - Ratio of liquid assets to short-term liabilities is 60 percent. - NPLs increased from 5 percent in 2005 to 14.5 percent at end-2010; NPLs fell by 2 percentage points as of June 2011. - ROA: 2007 4.5 percent; 2009 -1.6 percent; June 2011 1.2 percent. - ROE: 2007 36.4 percent; 2009 -24.9 percent; June 2011 5.8 percent. ### Social outcomes and donor support - Poverty and social indicators: - Poverty: 58 percent in 2008; 48 percent based on 2010 Integrated Household Survey at US$1.25/day. - Improvements in education (primary enrolment/completion and youth literacy) and health (immunization and child and maternal mortality). - Government initiative to support agriculture expected to contribute to poverty reduction. - Authorities finalizing Programme for Accelerated Growth and Employment (PAGE) emphasizing agriculture and infrastructure. - Donor support: - Donor grants averaged about 2½ percent of GDP a year during 2007–10. - A pickup in donor support was expected in 2011; some potential donors expressed concern over human rights and freedom of the press. ### Implementation of 2010 Article IV recommendations (summary) - Fiscal, tax, and PFM: - Mixed implementation: fuel pricing formula introduced but irregularly applied; VAT policy paper endorsed by cabinet. - Large extra-budgetary spending in late 2010 resulted in higher-than-targeted deficit; fiscal discipline improved in 2011. - Measures to improve tax compliance not yet effective; most “nuisance” taxes not eliminated. - Progress toward strengthened monitoring/reporting on budget execution; budget policy paper prepared for 2012. - Monetary policy and financial sector: - Liquidity forecasting committee met sporadically until recently. - Reconciliation of government accounts at CBG and first-stage increase in minimum capital requirement for banks completed. - Additional supervisory staff hired but fewer than recommended; development of short-term monetary instruments behind schedule. - PAGE financing: - Authorities plan concessional borrowing and private sector participation in infrastructure; private participation already used in telecom with World Bank help. ### Economic developments in 2011 - Growth and inflation: - Real GDP expected to grow by about 5½ percent in 2011 despite poor weather weakening agriculture. - Year-on-year inflation dipped to about 4 percent in recent months and expected to end the year slightly below 5 percent. - Fiscal discipline: - Significant progress restoring fiscal discipline in 2011 via strict cash budgeting. - Government net domestic borrowing (NDB) on track to meet target of just over 2½ percent of GDP in 2011. - Government cleared its overdraft with the CBG and refrained from new central bank financing. - Improved fiscal discipline contributed to a drop in T-bill yields and allowed monetary policy to focus on low inflation. - Revenue erosion: - Government revenues expected to fall by another full percentage point of GDP in 2011. - Lost fuel tax revenues (about three-fourths of the shortfall) due to only partial implementation of the fuel pricing formula. - Poor tax compliance and falling duties on non-fuel imports also contributed. ### Economic outlook and baseline projections (summary) - Real GDP projected to grow at 5½ percent a year in the baseline scenario (not reflecting PAGE), driven by agriculture, recovery in tourism and construction, and telecom investment. - Fiscal path: - Outlook assumes gradual fiscal adjustment reducing NDB to ½ percent of GDP a year in 2014 and beyond (authorities’ proposal). - Adjustment intended to preserve CBG independence and maintain annual inflation around 5 percent. - External sector: - External current account deficit expected to narrow to about 13 percent of GDP by 2016, financed primarily by FDI, project grants, and concessional loans. - Coverage of gross international reserves projected to slip to around 4 months of imports by end-2016. ### Key risks to the baseline scenario - Fiscal shocks: unanticipated revenue shortfalls and higher-than-budgeted spending could trigger increased domestic borrowing and higher interest costs. - Large fiscal deficits could lead to fiscal dominance or crowding out, although near-term crowding out risks are diminished by large capital injections from the minimum capital requirement increase. - Contingent liabilities are a leading source of potential spending overruns. - External shocks: terms-of-trade and weather-related shocks; weaker global economy risks growth, particularly tourism. - Fiscal effects of global slowdown: delayed rebuilding of tax revenues via tourism recovery; lower fuel prices could facilitate restoration of fuel excise taxes. ### Macro-policy discussions and surveillance issues - Primary policy challenges: - (i) fiscal adjustment to reduce domestic debt burden and risks; and - (ii) financing options for PAGE. - Surveillance issues: - Monetary policy and operations; financial sector stability and supervision; exchange rate assessment; international competitiveness; debt sustainability; quality of economic statistics. - Broad agreement: curbing government domestic borrowing should anchor macroeconomic policy over the medium term. ### Fiscal adjustment: objectives and near-term discipline - Authorities’ medium-term aim: reduce reliance on NDB with a strong initial step in 2012, then gradual decline. - 2012 budget target: reduce NDB by about 1 percentage point of GDP in 2012, reaching about ½ percent of GDP a year in 2014 and beyond. - Two-stage framework: - Stage 1: near-term discipline to achieve NDB targets. - Stage 2: medium-term reforms in tax policy, revenue administration, and PFM. - Staff recommendations: - Reduce NDB by about one percentage point of GDP for 2012. - Strict cash budgeting including containment of contingent liabilities and extra-budgetary spending (examples: NAWEC, GRTS, GAMTEL, GAMCEL). - Immediate adjustment in fuel prices so full excise taxes are collected; adherence to fuel price formula could recoup much of the 1 percent of GDP revenue lost in 2011. - Additional 2012 measures to lift projected tax revenues to 13.2 percent of GDP (same as 2010), including extending general sales tax coverage to electricity. - Authorities’ positions: - 2011 NDB ceiling set at GMD 815 million (just over 2½ percent of GDP), stabilizing domestic debt at just over 29 percent of GDP. - Proposed 2012 NDB target of 1.8 percent of GDP (reduction of almost one percentage point). - Proposed increases in miscellaneous taxes/fees totaling about ½ percentage point of GDP in 2012. - Reluctance to commit to full automatic application of the fuel price formula if it implied large retail price increases; opposed extending sales tax to electricity citing negative effects. - Government aims to maintain a 20 percent share of total current expenditures going to basic and primary education. ### Measures to improve revenue collection and administration - Government and staff actions: - Commission of Inquiry on Tax Evasion being set up. - Gambia Revenue Authority (GRA) stepped up measures; improvements in large taxpayer compliance increased income tax filings but collections have not risen—GRA cites lack of trained auditors. - Staff recommended rapid progress on GRA reform agenda (Large Taxpayer Unit) with IMF technical assistance. - Staff recommended revenue-raising near-term measures and implementation of fuel pricing formula; eliminate nuisance taxes before VAT introduction. ### Medium-term fiscal adjustment and tax reform - Staff advised larger adjustment: reduce NDB to near zero in 2014 and beyond (vs. authorities’ ½ percent of GDP). - Emphasis on credibility of adjustment to generate fiscal savings via lower interest rates. - Tax reform recommendations: - VAT introduction planned for January 2013 (policy paper identifies uniform rate of 15 percent and threshold GMD 1 million; electricity exempted). - Flat rate personal and company income taxes with minimal exemptions and deductions; simplicity, broad coverage, low rates. - Sequence: revenue administration improvements first; regular implementation of fuel pricing formula; eliminate nuisance taxes before VAT. - Staff recommended income tax reform after VAT (suggested 2014). - Assess tax expenditures as next step. - Authorities’ views: - Committed to introduce VAT and prepare VAT bill with Fund TA; cautioned VAT could be delayed to January 2014. - View Commission of Enquiry as key to boost compliance; cautious that major reform might overwhelm administrative capacity. ### Public Financial Management (PFM) and expenditure priorities - Expenditure framework: - Expenditures to be restrained over medium term, growing roughly in line with GDP. - Government intends to increase share directed toward agriculture and shift spending from current to capital expenditures. - Fiscal savings on interest payments and modest subsidy reduction would allow increases in physical investment (e.g., irrigation). - Wage bill projected to remain steady relative to GDP. - Revenue mobilization or donor support could be directed to PAGE priorities. - PFM reform priorities: - Strengthen budget process, MTEF and program-based budgeting; prepare budget policy paper and phased medium-term budgeting. - Enhance internal and external audit functions. - IFMIS rolled out to all government offices and interfaced with CBG; submission of audited government accounts for 2007 seen as important. ### Rationale and design of comprehensive tax reform (Box 2 / Appendix summary) - Challenges: - Tax revenues relative to GDP lag regional averages and declined recently. - Large agriculture expansion largely outside tax net. - Rising tax expenditures and widespread tax evasion eroding base. - High tax rates, perception of unfairness, rent-seeking, cumbersome compliance. - The Gambia ranks 178 out of 183 for ease of paying taxes in 2012 Doing Business. - Reform objectives: - Broaden base, eliminate nuisance taxes, simplify direct taxes, complement administration improvements, boost revenues and equity. - Cross-country evidence: - In 18 countries introducing flat PIT, 9 saw increases in PIT/CIT revenues; 11 collected more indirect tax revenues; in 12, sum of PIT, CIT and indirect taxes rose. - Mauritius example: - Replaced multiple PIT rates with single 15 percent rate; VAT rate 15 percent. - Tax expenditures estimated to fall from 3 percent of GDP to 1.5 percent of GDP. - Specific measures recommended: - Survey and annual estimates of tax expenditures. - Eliminate excise/sales/import duty waivers. - Subject electricity to sales tax (and eventually VAT). - Implement fuel pricing formula regularly. - Re-align Fringe Benefit Tax with reformed PIT rate. - Let tax preferences under GIEPA 2010 expire without renewal. - Simplify direct taxes and increase personal exemption. ### Monetary policy and operations - Monetary policy focus: price stability; CBG aims to keep inflation close to 5 percent (y-o-y). - Operational settings: - CBG targets broad money by observing end-period quarterly targets for reserve money. - For 2012, CBG targeted reserve and broad money growth rates of 11.3 percent and 13.2 percent, respectively. - Discount (rediscount) rate serves as policy rate; authorities lowered discount rate by 1 percentage point to 14 percent at October MPC meeting. - Interest rate transmission weak; rediscount rate tends to be punitive with little direct influence on market rates. - Staff recommendations: - Eliminate fiscal dominance and strengthen CBG independence. - CBG and MoFEA should improve T-bill auction projections and publicly announce planned offerings in early 2012. - Target average reserve money (monthly) rather than end-period reserve money. - Develop daily liquidity management tools (repos, reverse repos) and study liquidity patterns. - Further study to determine an effective policy interest rate. ### Financial stability: findings, stress tests, and policy implications - Findings: - Banks generally well capitalized and liquid, though system averages mask problems in individual banks. - SSHFC is a major depositor and influences deposit rates; should be closely monitored. - Credit information: ensure credit reference bureau fully serves as reliable, timely source to help contain NPLs and lower borrowing costs. - Box 3 / Financial Sector Assessment highlights: - From 2005 to 2010 banks increased from 5 to 14 (one exited early 2011). - NPLs rose to 14.5 percent at end-2010; provisioning rules are weak (full provisioning only after 360 days). - Stress testing (March 2011): credit risk is main systemic risk; banks can withstand severe liquidity shocks from deposit withdrawals; exchange rate and interest rate risks negligible. - High risk-weighted CAR reflects high share of investment in government T-bills. - Stress-test scenarios (June 2011 data) – selected numeric outcomes: - Pre-shock (13 banks) Aggregate CAR: 25.6; Min CAR: 13.1; Recapitalization Need: 155.6 million Dalasi. - Credit Risk: 80% increase of NPLs -> Min CAR: 21.4; Change in CAR: -2.6; Undercapitalized Banks: 2; Recapitalization Need: 109 million Dalasi (0.4% of GDP). - Credit Risk: 3 largest exposures default -> Min CAR: 8.7; Change in CAR: -17.0; Undercapitalized Banks: 6; Recapitalization Need: 619 million Dalasi (2.2% of GDP). - Government debt restructuring (haircut) -> Min CAR: -1.4; Change in CAR: -27.0; Undercapitalized Banks: 4; Recapitalization Need: 1,585 million Dalasi (5.6% of GDP). - Multi-factor scenario (2012 Q2) -> Aggregate CAR: 20.1; Change in CAR: -5.5; Undercapitalized Banks: 2; Recapitalization Need: 128 million Dalasi (0.45% of GDP). - Liquidity stress tests: - Deposit-run shock assumed: 15 percent per day withdrawal of demand/savings; 9 percent per day of time deposits. - All banks withstand shock for two days; by day 3 two medium-size banks become illiquid. - Policy implications: - Intensify supervision of systemically important banks; monitor exposure concentration. - Emphasize provisioning as an informative indicator. - Prepare CBG as lender of last resort given reliance on market liquidity of government securities. - Ensure credit reference bureau quality and up-to-date database. ### Debt sustainability analysis (DSA) — key findings and scenarios - Overall assessment: - External debt indicators indicate high risk of debt distress. - PV of external debt to exports ratio projected at 176 percent in 2011 (threshold 100); projected to fall below threshold only in 2028. - PV of external debt to GDP about 28 percent in 2011; declines to about 18 percent by end of projection period with 5½ percent real GDP growth. - External debt service ratios are below thresholds and decline gradually. - Baseline macro assumptions: - Real GDP growth: recent 6½ percent (2008–10); 2011 projected 5½ percent; medium term 5½ percent. - Inflation ~5 percent; reserves at end-2010 gross US$163 million (4.8 months). - Fiscal adjustment to reduce NDB from 2½–3 percent of GDP in 2011 to ½ percent by 2014. - Donor support expected to surge to 5½ percent of GDP in 2011 then ~4½ percent subsequently. - Impact of remittances: - Remittances estimated >30 percent of exports (excluding re-exports), equivalent to over 4½ percent of GDP in 2011. - Including remittances reduces debt-to-exports ratio but breaches persist until about 2018 (peak ~135 percent in 2011). - Alternative scenarios: - Less favorable new borrowing terms: indicators worsen; debt-to-exports breaches threshold throughout projections. - Stepping-up borrowing (US$150 million 2012–2016 for PAGE, assumed 20 percent return on investment with one-year lag): debt-to-exports breaches until 2030; debt path shows downward trend thereafter; temporary breaches of debt-to-GDP and debt-to-revenue in 2012–2016. - Bound tests show worst shocks (one-time 30 percent depreciation or big export shocks) can breach many indicators. - Public debt baseline: - Domestic debt projected to fall from just over 29 percent of GDP end-2011 to just over 24 percent in 2014 and continue falling. - PV of total public debt projected to decline from about 57 percent of GDP in 2011 to just over 45 percent in 2016 and to about 22 percent in 2031. - Staff recommendations: - Restrict external financing to grants and highly concessional loans with grant element at least 35 percent. - Reduce new domestic borrowing. - Develop medium-term debt management strategy and MTDS; consider refinancing with longer-term bonds when conditions allow. ### Programmes, PAGE, and recent updates - PAGE: - Officially launched December 22, 2011; serves as poverty reduction strategy and basis for Bank and Fund support for 2012–2015. - PAGE emphasizes agriculture and infrastructure. - Bank and Fund to prepare Joint Staff Advisory Note for PAGE by end-April 2012. - Poverty survey: - 2010 Integrated Household Survey: 48 percent below US$1.25/day (2003 comparable headcount 61 percent). - Fuel price adjustment (December 23, 2011): - Prices increased by GMD 1 per liter; increase fell short of formula full pass-through by 5–9 percent (GMD 2.4–3.9 per liter). ### Selected medium-term projections and key numeric series (selected levels and percent changes) - Nominal GDP (millions of dalasi): 2012 26,811; 2013 29,673; 2014 32,810; 2015 36,286; 2016 40,122; 2017 44,372; 2018 49,076 - Nominal GDP (percent change): 2012 10.6; 2013 10.7; 2014 10.6; 2015 10.6; 2016 10.6; 2017 10.6; 2018 10.6 - GDP at constant prices (percent change): 2012 6.3; 2013 5.5; 2014 5.5; 2015 5.5; 2016 5.5; 2017 5.5; 2018 5.5 - GDP per capita (US$): 2012 560; 2013 566; 2014 567; 2015 573; 2016 589; 2017 606; 2018 625 - Consumer prices (average, percent change): 2012 5.0; 2013 5.4; 2014 5.0; 2015 5.0; 2016 5.0; 2017 5.0; 2018 5.0 - Reserves in months of imports: 2012 4.8; 2013 5.0; 2014 4.6; 2015 4.3; 2016 4.1; 2017 4.0; 2018 3.9 - Current account (percent of GDP), excluding budget support: 2012 -16.8; 2013 -14.4; 2014 -15.3; 2015 -14.7; 2016 -14.5; 2017 -14.1; 2018 -13.4 - Gross official reserves (US$ millions): 2012 163.3; 2013 174.7; 2014 171.6; 2015 168.3; 2016 170.7; 2017 176.6; 2018 184.2 - Public debt (percent of GDP): 2010 69.2; 2011 68.4; 2012 67.5; 2013 64.9; 2014 62.1; 2015 59.4; 2016 57.0 - Domestic public debt (percent of GDP): 2010 29.3; 2011 29.2; 2012 28.0; 2013 26.4; 2014 24.3; 2015 22.5; 2016 20.9 - External public debt (percent of GDP): 2010 39.9; 2011 39.2; 2012 39.5; 2013 38.5; 2014 37.8; 2015 36.9; 2016 36.1 - Broad money (percent change): 2012 13.7; 2013 13.3; 2014 13.2; 2015 13.2; 2016 13.3; 2017 13.4; 2018 13.5 - Credit to the private sector (percent of GDP): 2012 15.8; 2013 16.2; 2014 19.0; 2015 21.4; 2016 23.8; 2017 25.6; 2018 27.4 - Financial soundness indicators (selected): - Regulatory capital to risk-weighted assets: 2007 22.5; 2008 19.6; 2009 18.8; 2010 24.5; 2011 (June) 24.8 - Nonperforming loans to total gross loans: 2007 10.4; 2008 13.7; 2009 12.3; 2010 14.5; 2011 (June) 12.7 ### Public Financial Management, statistics, and TA program - Fund work program and TA timing highlights: - Public Financial Management and Growth Grant — June 2011; March 2012. - IFMIS: Additional Financing — June 2011; March/April 2012; October/November 2012. - VAT preparations — December 2011; resident advisor January 2012. - PFM resident advisor beginning April 2012. - Strengthening bank supervision and stress-testing capacity — January 2012; February/March 2012. - Price statistics and national accounts — March 2012. - Statistical issues: - Data have shortcomings but are broadly adequate for surveillance. - GBoS produces improved real and nominal GDP series for 2004–10 (base year 2004); expenditure-based GDP series under development. - Balance of payments statistics affected by shortcomings; BOP compiled according to BPM5; quarterly BOP through DfID-funded TA project with most recent data Q2:2011. ### Executive Board and concluding remarks - Executive Directors commended progress in poverty reduction, strong growth, and low inflation. - Main risks identified: high cost and rollover risks of domestic debt. - Directors supported fiscal consolidation, comprehensive tax reform including early VAT introduction, strengthened revenue administration, and phasing out fuel subsidies to rebuild revenues. - Monetary policy should focus on price stability; CBG encouraged to develop liquidity instruments and maintain exchange rate flexibility. - Directors welcomed strengthening financial sector oversight and emphasized PAGE financing should safeguard debt sustainability. *Source: THE GAMBIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND* ### 1. Selected Economic Indicators _________________________________________________________________ 25 ### 1. Selected Economic Indicators ### Background: recent performance and inflation - Real GDP growth averaged around 6½ percent a year during 2008–10, driven mainly by agriculture. - Tourism and remittances were hit hard by the global crisis. - Inflation ranged between 2½ and 7 percent (year-on-year), as the Central Bank of The Gambia (CBG) generally maintained a restrained monetary stance. - At times, the CBG engaged in extensive mopping up of liquidity generated by central bank financing of fiscal deficits. ### Fiscal developments and risks - The government’s fiscal deficit widened substantially during 2008–10, resulting in a sharp increase in domestic debt. - Revenues: - After peaking at nearly 17½ percent of GDP in 2007, revenues fell to just under 15 percent of GDP in 2010. - The revenue decline reflected erosion in collections from all major taxes. - Expenditures: - Expenditures (excluding donor financed projects) rose from about 14½ percent of GDP to 18 percent of GDP. - Extra-budgetary expenditures, including realized contingent liabilities, were major factors behind the surge in government spending, particularly in 2009 and 2010. - Financing: - The large fiscal deficits were mostly financed with domestic borrowing. - Because of a large slippage on the fiscal performance criterion for end-December 2010, the recent arrangement under the Extended Credit Facility expired (on March 31, 2011) without completion of the final review. ### Debt burden and interest costs - Despite debt relief, the public debt profile remains concerning: - As of end-2010, domestic debt had risen to almost 30 percent of GDP. - Interest on domestic debt consumed an increasing share of government revenues: 18 percent of government revenues in 2011. - Most domestic debt consists of short-term Treasury bills, posing substantial rollover risks. - External debt: - Large reduction in external debt under HIPC and MDRI in December 2007, but external debt indicators suggest The Gambia is still at high risk of debt distress. ### Financial sector developments - Banking sector expansion: - Between 2007 and 2010, the number of banks doubled (to 14). - One bank closed early in 2011. - The new banks are mostly foreign-owned, generating substantial FDI (including from the increase in the minimum capital requirement). - Intense competition among a high number of banks in a relatively small market contributed to increased risks to the banking system. - Financial intermediation: - Credit to the private sector and public enterprises relative to GDP grew by about 4½ percentage points, to nearly 17½ percent of GDP (2007–2010). - Growth in private sector credit lagged behind growth in credit to the government. ### Social outcomes and donor support - Poverty and social indicators: - A large share of the population still lives in poverty: 58 percent in 2008. - Strong improvements in education (primary school enrolment and completion and youth literacy rates) and health (immunization and child and maternal mortality rates) were noted. - The government’s recent initiative to provide greater support to agriculture is expected to have contributed to some progress in reducing the incidence of poverty. - Authorities are finalizing a new poverty reduction strategy, the Programme for Accelerated Growth and Employment (PAGE), emphasizing agriculture and infrastructure. - Donor support: - Donor grants averaged about 2½ percent of GDP a year during 2007-10. - A pickup in donor support was expected in 2011. - Some potential donors expressed concern over human rights and freedom of the press. - President Jammeh was re-elected to a fourth 5-year term; parliamentary elections were scheduled for March 31, 2012. ### Implementation of 2010 Article IV recommendations (summary) - Fiscal, tax, and PFM: - Mixed implementation. Authorities introduced a fuel pricing formula intended to preserve excise taxes, but implementation was irregular. - Large extra-budgetary spending in late 2010 resulted in a higher-than-targeted deficit; fiscal discipline improved in 2011. - Good progress toward VAT introduction: VAT policy paper endorsed by cabinet. - Measures to improve tax compliance were not yet effective; most “nuisance” taxes had not been eliminated. - Good progress on strengthening monitoring and reporting on budget execution; a budget policy paper was prepared for 2012. - Monetary policy and financial sector: - Liquidity forecasting committee met only sporadically until recently, handicapping liquidity management and T-bill auction planning. - Reconciliation of government accounts at the CBG and the first stage of the planned increase in the minimum capital requirement for commercial banks were completed as scheduled. - Additional staff were hired to beef up CBG supervisory capacity, albeit not as many as recommended. - Development of short-term monetary instruments is behind schedule. - PAGE financing: - Authorities plan to seek funding alternatives for the PAGE to safeguard debt sustainability, including concessional borrowing and private sector participation in infrastructure; private participation is already being used in the telecom sector with World Bank help. ### Economic developments in 2011 - Growth and inflation: - Despite poor weather weakening agriculture, real GDP was expected to grow by about 5½ percent in 2011. - Year-on-year inflation dipped to about 4 percent in recent months and was expected to end the year slightly below 5 percent. - Fiscal discipline: - Significant progress restoring fiscal discipline in 2011 through strict cash budgeting to limit spending to available resources. - Government net domestic borrowing (NDB) was on track to meet the authorities’ target of just over 2½ percent of GDP in 2011. - The government cleared its overdraft balance with the CBG and refrained from new central bank financing of the deficit. - Improved fiscal discipline contributed to a drop in T-bill yields in recent months and allowed monetary policy to focus on maintaining low inflation. - Revenue erosion persists: - Government revenues expected to fall by another full percentage point of GDP in 2011. - Lost revenues from fuel taxes—mainly because of only partial implementation of the new fuel pricing formula—accounted for much (about three-fourths) of the revenue shortfall. - Poor tax compliance and falling duties on non-fuel imports also contributed to the poor revenue effort. - The authorities attempted to maintain spending on poverty-reducing priorities, especially those that are a precondition for donor grants. ### Economic outlook and baseline projections - Baseline scenario (not reflecting PAGE): - Real GDP projected to continue to grow at a robust pace: 5½ percent a year. - Growth drivers: healthy growth in agriculture, gradual but sustained recovery in tourism and construction, and returns to large ongoing investment in telecommunications. - Fiscal policy path: - Outlook predicated on gradual fiscal adjustment that would reduce NDB to ½ percent of GDP a year in 2014 and beyond, as proposed by the Gambian authorities. - The fiscal adjustment would help ensure the CBG’s independence to focus on maintaining annual inflation around its objective of 5 percent, while easing pressure on interest rates and avoiding crowding out of the private sector. - External sector: - The external current account deficit is expected to narrow to about 13 percent of GDP by 2016, financed primarily by foreign direct investment (FDI), project grants, and concessional loans. - Coverage of gross international reserves projected to slip to around 4 months of imports by end-2016. *Source: THE GAMBIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND* ### 12. This scenario is subject to some ### _cr1217 - 12. This scenario is subject to some ### Key risks to the scenario - Fiscal shocks—such as unanticipated revenue shortfalls and higher-than-budgeted spending—could threaten macroeconomic stability. - Such shocks could quickly lead to more domestic borrowing and higher interest costs, especially given the high roll-over requirements of outstanding debt. - Large fiscal deficits could lead to a return to fiscal dominance or crowding out effects, although near-term crowding out risks are diminished by large capital injections in the banking system arising from the ongoing process to increase the minimum capital requirement. - Contingent liabilities are a leading potential source of spending overruns. - The Gambian economy is vulnerable to terms of trade and weather-related shocks. - A weaker global economy poses near-term risk to growth, particularly for the tourism sector; mitigation: lower international prices for fuels and other imported commodities. - Fiscal effects of a global slowdown: delayed rebuilding of tax revenues via gradual recovery in tourism; lower fuel prices would facilitate full restoration of fuel excise taxes. ### Macro-policy discussions and surveillance issues - Primary policy challenges discussed: - (i) fiscal adjustment to reduce the burden and risks of domestic debt; and - (ii) financing options for the PAGE. - Surveillance issues discussed included: - Monetary policy and operations; - Financial sector stability and supervision; - An assessment of the exchange rate and exchange rate policy; - International competitiveness; - Debt sustainability; and - The quality of economic statistics. - Broad agreement between authorities and staff that curbing government’s domestic borrowing should be the anchor for macroeconomic policies over the medium term. ### Fiscal adjustment: objectives and near-term discipline - Authorities’ medium-term aim: reduce reliance on net domestic borrowing (NDB) with a strong initial step in 2012, followed by gradual decline. - 2012 budget target: reduction in NDB by about 1 percentage point of GDP in 2012, followed by further reductions to about ½ percent of GDP a year in 2014 and beyond. - Fiscal adjustment framed as two-stage: - Stage 1: near-term discipline to achieve NDB targets; - Stage 2: broader medium-term reforms in tax policy, revenue administration, and public financial management (PFM). - Staff recommended: - Reduction in NDB by about one percentage point of GDP for 2012 to initiate a downward trend in domestic debt relative to GDP. - Strict cash budgeting to meet NDB targets and resist year-end spending pressures, including containment of contingent liabilities and extra-budgetary spending (examples cited: NAWEC, GRTS, GAMTEL, GAMCEL). - Immediate adjustment in fuel prices so full value of excise taxes could be collected; adherence to the fuel price formula over time could recoup much of the 1 percent of GDP of revenues lost in 2011. - Additional 2012 budget measures to lift projected tax revenues to 13.2 percent of GDP—the same as was collected in 2010—including extending the coverage of the general sales tax to electricity. - Authorities’ positions: - For 2011 they set an NDB ceiling of GMD 815 million or just over 2½ percent of GDP that would stabilize the stock of domestic debt at just over 29 percent of GDP. - For 2012 authorities proposed an NDB target of 1.8 percent of GDP—a reduction of almost one percentage point of GDP. - Authorities proposed increases in miscellaneous taxes and fees totaling about ½ percentage point of GDP in additional revenues in 2012. - Authorities were reluctant to commit to automatic full application of the fuel price formula if it implied large retail price increases; opposed extending sales tax to electricity citing negative effects on businesses and the poor. - Government aims to maintain a 20 percent share of total current expenditures going toward basic and primary education. ### Measures to improve revenue collection and administration - Government actions and staff advice: - Government setting up a Commission of Inquiry on Tax Evasion. - Gambia Revenue Authority (GRA) stepping up administrative measures; improvements in large taxpayer compliance increased income tax filings but collections have not risen—GRA cites lack of trained auditors. - Staff recommended rapid progress on GRA reform agenda, particularly the Large Taxpayer Unit, with Fund technical assistance. - Staff recommended revenue-raising near-term measures and implementation of fuel pricing formula; eliminate “nuisance” taxes in run-up to VAT introduction. ### Medium-term fiscal adjustment and tax reform - Staff’s medium-term advice: - Advocate slightly larger fiscal adjustment: reduce NDB to near zero in 2014 and beyond (compared with authorities’ goal of ½ percent of GDP a year). - Emphasized credibility of adjustment to generate fiscal savings via lower interest rates. - Use medium-term adjustment to step up tax policy, revenue administration, and PFM reforms to enhance government effectiveness and international competitiveness. - Tax reform recommendations: - Comprehensive tax reform building on planned VAT introduction in January 2013 (policy paper identifies a uniform tax rate of 15 percent and an appropriately high threshold (GMD 1 million); Electricity is exempted). - Flat rate personal and company income taxes with minimal exemptions and deductions; emphasis on simplicity, broad coverage, and low tax rates. - Sequence reforms: start with revenue administration improvements and regular implementation of fuel pricing formula; eliminate nuisance taxes before VAT introduction. - Staff recommended income tax reform come after VAT (suggested in 2014) to allow further study and ensure smooth transition. - Staff recommended assessment of tax expenditures as a next step. - Authorities’ views on reform sequencing: - Committed to introduce VAT and to prepare a VAT bill (with Fund technical assistance) for submission to the National Assembly; cautioned VAT introduction could be delayed to January 2014. - View Commission of Enquiry on Tax Evasion as key to boost compliance. - Expressed caution that major reform might overwhelm administrative capacity and jeopardize revenue collections; requested further study including assessment of tax expenditures. ### PFM and expenditure priorities - Expenditure framework under resource constraints: - Expenditures to be restrained over medium term, growing roughly in line with GDP. - Government intends to increase share of total spending directed toward agriculture and shift spending from current to capital expenditures. - Fiscal savings on interest payments and modest subsidy reduction would allow increases in physical investment (e.g., irrigation projects). - Wage bill projected to remain steady relative to GDP. - Additional resources from revenue mobilization or donor support could be directed toward PAGE priorities. - PFM reform priorities: - Strengthen budget process, expenditure framework (MTEF) and program-based budgeting; prepare a budget policy paper and phased medium-term budgeting. - Enhance internal and external audit functions. - Integrated Financial Management Information System (IFMIS) rolled out to all government offices and interfaced with CBG; submission of audited government accounts for 2007 (first to use IFMIS inputs) seen as important step for transparency. ### Box 2 summary: rationale and design of comprehensive tax reform - Challenges identified: - Tax revenues relative to GDP lag regional averages and declined in recent years. - Large agriculture expansion largely outside tax net. - Rising tax expenditures and widespread tax evasion eroding base. - High tax rates and perception of unfairness; widespread rent-seeking and cumbersome compliance procedures. - 2012 World Bank Doing Business results suggest tax system difficulties have weakened international competitiveness. - Reform objectives: - Broaden tax base, eliminate “nuisance” taxes, and simplify direct taxes by lowering number and levels of tax rates. - Complement revenue administration and compliance improvements; simpler and lower taxes easier to enforce and comply with; support VAT acceptance. - Complete comprehensive survey and estimates of tax expenditures; annual assessment to highlight costs of tax incentives. ### Monetary policy and financial sector stability - Monetary policy focus: price stability with CBG aiming to keep inflation close to 5 percent (y-o-y). - Operational targets and settings: - CBG targets broad money, mainly by observing (end period) quarterly targets for reserve money. - For 2012, CBG targeted reserve and broad money growth rates of 11.3 percent and 13.2 percent, respectively, which would allow ample growth of credit to the private sector. - Discount rate (rediscount rate) serves as policy rate; authorities lowered discount rate by one percentage point to 14 percent at October MPC meeting in light of dip in inflation. - Interest rate transmission has been weak; current rediscount rate tends to be punitive and has little direct influence on market interest rates. - Staff recommendations to improve monetary policy conduct: - Build on progress toward eliminating fiscal dominance and strengthen independence of CBG to implement more consistent monetary policy with predictable use of instruments (notably sales of T-bills). - CBG, coordinated with MoFEA, should improve projections of T-bill auctions for the month ahead and publicly announce planned offerings in early 2012 to enhance competition and lower yields. - Build capacity to target average reserve money (on a monthly basis) rather than end-period reserve money, given a more stable relationship with broader money aggregates. - Develop daily liquidity management tools (such as repos and reverse repos) and further study liquidity demand and supply patterns for forecasting. - Further study needed to determine an effective policy interest rate. *The Gambia: 2011 Article IV Report (selected excerpts).* ### 34. CBG should continue to strengthen ### 34. CBG should continue to strengthen ### Financial stability: findings and risks - Banks are generally well capitalized and liquid, although system-wide averages can mask potential problems in individual banks. - With 13 banks competing for a small customer base, competition is fierce resulting in narrow profit margins. - The Social Security and Housing Finance Corporation (SSHFC) continues to be the major depositor in the banking system and uses its dominant position to drive up interest rates on deposits. - Fund technical assistance is helping the CBG expand its toolkit for banking supervision with stress-testing capability. - Staff encouraged the CBG to conduct more frequent on- and off-site supervision based on financial indicators for Prompt Corrective Action (PCA). - Given its role as a source of funding to the banking system, the SSHFC should be monitored more closely. ### Credit information and cost of financing - Staff urged the CBG to ensure that the credit reference bureau fully serves its function as a reliable and timely source of credit information. - High quality information would allow creditors to better guard against exposure to nonperforming loans. - Borrowers with a good credit rating would be able to obtain loans at lower interest rates. - Improving credit information would help address the high cost of financing, which is a major concern for businesses. ### Box 3 — The Gambia: Financial Sector Assessment (summary findings) - From 2005 to 2010, the number of banks increased from 5 to 14 (one dropped out in early 2011). - Credit to GDP expanded from 10 percent of GDP in 2005 to 17.4 percent of GDP in 2010. - Credit growth averaged 23 percent a year over 2005–2010. - The average risk adjusted capital ratio was 25.6 percent as of June 2011. - Across the 13 banks the capital adequacy ratio (CAR) ranges from 16.9 to 155.6 percent. - The ratio of liquid assets to short-term liabilities is 60 percent, with a large share of short-term government paper and a few large depositors. - Nonperforming loans (NPLs) increased from 5 percent of total loans and advances in 2005 to 14.5 percent at end 2010; recently NPL fell by 2 percentage points as of June 2011. - Full provisioning (100 percent) is required only for loans that are past due for more than 360 days; restructured loans attract only a 5 percent provision. - Profitability weakened, turning negative in 2009, but began to recover in 2010: - Return on assets (ROA) fell from 4.5 percent in 2007 to -1.6 percent in 2009, then reached 1.2 percent by June 2011. - Return on equity (ROE) fell from 36.4 percent in 2007 to -24.9 percent in 2009, then reached 5.8 percent by June 2011. - Stress testing (March 2011) revealed: - Credit risk is the most important source of risk to the banking system. - Banks can withstand severe liquidity shocks arising from deposit withdrawals. - Exchange rate and interest rate risks are negligible. - The supervisory framework is robust and based on monitoring PCA indicators collected quarterly, but can be further strengthened. - SSHFC’s investment decisions affect monetary policy through interest rates and the banking system and should be monitored closely. - Fund technical assistance supported diagnostics, stress testing, and training to build the CBG’s capacity for stress testing. - The particularly high (risk-weighted) CAR reflects a high share of investment in government T-bills. ### Staff recommendations for supervision and macro-financial policy - Conduct more frequent on- and off-site supervision using PCA and financial indicators. - Strengthen the supervisory apparatus through: - Introduction of risk-based supervision. - Expansion of stress-testing capacity and regular stress-testing exercises. - Ensure the Credit Reference Bureau maintains a high-quality and up-to-date database to: - Help banks contain nonperforming loans. - Enable borrowers with good credit ratings to access financing at lower interest rates. - Monitor the SSHFC’s investment policy and portfolio structure given its prominent depositor role and systemic impact. - Develop a near-term liquidity management strategy and tools for the CBG to support the primary goal of maintaining low inflation (noted elsewhere in the chapter). ### Authorities’ views (summary) - Monetary authorities reiterated that their main objective is price stability. - Authorities agreed with recommended steps and noted that further technical assistance may be needed to implement them. - Authorities concurred with staff’s analysis and recommendations on financial sector stability. - Authorities noted constraints (e.g., availability of information from banks’ headquarters abroad limited to annual reporting). *Source: Excerpt from IMF staff report on The Gambia (2011 Article IV report), chapter/section titled "34. CBG should continue to strengthen"* ### 60. Staff recommends that the next ### _cr1217 - 60. Staff recommends that the next ### Recommendation - Staff recommends that the next Article IV consultation for The Gambia take place on the standard 12-month cycle. ### National account and prices (selected levels and percent changes) - Nominal GDP (millions of dalasi): 2012: 26,811; 2013: 29,673; 2014: 32,810; 2015: 36,286; 2016: 40,122; 2017: 44,372; 2018: 49,076 - Nominal GDP (percent change): 2012: 10.6; 2013: 10.7; 2014: 10.6; 2015: 10.6; 2016: 10.6; 2017: 10.6; 2018: 10.6 - GDP at constant prices (percent change): 2012: 6.3; 2013: 5.5; 2014: 5.5; 2015: 5.5; 2016: 5.5; 2017: 5.5; 2018: 5.5 - GDP per capita (US$): 2012: 560; 2013: 566; 2014: 567; 2015: 573; 2016: 589; 2017: 606; 2018: 625 - GDP deflator (percent change): 2012: 4.0; 2013: 4.9; 2014: 4.8; 2015: 4.8; 2016: 4.8; 2017: 4.8; 2018: 4.8 - Consumer prices (average, percent change): 2012: 5.0; 2013: 5.4; 2014: 5.0; 2015: 5.0; 2016: 5.0; 2017: 5.0; 2018: 5.0 - Consumer prices (end of period, percent change): 2012: 5.8; 2013: 5.0; 2014: 5.0; 2015: 5.0; 2016: 5.0; 2017: 5.0; 2018: 5.0 ### External sector (selected items; percent changes and levels) - Exports, f.o.b. (percent change): 2012: 3.6; 2013: 12.6; 2014: 5.3; 2015: 5.9; 2016: 6.0; 2017: 6.7; 2018: 7.4 - Of which: domestic exports (percent change): 2012: 25.5; 2013: 34.3; 2014: -0.1; 2015: 6.8; 2016: 6.0; 2017: 6.8; 2018: 10.3 - Imports, f.o.b. (percent change): 2012: 5.3; 2013: 4.3; 2014: 7.1; 2015: 4.2; 2016: 7.1; 2017: 7.5; 2018: 7.2 - Terms of trade (deterioration, percent): 2012: -; 2013: -0.2; 2014: -0.7; 2015: 1.2; 2016: 1.0; 2017: 2.0; 2018: 2.0 - Gross official reserves (US$ millions): 2012: 163.3; 2013: 174.7; 2014: 171.6; 2015: 168.3; 2016: 170.7; 2017: 176.6; 2018: 184.2 - Reserves in months of imports of goods and services: 2012: 4.8; 2013: 5.0; 2014: 4.6; 2015: 4.3; 2016: 4.1; 2017: 4.0; 2018: 3.9 ### External current account (levels in US$ millions and percent of GDP) - Current account balance excluding budget support (US$ millions): 2012: -162.9; 2013: -146.3; 2014: -160.3; 2015: -161.5; 2016: -169.4; 2017: -175.8; 2018: -177.7 - Current account balance including budget support (US$ millions): 2012: -162.9; 2013: -146.3; 2014: -160.3; 2015: -156.0; 2016: -163.6; 2017: -169.6; 2018: -171.2 - Current account (percent of GDP), excluding budget support: 2012: -16.8; 2013: -14.4; 2014: -15.3; 2015: -14.7; 2016: -14.5; 2017: -14.1; 2018: -13.4 - Current account (percent of GDP), including budget support: 2012: -16.8; 2013: -14.4; 2014: -15.3; 2015: -14.2; 2016: -14.0; 2017: -13.7; 2018: -12.9 ### Balance of payments (selected flows, US$ millions) - Exports of goods and services (US$ millions): 2012: 228.8; 2013: 251.8; 2014: 265.1; 2015: 282.6; 2016: 303.1; 2017: 326.9; 2018: 354.0 - Imports of goods and services (US$ millions): 2012: -406.8; 2013: -416.5; 2014: -446.4; 2015: -467.4; 2016: -499.2; 2017: -535.4; 2018: -569.4 - Overall balance (US$ millions): 2012: -25.7; 2013: 7.6; 2014: -2.8; 2015: -1.7; 2016: 5.7; 2017: 11.0; 2018: 11.8 - Net international reserves (increase -) (US$ millions): 2012: 25.7; 2013: -7.6; 2014: 2.8; 2015: 1.7; 2016: -5.7; 2017: -11.0; 2018: -11.8 - Use of IMF resources (net) (US$ millions): 2012: 3.1; 2013: 3.7; 2014: -0.3; 2015: -1.6; 2016: -3.3; 2017: -6.0; 2018: -6.3 - Disbursements (US$ millions): 2012: 3.1; 2013: 3.7; 2014: 0.0; 2015: 0.0; 2016: 0.0; 2017: 0.0; 2018: 0.0 - Repayments (US$ millions): 2012: 0.0; 2013: 0.0; 2014: -0.3; 2015: -1.6; 2016: -3.3; 2017: -6.0; 2018: -6.3 ### Central government operations (levels and percent of GDP) - Revenue (millions local currency): 2010: 5,026; 2011: 5,496; 2012: 5,772; 2013: 6,668; 2014: 7,604; 2015: 8,424; 2016: 9,276 - Taxes (millions local currency): 2010: 3,528; 2011: 3,654; 2012: 4,142; 2013: 4,749; 2014: 5,458; 2015: 6,036; 2016: 6,676 - Grants (millions local currency): 2010: 1,065; 2011: 1,334; 2012: 1,078; 2013: 1,287; 2014: 1,422; 2015: 1,587; 2016: 1,714 - Total expenditure and net lending (percent of GDP): 2010: 24.8; 2011: 22.1; 2012: 20.5; 2013: 20.8; 2014: 20.9; 2015: 20.9; 2016: 20.9 - Overall balance (percent of GDP): 2010: -5.6; 2011: -3.6; 2012: -3.0; 2013: -2.4; 2014: -2.0; 2015: -1.9; 2016: -2.0 - Basic balance (percent of GDP): 2010: -3.3; 2011: -1.5; 2012: -0.4; 2013: -0.3; 2014: 0.2; 2015: 0.1; 2016: -0.1 - Net foreign financing (percent of GDP): 2010: 1.4; 2011: 0.9; 2012: 1.3; 2013: 1.4; 2014: 1.5; 2015: 1.4; 2016: 1.5 - Net domestic financing (percent of GDP): 2010: 4.2; 2011: 2.7; 2012: 1.6; 2013: 1.0; 2014: 0.5; 2015: 0.5; 2016: 0.5 - Public debt (percent of GDP): 2010: 69.2; 2011: 68.4; 2012: 67.5; 2013: 64.9; 2014: 62.1; 2015: 59.4; 2016: 57.0 - Domestic public debt (percent of GDP): 2010: 29.3; 2011: 29.2; 2012: 28.0; 2013: 26.4; 2014: 24.3; 2015: 22.5; 2016: 20.9 - External public debt (percent of GDP): 2010: 39.9; 2011: 39.2; 2012: 39.5; 2013: 38.5; 2014: 37.8; 2015: 36.9; 2016: 36.1 - External public debt (millions of US$): 2010: 377.1; 2011: 386.0; 2012: 399.8; 2013: 415.2; 2014: 432.6; 2015: 450.6; 2016: 470.9 ### Central government nominal items (selected, millions local currency) - Revenue: 2010: 5,026; 2011: 5,496; 2012: 5,772; 2013: 6,668; 2014: 7,604; 2015: 8,424; 2016: 9,276 - Expenditures: 2010: 6,466; 2011: 6,571; 2012: 6,741; 2013: 7,536; 2014: 8,405; 2015: 9,291; 2016: 10,273 - Net lending (+)/borrowing (–) (millions local currency): 2010: -1,440; 2011: -1,075; 2012: -969; 2013: -868; 2014: -801; 2015: -866; 2016: -997 - Domestic public debt (memorandum, millions local currency): 2010: 7,847; 2011: 8,662; 2012: 9,203; 2013: 9,566; 2014: 9,766; 2015: 9,988; 2016: 10,233 ### Monetary and banking (selected aggregates and rates) - Broad money (percent change): 2012: 13.7; 2013: 13.3; 2014: 13.2; 2015: 13.2; 2016: 13.3; 2017: 13.4; 2018: 13.5 - Net foreign assets (percent change): 2012: 1.3; 2013: 2.4; 2014: 3.9; 2015: 1.0; 2016: 2.3; 2017: 3.1; 2018: 3.2 - Net domestic assets (percent change): 2012: 12.3; 2013: 10.9; 2014: 9.3; 2015: 12.2; 2016: 11.0; 2017: 10.2; 2018: 10.3 - Reserve money (percent change): 2012: 10.5; 2013: 4.8; 2014: 11.3; 2015: 11.1; 2016: 11.2; 2017: 11.3; 2018: 11.4 - Net usable international reserves (in millions of U.S. dollars): 2012: 126.5; 2013: 131.8; 2014: 129.3; 2015: 127.8; 2016: 133.6; 2017: 145.9; 2018: 159.9 - Broad money (percent of GDP): 2012: 49.6; 2013: 50.8; 2014: 51.9; 2015: 53.2; 2016: 54.5; 2017: 55.9; 2018: 57.3 - Credit to the private sector (percent of GDP): 2012: 15.8; 2013: 16.2; 2014: 19.0; 2015: 21.4; 2016: 23.8; 2017: 25.6; 2018: 27.4 - Money multiplier: 2012: 3.79; 2013: 4.10; 2014: 4.17; 2015: 4.25; 2016: 4.33; 2017: 4.41; 2018: 4.49 - Central bank financing of central government (millions of local currency): 2012: 413; 2013: -253; 2014: 497; 2015: 505; 2016: 302; 2017: 127; 2018: 113 - Commercial bank financing of central government (millions of local currency): 2012: 961; 2013: 124; 2014: 0; 2015: 147; 2016: -116; 2017: -114; 2018: 561 ### Monetary survey (levels, selected, millions local currency) - Net foreign assets (end of period, millions US$): 2012: 3,808; 2013: 4,133; 2014: 4,716; 2015: 4,887; 2016: 5,325; 2017: 6,010; 2018: 6,799 - Net domestic assets (millions local currency): 2012: 9,485; 2013: 10,929; 2014: 12,328; 2015: 14,414; 2016: 16,540; 2017: 18,779; 2018: 21,325 - Domestic credit (millions local currency): 2012: 10,073; 2013: 11,759; 2014: 14,133; 2015: 16,409; 2016: 18,743; 2017: 21,199; 2018: 23,976 - Claims on central government (net, millions local currency): 2012: 4,953; 2013: 5,940; 2014: 6,583; 2015: 6,972; 2016: 7,160; 2017: 7,343; 2018: 7,569 - Claims on private sector (millions local currency): 2012: 4,240; 2013: 4,817; 2014: 6,219; 2015: 7,776; 2016: 9,543; 2017: 11,370; 2018: 13,426 - Broad money (millions local currency): 2012: 13,292; 2013: 15,062; 2014: 17,044; 2015: 19,301; 2016: 21,865; 2017: 24,789; 2018: 28,124 - Currency outside banks (millions local currency): 2012: 2,065; 2013: 2,264; 2014: 2,486; 2015: 2,717; 2016: 2,971; 2017: 3,252; 2018: 3,562 - Deposits (millions local currency): 2012: 11,228; 2013: 12,798; 2014: 14,558; 2015: 16,584; 2016: 18,894; 2017: 21,537; 2018: 24,562 ### Central bank survey (selected items, end of period) - Net domestic assets (millions local currency): 2012: 1,052; 2013: 925; 2014: 1,219; 2015: 1,608; 2016: 1,791; 2017: 1,796; 2018: 1,774 - Domestic credit (millions local currency): 2012: 581; 2013: 326; 2014: 823; 2015: 1,328; 2016: 1,630; 2017: 1,757; 2018: 1,871 - Reserve money (millions local currency): 2012: 3,503; 2013: 3,672; 2014: 4,087; 2015: 4,541; 2016: 5,050; 2017: 5,621; 2018: 6,264 - Currency outside banks (millions local currency): 2012: 2,065; 2013: 2,264; 2014: 2,486; 2015: 2,717; 2016: 2,971; 2017: 3,252; 2018: 3,562 - Commercial bank deposits with central bank (millions local currency): 2012: 1,439; 2013: 1,408; 2014: 1,601; 2015: 1,824; 2016: 2,078; 2017: 2,369; 2018: 2,702 ### Financial Soundness Indicators (selected; percent) - Regulatory capital to risk-weighted assets: 2007: 22.5; 2008: 19.6; 2009: 18.8; 2010: 24.5; 2011 (June): 24.8 - Tier-1 capital to risk-weighted assets: 2007: 20.0; 2008: 21.0; 2009: 19.0; 2010: 27.0; 2011 (June): 25.6 - Nonperforming loans to total gross loans: 2007: 10.4; 2008: 13.7; 2009: 12.3; 2010: 14.5; 2011 (June): 12.7 - Nonperforming loans net of provisions to capital: 2007: 2.8; 2008: 5.8; 2009: 4.3; 2010: 7.5; 2011 (June): 6.4 - Return on assets (average): 2007: 4.5; 2008: 0.1; 2009: -1.6; 2010: 0.4; 2011 (June): 1.2 - Return on equity (average): 2007: 36.4; 2008: 0.8; 2009: -24.9; 2010: 1.8; 2011 (June): 5.8 - Net Interest income to gross income: 2007: 34.7; 2008: 35.3; 2009: 37.0; 2010: 41.3; 2011 (June): 37.4 - Operating expenses to gross income: 2007: 47.0; 2008: 65.8; 2009: 62.0; 2010: 58.2; 2011 (June): 57.8 - Liquid assets to total assets: 2007: 45.0; 2008: 43.6; 2009: 35.7; 2010: 47.9; 2011 (June): 38.6 - Net open FX position to capital: 2007: 36.9; 2008: 19.1; 2009: 6.4; 2010: -0.4; 2011 (June): -2.9 ### Social and development indicators (selected items from MDG progress) - Employment to population ratio, 15+, total (%): 1990: 73; 1995: 73; 2000: 73; 2005: 73; 2009: 73 - Primary completion rate, total (% of relevant age group): 1990: 46; 1995: 45; 2000: 74; 2005: 69; 2009: 78 - Total enrollment, primary (% net): 1990: 51; 1995: 64; 2000: 73; 2005: 71; 2009: 76 - Literacy rate, youth female (% of females ages 15-24): 1990: 41; 2009: 60 - Immunization, measles (% of children ages 12-23 months): 1990: 86; 1995: 91; 2000: 92; 2005: 82; 2009: 96 - Mortality rate, infant (per 1,000 live births): 1990: 78; 1995: 72; 2000: 66; 2005: 61; 2009: 58 - Mortality rate, under-5 (per 1,000): 1990: 165; 1995: 145; 2000: 128; 2005: 112; 2009: 101 - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1990: 750; 1995: 690; 2000: 560; 2005: 460; 2009: 400 - Improved water source (% of population with access): 1990: 74; 1995: 79; 2000: 84; 2005: 89; 2009: 92 - Mobile cellular subscriptions (per 100 people): 2009: 168.5 - Internet users (per 100 people): 2009: 7.7 *Sources: Gambian authorities and Fund staff estimates and projections; World Development Indicators.* ### Appendix 1. Comprehensive Tax Reform in The Gambia ### Appendix 1. Comprehensive Tax Reform in The Gambia ### Key challenges and context - Tax revenues relative to GDP have lagged behind regional averages and have declined in recent years. - Compliance is poor; cumbersome procedures strain the GRA and discourage private sector employment and investment. - The current system invites rent-seeking and is widely perceived as unfair because of tax evasion, tax preferences for some, and high rates for others. - The Gambia ranks 178 out of 183 countries in the world for ease of paying taxes in the 2012 World Bank Doing Business report (last among ECOWAS countries and third from the bottom in AFR). - A complex tax system with a multiplicity of taxes (some with relatively high rates) is “chasing” a shrinking tax base. ### Rationale and expected benefits of comprehensive reform - Broadening the tax base, eliminating “nuisance” taxes, and simplifying direct taxes (including lowering both the number and levels of tax rates) could: - Re-energize employment, investment, and growth by improving economic incentives and reducing the financial and administrative burden on the private sector. - Speed up progress toward the Millennium Development Goals (MDGs) and the objectives of the Programme for Accelerated Growth and Employment (PAGE). - Complement and reinforce improvements in revenue administration and compliance (simpler and lower taxes are easier to enforce and comply with). - Boost tax revenues by accelerating growth, improving compliance, and refocusing the revenue side of the budget on raising revenue. - Make the tax system more equitable (broadening the base promotes horizontal and vertical equity; raising the personal exemption for PIT and improving compliance enhances vertical equity). - Figure 1 (Tax Revenue in 2010 for 15 ECOWAS Countries, % of GDP) reports The Gambia at 13.2 percent of GDP. ### Cross-country evidence and the Mauritius example - Table 1 (18 countries that introduced a flat PIT) shows mixed but suggestive results: - Out of 18 countries, nine experienced an increase in revenues from personal and corporate income tax (PIT and CIT). - 11 countries collected more revenues from indirect taxes (VAT and excise). - In 12 countries the sum total of revenues from PIT, CIT, and indirect taxes went up. - Mauritius (mid-2007 reform) highlights relevant outcomes: - Replaced four PIT rates (10 to 30 percent) with a single 15 percent rate and significantly raised the personal exemption, removing many small taxpayers from the tax net. - Simplified CIT to a single 15 percent rate; VAT rate is 15 percent. - Broadened the tax base by consolidating reliefs, allowances, deductions, and exemptions; tax expenditures are estimated to have fallen from 3 percent of GDP to 1.5 percent of GDP. - Mauritius ranks 11 out of 183 countries for ease of paying taxes in the 2012 World Bank Doing Business report. - Table 2 (Mauritius tax revenues, % of GDP, 2004–2010): - Tax revenue: 2004 17.2, 2005 17.9, 2006 17.3, 2007 17.6, 2008 18.2, 2009 19.1, 2010 18.4. - Average 2004–06: 17.5; Average 2008–10: 18.6. - PIT: Average 2004–06 1.3; Average 2008–10 1.5. - CIT: Average 2004–06 2.0; Average 2008–10 3.2. - Domestic indirect taxes: Average 2004–06 9.0; Average 2008–10 10.7. ### Specific reform opportunities and measures - Complete a comprehensive survey and annual estimates of tax expenditures to highlight costs of tax incentives and make special privileges harder to justify. - Broaden the tax base by: - Eliminating various waivers of excise tax, sales tax, and import duty. - Subjecting electricity consumption to sales tax (and eventually to VAT). - Implementing the fuel pricing formula regularly to ensure stable and positive revenues from excise taxes on fuel. - Re-aligning the Fringe Benefit Tax rate with the reformed personal income tax rate and applying it consistently to all allowances. - Allowing various tax preferences under The Gambia Investment and Export Promotion Act 2010 (GIEPA) and predecessors to expire without renewal, and abstaining from extending new ones. - Simplify direct taxes by lowering the number and levels of tax rates and increasing the personal exemption for PIT. ### Revenue administration, compliance, and sequencing - Significant improvements in revenue administration and compliance must precede an ambitious tax reform. - The authorities should follow through with their compliance improvement strategy; it should be a public priority with strong political support, including at the highest levels of government. - Timing and pace depend on institutional capacity: - Big-bang approach: a natural launch date would be January 2013, concurrently with the VAT launch; downside is strain on institutional capacity. - Gradual approach: stagger reforms over time, sequencing them after improvements in compliance, administration, and revenue collections. ### Evidence caveats and expected variability - While cross-country comparisons are suggestive, correlation is not causation: identical reform packages may yield different results depending on economic structure, institutional capacity, constraints, and behavioral responses. - Data weaknesses and methodological uncertainties warrant caution when interpreting results. *IMF staff. Appendix prepared by Slavi Slavov.* ### 25.6 percent, the banking sector remains well ### _cr1217 - 25.6 percent, the banking sector remains well ### Capital adequacy - Regulatory minimum requirement was raised from 8 percent to 10 percent, as of May 2011. - CBG raised the minimum capital requirement from D 60 million to D 150 million with effect from end-2010, and to D 200 million with effect from end-2012. - All 13 banks complied with the new requirements as of December 2010. - While new banks tend to be highly capitalized, some of the oldest and largest banks have significantly lower CARs. - Capital adequacy indicators (Banking Industry, in percent): Regulatory capital to risk-weighted assets: 2007: 22.5; 2008: 19.6; 2009: 18.8; 2010: 24.5; 2011 June: 24.8. - Tier-1 capital to risk-weighted assets 1/: 2007: 20.0; 2008: 21.0; 2009: 19.0; 2010: 27.0; 2011 June: 25.6. ### Asset quality and provisioning - Nonperforming loans to total gross loans: 2007: 10.4; 2008: 13.7; 2009: 12.3; 2010: 14.5; 2011 June: 12.7. - Nonperforming loans net of provisions to capital: 2007: 2.8; 2008: 5.8; 2009: 4.3; 2010: 7.5; 2011 June: 6.4. - Loan portfolio is small at 29.8 percent of assets. - Top four borrowers account for 33 percent of the loan portfolio (June 2011 data). - In one bank, the largest loan to one borrower exceeds the maximum limit of 25 percent relative to the bank’s capital, although a government guarantee is provided. - Loan portfolio quality deterioration: NPLs increased from 5 percent of total loans and advances in 2005 to 14.5 percent at end-2010. - Provisioning requirements: - For loans up to 90 days past due, 1 percent provisioning is required. - Full provisioning (100 percent) required only for loans past due for more than 360 days. - Current loan classification rule allows banks to restructure loans and charge only a 5 percent provision. - Following recommendations of the July 2010 Article IV mission, NPLs now include restructured loans, but provisioning requirements remain unchanged and the loan classification scheme lacks a watch or special-mention category (delinquent up to 90 days). - The rules will result in banks’ losses being understated and capital overstated. ### Earnings, profitability, and market exposure - Return on assets (average): 2007: 4.5; 2008: 0.1; 2009: -1.6; 2010: 0.4; 2011 June: 1.2. - Return on equity (average): 2007: 36.4; 2008: 0.8; 2009: -24.9; 2010: 1.8; 2011 June: 5.8. - Net Interest income to gross income: 2007: 34.7; 2008: 35.3; 2009: 37.0; 2010: 41.3; 2011 June: 37.4. - Operating expenses to gross income: 2007: 47.0; 2008: 65.8; 2009: 62.0; 2010: 58.2; 2011 June: 57.8. - Profitability has eroded since 2007 with multiple entries of new banks; recent trends likely to erode profitability further. - Contributing factors to profit erosion: shrinking margins, increased overhead and staffing costs, higher deposit interest rates due to wholesale depositor bargaining power, and declining T-bill yields. - If provisioning requirements were tightened (30-90 days past due attracting 5% provisioning), profitability would drop further. - Holdings of government bills vary from almost 50 percent to 5 percent of total assets (from 564 percent to 1 percent of capital). - Market and related government credit risk are high due to concentration of banks’ assets in government securities. - Other market risks (trading book or holdings of other securities) are negligible. ### Liquidity, funding concentration, and FX exposure - Liquid assets to total assets: 2007: 45.0; 2008: 43.6; 2009: 35.7; 2010: 47.9; 2011 June: 38.6. - Liquid assets to short-term liabilities: 2007: 74.9; 2008: 70.9; 2009: 62.1; 2010: 68.4; 2011 June: 59.4. - Banks have ample liquidity; almost one third of banks’ assets are invested in government securities. - Highly liquid instruments (cash balances at the CBG and with commercial banks) constitute 17.6 percent of total assets. - Short-term liquidity ratio remains well above the common international level of 30 percent. - Banks are vulnerable to funding liquidity shocks from large depositors due to concentration of the largest deposits and heavy reliance on wholesale funding. - Exposure to FX risk: Net open FX position to capital: 2007: 36.9; 2008: 19.1; 2009: 6.4; 2010: -0.4; 2011 June: -2.9. - Dollarization is limited: FX loans and deposits constitute about 5 percent share of assets and liabilities, respectively. - Banks’ net open position is small at around 0.3 percent of capital. ### Market structure, competition, and supervisory implications - Entry of new banks reduced the share of the largest market player from 52 to 19 percent. - New risks from many small, less-diversified banks: - Small banks often lack sophisticated risk management and have weaker lending standards. - Increased number of banks has raised supervisors’ workload. - High share of foreign ownership exposes the system to potential cross-border contagion. - Anecdotal evidence of tightened lending standards: maximum Loan-to-Value (LTV) for new loans decreased from 100 percent to 75 percent. - Banks’ dependency on foreign capital inflows has remained low. - Gambian authorities are party to Memoranda of Understanding (MOUs) on cross-border cooperation and have established several supervisory colleges. ### Stress testing and vulnerability scenarios - Stress testing based on June 2011 data identifies credit risk as the major source of systemic risk. - Multi-factor shock scenario assumptions: - Decline in Gambian exports (groundnut and cotton), lower tourism receipts. - Possible causes: drought, fall in groundnut and cotton prices, increase in energy prices. - Resulting effects: higher CAD, lower government revenues, lower GDP growth. - Technical assumption: government cannot cover the budget deficit with additional borrowings from international institutions nor inflate its debt. - Currency is assumed to depreciate by 40 percent. - Demand for imports decreases; agriculture, construction, and trade sectors suffer losses. - NPLs and provisions increase. - Credit growth slows to half of its long term (2001–10) annual average growth rate. - Additional assumptions regarding banks’ income; capital position adjusted for under-provisioning. - Results from the multi-factor scenario: - By the second quarter of 2012, two banks out of 13 will not meet the minimum CAR (Table 3). - Overall banking sector’s CAR will decrease to 20.1 percent by 5.5 percent. - One large bank and one medium size bank will need recapitalization in Q2:2012; the cost for recapitalization will be approximately 0.45 percent of GDP. - Credit risk stress-test (full provisioning of current NPLs): - Once banks fully provision their NPLs, two banks would need recapitalization, though the amounts involved would be negligible. - Scenario assumes gradual increase in provisioning levels for current NPLs to 100 percent eventually. - Credit shock stress-test (NPLs increase by 80 percent and then 100 percent provisioned): - An 80 percent increase in NPLs from current level (largest observed historical shock in 2001–10 period), followed by 100 percent provisioning, would result in two banks (one large and one medium) needing a modest amount of capital. - The post-shock CAR is [data truncated in source]. *2011 ARTICLE IV REPORT THE GAMBIA, INTERNATIONAL MONETARY FUND* ### 21.4 percent for all banks, 13.9 percent for ### _cr1217 - 21.4 percent for all banks, 13.9 percent for ### Credit risk stress-test findings - Shock impacts by bank size: "21.4 percent for all banks, 13.9 percent for large banks, 13.0 percent for medium banks, and 50 percent for small banks—hence, the shock impact was not significant." - High concentration of large exposures is the most significant credit-risk source. - If all three largest borrowers default simultaneously: - CAR of six banks will fall below minimum CAR. - Two large banks will become insolvent with negative CAR. - Combined total of the largest three exposures of each bank would add up, on average, to "42 percent of total industry loans." - Sector vulnerability scenarios: - Simultaneous defaults from a shock (sharp drop in commodity prices or increase of energy prices) could have substantial impact. - Government-debt-restructuring shock: - With a "5 percent haircut, all the banks will meet the minimum CAR." - Higher haircuts lead to substantial deterioration; in the extreme case of a "50 percent of haircut, four banks will be technically insolvent, having negative CAR." - Diagnostic confirmation: stress tests "broadly confirmed the concerns raised in 2010 Article IV report and by the TA mission on diagnostic assessment of the banking system in 2011." - Additional characteristics highlighted: 1. "provisioning could be a more important indicator than NPL ratios of credit risk." 2. "a high concentration of exposures is an important source of credit risk." 3. "Concerns with a number of large banks suggest that the supervision of systemically important banks needs to remain intense and focused." ### Quantitative stress-test table highlights (based on data as of June 2011) - Pre-shock Baseline (13 banks): - Aggregate CAR: 25.6 - Min CAR: 13.1 - Recapitalization Need (In millions of Dalasi): 155.6 - Credit Risk: 80% Increase of NPLs - Min CAR: 21.4 - Change in CAR: -2.6 - Undercapitalized Banks (CAR<10%): 2 (Bank2,5) - % of total bank assets: 28 - Recapitalization Need (In millions of Dalasi): 109 - Recapitalization Needs (% of GDP): 0.4 - Max CAR: 6.0 - Aggregate CAR after shock: 155.0 - Credit Risk: 3 Largest exposures default - Min CAR: 8.7 - Change in CAR: -17.0 - Undercapitalized Banks: 6 (Bank 1,2,3,4,5,6) - % of total bank assets: 79 - Recapitalization Need (In millions of Dalasi): 619 - Recapitalization Needs (% of GDP): 2.2 - Max CAR: -7.5 - Aggregate CAR after shock: 109.2 - Credit Risk: Under-provisioning - Min CAR: 22.9 - Change in CAR: -3.7 - Undercapitalized Banks: 2 (Bank2,5) - % of total bank assets: 28 - Recapitalization Need (In millions of Dalasi): 61 - Recapitalization Needs (% of GDP): 0.2 - Max CAR: 7.3 - Aggregate CAR after shock: 151.8 - Exchange Rate Risk: - Depreciation of dalasi by 40%: - Aggregate CAR: 25.3 - Change in CAR: -0.3 - Recapitalization Need (In millions of Dalasi): 12.9 - Aggregate CAR after shock: 156.4 - Appreciation of dalasi by 40%: - Aggregate CAR: 25.9 - Change in CAR: 0.3 - Recapitalization Need (In millions of Dalasi): 13.4 - Aggregate CAR after shock: 154.8 - Interest Rate Risk: - Increase in interest rate by 500 bps: - Aggregate CAR: 25.2 - Change in CAR: -0.4 - Recapitalization Need (In millions of Dalasi): 14.8 - Aggregate CAR after shock: 115.0 - Government debt restructuring (haircut scenario): - Min CAR: -1.4 - Change in CAR: -27.0 - Undercapitalized Banks: 4 (Banks: 1,2,3,6) - % of total bank assets: 65 - Recapitalization Need (In millions of Dalasi): 1585 - Recapitalization Needs (% of GDP): 5.6 - Max CAR: -35.7 - Aggregate CAR after shock: 89.0 - Multi-Factor Scenario: Shock in export revenue (2012 Q2) - Aggregate CAR: 20.1 - Change in CAR: -5.5 - Undercapitalized Banks: 2 (Bank2,5) - % of total bank assets: 28 - Recapitalization Need (In millions of Dalasi): 128 - Recapitalization Needs (% of GDP): 0.45 - Max CAR: 2.9 - Aggregate CAR after shock: 142.3 ### Exchange rate and interest-rate risk assessment - Exchange rate risk direct impact is negligible because of small net open positions. - A "40 percent depreciation of the Gambian dalasi would reduce the average CAR by 0.3 percent." - Medium size banks are more exposed to foreign exchange depreciation risks; "the CAR would decline by 1 percentage points—given their high capital buffers, their CAR will remain well above the regulatory CAR minimum level." - Interest rate risk: - Using June 2011 term-structure and weighted-average data, a "500 basis point" increase in interest rates will: - Lower the CAR to "25.3 percent" - Lower average profitability (return on assets) by "0.1 percent" - Cumulative maturity mismatch is relatively small; monetary policy transmission mechanism appears weak, making ultimate impacts difficult to gauge. ### Liquidity risk stress-test findings - Banking system is "highly liquid" and could withstand severe deposit-withdrawal shocks, subject to market liquidity of government securities and wholesale depositor behavior. - Liquid assets mainly: cash, balances from other banks, and government securities; deposits account for average "75 percent" of liquid liabilities. - Deposit-run shock assumptions and resilience: - Shock assumed: "15 percent withdrawal per day of demand and savings deposits; and a 9 percent withdrawal per day of time deposits." - All banks can withstand the shock for two days without recourse to LOLR (CBG). - On the third and fourth day of a similar deposit run, "two medium size banks would become illiquid." - Liquidity tests assume a sufficiently liquid market for government securities; in a systemic event, only the CBG would be in a position to provide necessary market liquidity. ### Liquidity test numeric summary (Based on data as of June 2011) - Pre-shock Liquidity Ratio (defined as liquid assets to liquid liabilities; liquid assets include cash, due from other banks and government bills): - All Banks: Min 71.2, Max 189.5 - Large Banks: Min 77.8, Max 103.5 - Medium Banks: Min 47.8, Max 85.0 - Small Banks: Min 72.3, Max 189.5 - Shock: Run on Banks, fire sale of assets — Illiquid banks after days: - All Banks: After day 1 = 0; After day 2 = 0; After day 3 = 2; After day 4 = 2; After day 5 = 2 - Large Banks: After day 1 = 0; After day 2 = 0; After day 3 = 0; After day 4 = 0; After day 5 = 0 - Medium Banks: After day 1 = 0; After day 2 = 0; After day 3 = 2; After day 4 = 2; After day 5 = 2 - Small Banks: After day 1 = 0; After day 2 = 0; After day 3 = 0; After day 4 = 0; After day 5 = 0 ### Implications for supervision and policy - Supervision priorities: - Maintain intense and focused supervision of systemically important (large) banks. - Monitor exposure concentration, especially to a small number of large companies in "agriculture, domestic trade, and import, energy, and telecom industries." - Emphasize provisioning as a potentially more informative indicator than NPL ratios during credit expansion. - Liquidity backstop: - Reliance on market liquidity of government securities implies the need for CBG to be prepared to act as lender of last resort in systemic events. - Vulnerability monitoring: - Track commodity-price and energy-price shocks given potential to trigger simultaneous defaults among large exposures. *Sources: Central Bank of The Gambia and staff estimates; THE GAMBIA 2011 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND.* ### 1. Public Financial Management ### 1. Public Financial Management ### Fund work program, policy advice, and technical assistance - Fund work program items and timing: - 1. Public Financial Management and Growth Grant — June 2011; March 2012. - 2. IFMIS: Additional Financing — June 2011; March/April 2012; October/November 2012. - 3. Commercial Agriculture and Value Chain Project — July 2012. - Policy advice planned: - 1. Article IV consultation — October/November 2011. - 2. Negotiations for a new ECF — February/March 2012. - 3. First review under new ECF — August/September 2012. - Technical assistance planned and timing: - 1. VAT preparations — December 2011; resident advisor beginning in January 2012. - 2. Public financial management — January 2012; resident advisor beginning in April 2012. - 3. Strengthening bank supervision and stress-testing capacity — January 2012; February/March 2012. - 4. Price statistics and national income and product accounts — March 2012; March 2012. - 5. Balance of payments statistics — March 2012. - Inter-institutional requests and joint products: - Fund request to Bank: Periodic updates on: CPIA, PFM reform, and civil service reform. - Bank request to Fund: Periodic updates on macroeconomic framework. - Joint products in next 12 months: Debt Sustainability Analysis (DSA) — October/November 2011; JSAN on new PRSP — February/March 2012; DSA Update — February/March 2012; additional entries in January 2012, April 2012. ### Statistical issues — data quality and compilation - General: - Data have shortcomings but are broadly adequate for surveillance. - Country participates in the General Data Dissemination System (GDDS); metadata last updated in the second half of 2003. - National Assembly passed a new Statistics Act in December 2005; implementation to transform Central Statistics Department (CSD) into The Gambia Bureau of Statistics (GBoS) began in June 2006. - GBoS is now the single official source for national accounts, price, and international trade data, but capacity weaknesses persist. - Real sector / national accounts: - Main constraints: inadequate source data, inadequate survey coverage, poor quality external sector data, lack of livestock census and census of industrial production. - STA missions in 2007, 2008, and 2009 assisted implementation of the 1993 System of National Accounts and rebasing to base year 2004. - Authorities publish improved real and nominal GDP series compiled by the production approach for period 2004–10 (base year 2004). - GDP series by the expenditure approach are still being developed. - GDP numbers have undergone a couple of large revisions in the past 18 months. - Participation in data projects: second phase of the GDDG Project for Anglophone Africa (started May 2007); invited to EDDI starting in July 2010. - Price statistics: - World Bank TA assisted GBoS to update CPI using the 2003 household expenditure survey; a new national CPI based on an August 2004 representative expenditure basket published in early 2007. - GBoS working to rebase the CPI using the 2010 integrated household survey; preliminary work on a PPI done. - Government finance statistics: - Authorities release central government transactions with a lag of about four weeks for revenues and expenditures. - Introduction of IFMIS in 2010 enabled compilation of expenditure data by functional category and administration, but systematic reporting and regular public availability have not yet started. - Compilation of project grant disbursements and use has been a challenge, leading to financing discrepancies. - Monthly data on domestic government financing available with a delay of about four weeks. - At an STA meeting in October 2007, authorities expressed interest in TA to migrate to GFSM2001. No data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS. - Monetary statistics: - Central Bank of The Gambia (CBG) has improved reporting but with occasional delays. - STA TA missions in April–May 2006, April–May 2008, and a follow-up in February 2010 flagged poor progress implementing recommendations due to delays reforming source data for the central bank and ODCs. - A bridge table and SRF report forms designed but not implemented; 2010 mission redesigned bridge tables to generate SRFs automatically from CBG operational data, enabling SRF-based monetary data submission to the Fund. - Mission recommended collecting a wider range of interest rates by type of currency; CBG has started collecting but not yet reporting to the Fund. - External sector statistics: - Balance of payments statistics affected by serious shortcomings: delays in collection of trade, customs, and tourist arrival data; outdated re-export estimation methods; poor data on capital flows; lack of firm register for external transactions; poor classification; lack of consistent methodology. - Institutional weaknesses impede improvements; official grant and loan disbursements and repayments generally well recorded, but gaps in project disbursements exist. - Large discrepancy between BOP data reported by authorities to STA (small current account surplus) and adjusted AFR data (large current account deficit). - CBG produces BOP statistics according to BPM5; published in IFS and BOPSY 2007. Quarterly BOP compiled through DfID-funded TA project; most recent data available are for second quarter of 2011. - With DfID assistance, CBG conducted an enterprise survey in March 2006 for the international investment position and World Bank-funded surveys in April 2006 on current account components. Surveys on tourist expenditures, remittances, re-exports, and FDI are conducted but are time-consuming and infrequent (once a year, at most). ### Table of Common Indicators (as of November 15, 2011) — selected entries and data-status flags - Exchange rates: Date of Latest Observation 11/3/11; Date Received 11/9/11; Frequency of Data D; Frequency of Reporting W; Frequency of Publication M. - International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation 9/30/11; Date Received 10/28/11; Frequency M/M/M. - Reserve/base money: Date of Latest Observation 11/4/11; Date Received 11/9/11; Frequency D/W/M; Methodological Soundness: LO, LO, LO, LO; Accuracy and Reliability: LNO, LO, O, LO, LNO. - Broad money: Date of Latest Observation 9/30/11; Date Received 10/28/11; Frequency M/M/M. - Central Bank balance sheet: Date of Latest Observation 9/30/11; Date Received 10/28/11; Frequency M/M/M. - Consolidated balance sheet of the banking system: Date of Latest Observation 9/30/11; Date Received 10/28/11; Frequency M/M/M. - Interest rates: Date of Latest Observation 11/2/11; Date Received 11/9/11; Frequency W/W/M. - Consumer Price Index: Date of Latest Observation 9/30/11; Date Received 10/17/11; Frequency M/M/M. - Revenue, expenditure, balance, and composition of financing — general government: Methodological Soundness: LO, LO, O, O; Accuracy and Reliability: LNO, LO, LO, LNO, NO. - Revenue, expenditure, balance, and composition of financing — central government: Date of Latest Observation 9/30/11; Date Received 10/15/11; Frequency M/M/M. - Central government and central government–guaranteed debt: Date of Latest Observation 11/4/11; Date Received 11/9/11; Frequency W/W/M. - External current account balance: Date of Latest Observation 6/30/11; Date Received 9/30/11; Frequency Q/Q/A; Data quality flags: LNO, LNO, LNO, LO; Accuracy and Reliability: LNO, LNO, LNO, LO, NO. - Exports and imports of goods and services: Date of Latest Observation 6/30/11; Date Received 10/11/11; Frequency M/I/A. - GDP/GNP: Date of Latest Observation 2010; Date Received 8/18/11; Frequency A/A/A; Methodological Soundness: LNO, LNO, O, LO; Accuracy and Reliability: LNO, O, LNO, LO, NO. - Gross external debt: Date of Latest Observation 9/30/11; Date Received 10/19/11; Frequency A/I/A. ### Debt sustainability analysis — summary findings and policy recommendations - Overall assessment: - External debt indicators suggest that The Gambia remains at high risk of debt distress. - The ratio of the present value of external debt to exports breaches its threshold over a protracted period; other indicators are vulnerable to adverse shocks. - Based on current projections, The Gambia’s external debt is on a sustainable path. - There is scope for moderate amounts of additional external borrowing on concessional terms for productive investments. - Historical context and stocks: - HIPC and MDRI debt relief reduced nominal external public debt from US$676.7 million (133.1 percent of GDP) to US$299.4 million (41.7 percent of GDP). - In present value terms, stock of debt at end-2007 decreased from US$439 million to US$347 million following HIPC relief and to US$165 million after MDRI relief. - These measures reduced the external debt-to-exports ratio to about 113 percent at completion point. - Paris Club creditors agreed to cancel outstanding claims totaling US$13 million in (end-2006) PV terms in January 2008. - Despite relief, as of end-2010 the nominal external debt stock amounted to US$377.0 million; Islamic Development Bank claims were US$82.2 million. - In PV terms, external debt amounted to US$267 million (or 190 percent of exports) as of end-2010. - Sharp depreciation of the Gambian dalasi in 2008 worsened debt-to-GDP and debt service-to-revenue ratios. - Domestic debt and costs: - Domestic debt stock stood at just over 29 percent of GDP as of end-2010. - Interest payments on domestic debt are consuming an estimated 18 percent of government revenues in 2011, far outweighing interest obligations on external debt. - Policy recommendations from staff: - Restrict external financing to grants and highly concessional loans with a grant element of at least 35 percent. - Reduce new domestic borrowing. *Prepared by the Staffs of the International Monetary Fund and the International Development Association; Approved By Roger Nord and Jan Kees Martijn (IMF); Marcelo Giugale and Jeffrey Lewis (IDA). December 22, 2011.* ### 6. Similar to the previous DSA, one of the ### _cr1217 - 6. Similar to the previous DSA, one of the ### External debt assessment — key findings - The PV of external debt to exports ratio is projected to be 176 percent in 2011, above its threshold of 100, and is only projected to fall below this mark in 2028. - All other external debt indicators remain below their respective thresholds throughout the projection period. - The PV of external debt to GDP ratio is just over 28 percent in 2011 and, with real GDP growth of 5½ percent a year over the long term, declines to about 18 percent at the end of the projection period. - External debt service ratios are below their respective thresholds and continue to decline gradually over the medium and long term. - The thresholds for external debt indicators are policy dependent; The Gambia is classified as a “weak performer” based on the three-year (2008–10) average CPIA rating, which places associated policy-dependent debt burden thresholds at their lowest levels and increases likelihood of breaches. ### Baseline macroeconomic assumptions underlying the DSA (Box 1) - Recent historical growth: real GDP growth about 6½ percent a year during 2008-10, driven by agriculture and telecommunications. - 2011 projection: real GDP growth projected to slowdown to about 5½ percent. - Medium and long term: economy projected to continue to grow by about 5½ percent per year from 2012 and beyond; agriculture growth about 5 percent a year on average. - Inflation: projected to be about 5 percent a year; year-on-year inflation exceeded 6 percent from mid-2010 to mid-2011 and has dropped to about 4 percent in recent months. - Exchange rate: Gambian dalasi projected to remain stable against the U.S. dollar in real terms, with a gradual depreciation in nominal terms. - External current account: expected to narrow in 2011; export receipts (including tourism) projected to grow by about 7 percent a year in nominal U.S. dollar terms; import growth expected at around 8 percent; remittances projected to increase by 3 percent a year. - FDI: after a strong inflow in 2012, projected to settle to about 5 percent of GDP a year. - International reserves: at end-2010, gross reserves stood at US$163 million (4.8 months of imports of goods and services). - Fiscal adjustment intentions: reduce net domestic borrowing from 2½-3 percent of GDP in 2011 to about ½ percent of GDP by 2014 and maintain thereafter. - Fiscal projections: overall fiscal deficit projected to narrow from about 3½ percent of GDP to 2 percent of GDP; tax revenues projected to increase from 12 percent of GDP to about 13½ percent of GDP. - Donor support: expected to surge to 5½ percent of GDP in 2011 and decline to about 4½ percent of GDP a year over the foreseeable future. - Note: re-exports are excluded from both exports and imports in the debt sustainability framework. ### Impact of remittances on external indicators - Remittances are estimated to exceed 30 percent of exports (excluding re-exports), equivalent to over 4½ percent of GDP in 2011. - Including remittances reduces the debt-to-exports ratio substantially even when accounting for a tightening of the threshold by 10 percent. - With remittances included, the debt-to-exports ratio still breaches the threshold until about 2018 with a peak of about 135 percent in 2011. - Including remittances similarly reduces the debt service to exports ratio over the projection horizon. - Caveat: the framework specifies that remittances should not be included in the assessment of the risk of debt distress in the event of protracted breaches of the debt-to-exports threshold. ### Alternative scenarios and stress tests — external debt - Overall: external debt indicators would deteriorate substantially under a range of shocks; debt sustainability outlook is susceptible to changes in the policy framework. - Historical scenario: - Key variables at historical levels. - Debt to GDP ratio lower by ½ of a percentage point in 2021 versus baseline. - Debt to exports and debt to revenue ratios below baseline by approximately 1 percentage point each. - Debt service indicators worsen marginally relative to baseline. - Less favorable new borrowing terms scenario: - All debt indicators worsen substantially; debt stock ratios most affected. - Debt to exports ratio breaches its threshold throughout projected years with a low of about 131 percent in 2031. - Debt to revenue ratio increases by almost 33 percentage points in 2021 but remains under its threshold. - Emphasis: need to seek highly concessional financing for new borrowing. - Stepping-up borrowing scenario (to finance PAGE): - Assumes increase of US$150 million in new borrowing from multilateral creditors distributed between 2012–2016; phased out gradually up to 2021, then returns to baseline levels. - Assumes positive growth effect roughly equivalent to a 20 percent return on investment with a one-year lag, phasing out gradually. - Debt to exports ratio breaches threshold until 2030, declining to 97 percent in 2031. - Elevated debt path results in brief breaching of debt-to-GDP and debt-to-revenue ratios during 2012-2016, but overall path shows sustainable downward trend for projection period. - Bound tests: - Six bound tests: four involve shocks to key variables in the second and third years; one is a combination of these four shocks; sixth assumes a one-time 30 percent depreciation in the nominal exchange rate. - Worst shock varies by indicator between one-time 30 percent depreciation and a one-standard deviation downward shift from historical export growth; most debt indicators breach thresholds under these shocks. - Highlights need for prudent borrowing plan and approved MTDS. ### Public debt sustainability — baseline and scenarios - Baseline trajectory: - Domestic debt projected to fall from just over 29 percent of GDP at end-2011 to just over 24 percent of GDP in 2014 and continue to fall thereafter. - PV of total public debt projected to decline from about 57 percent of GDP in 2011 to just over 45 percent in 2016 and to about 22 percent in 2031. - PV of public debt as a ratio of domestic revenues and grants projected to fall from about 309 percent in 2011 to 115 percent by end of projection period. - Largest near-term factor for decline: projected fall in new domestic borrowing. - Authorities aim to reduce new domestic borrowing to half of a percentage point of GDP in 2014 and beyond; introduction of VAT in January 2013 expected to support revenue growth. - Alternative scenarios and stress tests: - Public debt and debt service ratios are most sensitive to lower long-run GDP growth, persistent primary fiscal deficits, and one-time depreciation of the nominal exchange rate. - Primary balance held constant (deficit about 1½ percent of GDP): PV of debt to GDP ratio would decrease from 57 percent in 2011 to only 33 percent in 2031 (baseline decline to 22 percent in 2031); PV of debt to revenue would decline from 309 percent in 2011 to 177 percent in 2031 (baseline to 115 percent). - Reduced real GDP growth scenario with primary balance at historical averages: - PV of debt to GDP ratio declines from 57 percent in 2011 to 40 percent in 2031 (against 22 percent in baseline). - PV of debt to revenue ratio declines from 309 percent to 204 percent between 2011 and 2031 (against 115 percent in baseline). - Bound test — real GDP growth one standard deviation below historical average: PV of debt to GDP ratio would be 39 percent in 2031 (vs. 22 percent baseline); PV of debt to revenue ratio would be 202 percent (vs. 115 percent baseline). - Combination shocks and a one-time 30 percent depreciation: moderate worsening (PV of debt-to-GDP to 33 percent and to 27 percent under respective combinations, compared with 22 percent baseline). ### Authorities’ view - Authorities broadly agreed with the overall assessment and are updating their debt management strategy. - Authorities’ own debt sustainability exercise allows greater room for additional borrowing under the stepping-up scenario to finance PAGE, due to more optimistic assumptions on the growth impact of investment on long-term real GDP and exports. ### Debt distress classification and conclusions - IMF and IDA staffs conclude The Gambia remains at high risk of debt distress based on external debt indicators and stress tests. - Assessment reflects significant and protracted breach of the policy-dependent indicative threshold by the PV of debt to exports ratio, and vulnerability of other debt indicators to alternative scenarios. - Debt indicators could deteriorate significantly if new borrowing is on less favorable terms or if the exchange rate depreciates significantly. - Domestic debt considerations: - Large domestic debt stock: just over 29 percent of GDP as of end-2010. - High debt service payments on domestic debt: 18 percent of government revenues in 2011. - Risk that without lasting fiscal adjustment, further accumulation of costly domestic debt is likely. *IMF staff assessment as presented in the 2011 Article IV Report — Debt Sustainability Analysis for The Gambia.* ### 15. A number of policy recommendations ### 15. A number of policy recommendations ### Policy recommendations - Develop a medium-term debt management strategy that aims for a combination of grants and concessional borrowing for external financing and a borrowing policy consistent with debt sustainability. - To address the high cost of domestic debt, the strategy would need to curb new domestic borrowing. - Under such a strategy, as pressure on yields subsides, the authorities could also seek to refinance maturing T-bills with longer-term treasury bonds to extend the maturity profile of the debt and reduce rollover risks. - Consider efforts to raise the country’s export potential through policies aimed at diversifying the economy and increasing competitiveness. - Set the minimum grant element on external borrowing at not less than 35 percent. ### Major risks to debt sustainability - Lower than expected economic and/or export growth. - Higher than expected new borrowing. - Slippages in fiscal performance. ### Relevant clarifications and assumptions from staff notes - "This classification plays an important role in determining the mix of grants and loans under IDA assistance and in IMF program design. Countries assessed to be at high risk of debt distress or in debt distress receive 100 percent grant financing from IDA, while countries at moderate risk receive an equal mix of grants and credits on standard IDA terms, and countries at low risk continue to receive 100 percent credit financing on standard IDA terms. All grants are subject to a 20 percent volume discount." (footnote 15) - "Based on IMF and World Bank policy, a country is considered to be at high risk of debt distress when the baseline scenario indicates a protracted breach by one or more debt indicators, and exacerbated by stress tests, but the country does not currently face payment difficulties." (footnote 16) - "The results in this DSA reflect an assumption that new external borrowing that was not subject to established terms had a grant element of 35 percent." (footnote 17) *Statement by the IMF Staff Representative on The Gambia January 18, 2012* ### 1. This statement provides information that has become available since the issuance of ### _cr1217 - 1. This statement provides information that has become available since the issuance of ### New information since EBS/11/338 (December 23, 2011) - The new information does not alter the thrust of the staff appraisal. - Bank and Fund staffs will prepare a Joint Staff Advisory Note for the PAGE, which will be submitted to their respective Boards before the end of April 2012. ### Programme for Accelerated Growth and Employment (PAGE), 2012–2015 - PAGE was officially launched by the Gambian authorities on December 22, 2011. - PAGE will serve as the poverty reduction strategy and the basis for Bank and Fund support to The Gambia during 2012–2015. - PAGE was transmitted to Bank and Fund staff. ### Poverty and household survey results - 2010 Integrated Household Survey results (publicly released): - Based on a poverty line of US$1.25 per day, the poverty index showed that 48 percent of the population was living below the poverty line in 2010. - Comparable headcount poverty in the previous survey (2003) was 61 percent. ### Fuel price adjustment (December 23, 2011) - Prices on gasoline, diesel, and kerosene were increased by GMD 1 per liter. - This was the first price adjustment since a decrease of GMD 1 per liter for gasoline in September. - The increase fell short of the formula’s full pass-through prices by 5–9 percent (or GMD 2.4–3.9 per liter). ### Executive Board assessment — key points - Directors commended progress in poverty reduction, strong growth, and low inflation despite a difficult global environment. - Main risks identified: high cost and rollover risks of domestic debt. - Fiscal policy: - Directors welcomed the improved fiscal performance and supported additional fiscal consolidation. - Comprehensive tax reforms, including an early introduction of the VAT and steps to increase tax compliance, were deemed essential to rebuild government revenues. - Strengthening revenue administration and phasing out fuel subsidies would bolster credibility of fiscal plans. - Simplicity, broad coverage, and low tax rates would help improve the business environment. - Monetary and exchange rate policies: - Monetary policy should remain focused on safeguarding price stability. - Central Bank encouraged to develop liquidity management instruments to enhance money market efficiency and reduce intermediation costs. - Authorities encouraged to maintain exchange rate flexibility and the import coverage of international reserves. - Financial sector: - Banking system judged well capitalized and liquid, but non-performing loans ratio and other vulnerabilities noted. - Authorities’ intention to reinforce oversight of the financial sector was welcomed. - PAGE and debt sustainability: - Directors welcomed PAGE but emphasized that the financing strategy should safeguard debt sustainability. - Greater private sector participation in infrastructure could help achieve PAGE objectives, contingent on effective policy frameworks and institutions. ### Background and recent economic developments (summary) - Growth and inflation: - Real GDP growth averaged around 6½ percent a year during 2008-2010, driven mainly by agriculture. - Real GDP growth is estimated to have fallen slightly to 5½ percent in 2011, because of poor weather conditions adversely affecting agriculture in some areas. - Inflation ranged between 2½ and 7 percent (year-on-year) in recent years; in recent months inflation has fallen below 5 percent. - Fiscal and debt developments: - Fiscal deficit widened substantially during 2007–2010, causing sharp increase in domestic debt. - As of end-2010, domestic debt had risen to almost 30 percent of GDP. - Interest on domestic debt consumed 18 percent of government revenues in 2011. - Most domestic debt consists of short-term Treasury bills, posing substantial rollover risks. - External debt indicators suggest The Gambia is still at high risk of debt distress despite large external debt reductions under HIPC and MDRI in December 2007. - Domestic debt stabilized in 2011 as the fiscal deficit narrowed; government revenues fell to about 14 percent of GDP (mainly due to lost fuel tax revenues). - Strict cash-budgeting framework applied to control spending; contributed to reduction in T-bill yields. - Financial sector: - Number of banks nearly doubled to 13 since 2007, expanding financial services but straining CBG supervision resources. - Banks generally well capitalized and liquid; competition increased risks, credit quality and profitability weakened in 2009-2010, and high loan concentration is a concern. - Several banks vulnerable to liquidity risks from exposure to large depositors. - Financial indicators strengthened in 2011 under CBG’s intensive supervision. - External sector: - Current account deficit widened in recent years due to weak tourism receipts and remittances and high global commodity prices. - In 2011, strong exports of groundnuts early in the year combined with an upswing in tourism in Q4 to narrow the deficit, despite a surge in the cost of fuel imports. - Official international reserves remained at a comfortable level at over 5 months of imports. - Structural reforms and social outcomes: - Significant progress in public financial management, debt management, and financial sector development. - Good progress toward several Millennium Development Goals, notably in health and education. - Poverty remains widespread. ### Selected economic indicators (as presented) - GDP at constant prices: 2007 Act. 4.1 6.5 6.7 6.3 5.5 - Inflation (period average): 2007 Act. 5.4 4.5 4.6 5.0 5.4 - Current account balance including budget support (percent of GDP): 2007 -10.9 -14.3 -14.0 -16.8 -14.4 - Exports, f.o.b. (percent change in US$ value): 2007 8.8 -4.4 8.5 3.6 12.6 - Imports, f.o.b. (percent change in US$ value): 2007 18.4 17.4 -3.7 5.3 4.3 - Real effective exchange rate (percent change)1: 2007 18.8 -7.0 -5.5 0.3 -4.0 - Gross official reserves (US$ millions): 2007 141.6 115.6 186.0 163.3 174.7 - Months of imports of goods and services: 2007 5.1 3.6 5.9 4.8 5.0 - Broad money (percent change): 2007 6.7 18.4 19.4 13.7 13.3 - Credit to the private sector (percent change): 2007 4.8 6.8 5.4 4.7 4.3 - Average treasury bill rate (in percent)2: 2007 11.9 11.8 12.2 11.3 9.3 - Domestic revenues (percent of GDP): 17.4 16.3 16.0 14.8 14.0 - Grants (percent of GDP): 1.0 1.1 4.2 4.0 4.5 - Total expenditure and net lending (percent of GDP): 18.3 19.2 23.4 24.8 22.1 - Overall balance (percent of GDP): 0.1 -1.8 -3.2 -6.0 -3.6 - Net foreign financing (percent of GDP): 0.8 0.1 1.5 1.4 0.9 - Net domestic financing (percent of GDP): -2.7 1.7 1.6 4.2 2.7 - Nominal stock of public debt (percent of GDP) — Domestic: 22.9 21.2 21.0 29.3 29.2 - Nominal stock of public debt (percent of GDP) — External: 38.0 45.3 40.7 39.9 39.2 1 Percentage change between December of the previous year and December of the current year (September for 2011). 2 Average for the month of December (October for 2011). *Source: _cr1217 - 1. This statement provides information that has become available since the issuance of (IMF staff statement).* ### 4.3 percent in November 2011 from 6.1 percent and 5.8 percent in September and December ### _cr1217 - 4.3 percent in November 2011 from 6.1 percent and 5.8 percent in September and December ### Headline inflation and monetary stance - Headline inflation: "4.3 percent in November 2011 from 6.1 percent and 5.8 percent in September and December 2010 respectively." - Deceleration attributed largely to the tight monetary policy stance of the central bank and the fall in domestic food prices. - Monetary policy action in 2011: the central bank policy rate, the rediscount rate, was reduced by "1 percentage point to 14 percent." - Monetary framework: continue to use a monetary targeting framework to pursue price stability; central bank stands ready to raise the policy interest rate if necessary. - Operational improvements: make public announcements of the size of treasury bill auctions one month in advance, gradually extending the horizon to correspond with the 4 quarterly meetings of the Monetary Policy Committee (MPC). - Liquidity management: fiscal authorities to collaborate with central bank to strengthen liquidity forecasting via the inter-agency committee and improved weekly forecasts of public sector borrowing requirements. - Exchange rate regime: floating exchange rate policy, intervening only to maintain orderly market conditions; central bank may purchase foreign exchange to meet target for international reserves ("around 5 months of import of goods and services"). ### Fiscal performance and policy stance - Fiscal performance in 2011 improved due to strict implementation of a cash budget system limiting spending to available resources. - Outcomes of fiscal discipline: - Contained government's net domestic borrowing. - Cleared government overdraft with the central bank. - Marked an end to central bank financing of the deficit. - Strengthened central bank independence, enabling focus on price and exchange rate stability. - Fiscal objective: maintain medium-to long-term fiscal sustainability and mobilize resources to implement PAGE. - PAGE details: - Commencement of implementation in 2012. - PAGE is the Program for Accelerated Growth and Employment, the successor to PRSP II. - PAGE covers "2012 to 2015", is based on "Vision 2020" and sector strategies, fully aligned with the MDGs, with main objective to accelerate growth and job creation. - Fiscal reforms and revenue measures planned: - Continuous implementation of the fuel pricing formula. - Launch of a Value Added Tax (VAT) system in "2013". - Implementation of a quota system on duty exemptions on fuel for diplomatic missions. - Expansion of tax coverage: collection of taxes on domestically produced goods; bringing holders of expired special investment certificates into the tax net. - Removal of the fuel concession to the Gambia Ports Authority. - Initiative launched in 2011: commercial banks accept tax payments on behalf of government. - Gambia Revenue Authority (GRA) mandates: collect motor vehicle taxes and fees; from "January 2012" GRA to issue licenses and road tax discs to vehicle owners. - Simplify small business taxation and eliminate the alternative turnover-base method for minimum income and capital gains tax. - Upgrading ASYCUDA to improve tax assessments and boost revenue collection. - Fuel prices adjusted four times in 2011, with the most recent in December 2011. - Expenditure policy: - Switch expenditures toward strategic priorities: infrastructure, education, health, agriculture (consistent with PAGE). - Contain nonstatutory expenditures to create fiscal space. - Refine monthly cash budgeting to ensure borrowing contained within targets and avoid domestic debt buildup. - Use contingency reserves for unanticipated expenditures; if necessary, adjust annual budget via supplementary bill while maintaining target for net domestic borrowing. ### Balance of payments, reserves, and external accounts - Balance of payments: projected to record a surplus in 2011, in contrast to a deficit in 2010, due to expected increase in private capital and official transfers. - Current account: deficit before official transfers narrowed, reflecting improvement in the goods and services account. - Gross international reserves: central bank purchases of foreign exchange led reserves to reach "the equivalent of 5.0 months of import cover at end-2011." - Exchange rate developments: in the year to end-September 2011, the dalasi depreciated against major trading currencies in the domestic foreign exchange market owing to increased demand for foreign currency amid rising international commodity prices. - Medium-term projection: gross international reserves projected to fall to "around 4 months of imports of goods and services by the end of 2016." - Exchange rate outlook: expected to maintain relative stability over the medium term. - Inflation target over the medium term: "5 percent." ### Financial sector and payments infrastructure - Banking sector capitalization and soundness: - Minimum capital requirement raised in "December 2010." - Risk-weighted capital adequacy ratio of "27.1 percent", well above the minimum requirement of "10 percent." - Banking sector characterized by increased competition and expansion of branches/agencies nationwide. - Payments and reporting infrastructure: - Real Time Settlement System (RTGS) launched on "December 5, 2011." - Automated Cheque Processing and Clearing Systems launched on "December 16, 2011." - Security Settlement System targeted to go live during the first quarter of 2012. - Electronic reporting system for commercial banks initiated; to become operational by "June 2012." - Supervision and capacity building: - Plan for gradual migration from a hybrid (compliance and risk-based) to a fully risk-based supervisory framework. - Central bank to strengthen capacity at Financial Supervision Department through adequate staffing and training. ### Debt management - Debt sustainability concern: recent debt sustainability analysis by the Fund and World Bank indicates the country remains at a high risk of debt distress despite HIPC and MDRI relief. - Medium-term debt management strategy developed to mitigate risks. - Financing strategy for PAGE: rely more on grants and concessional external loans with minimum grant element of "35 percent." - Explore public-private partnerships and, as market conditions allow, extend maturity of domestic public debt by introducing longer-term instruments such as bonds to reduce rollover risks. - Continue annual debt sustainability analysis in consultation with the Fund and World Bank to ensure debt indicators fall and remain below thresholds. ### Structural reforms and public financial management - Public financial management reforms to support poverty reduction, stable macroeconomic environment, and good governance. - Integrated Financial Management Information System (IFMIS): - Originally piloted to 6 sites; "now fully rolled out to all Ministries, effective January 2011." - IFMIS interfaced with the national payment system at the central bank. - Internal Audit: revitalized in the Ministry of Finance to provide independent and objective evaluation of government’s financial position. - Budgetary reforms: - Introduce a medium-term horizon via the Medium Term Expenditure Framework (MTEF) to link planning/policy formulation with budget allocation, align annual budgets with medium-term macro-fiscal strategy, restrict expenditures within realistic resource envelope, and improve monitoring/tracking of budget performance. - Utilities and regulatory reform: committed to strengthening the Public Utility Regulatory Agency (PURA) and improving the financial health of the National Water and Electricity Company (NAWEC), in line with World Bank recommendations. ### Outlook and policy priorities - Principal near- and medium-term policy objective: maintain a stable macroeconomic environment to support robust and sustainable inclusive growth, leading to job creation, poverty reduction, and achievement of the Millennium Development Goals (MDGs). - Growth outlook: GDP growth expected to return to trend in the medium term as government pursues prudent fiscal and monetary policies and increases investment in infrastructure and agriculture. - External outlook: external current account deficit expected to narrow in the medium term due to expected recovery of exports and increase in services. - Policy priorities: - Strengthen public financial management to reduce new borrowing and ease pressure on interest rates. - Mobilize substantial domestic resources to complement external donor financing for PAGE. - Continue structural and administrative reforms to support revenue mobilization and efficient public spending. ### Conclusion - Authorities reaffirm commitment to sound macroeconomic management and growth promotion underpinned by prudent public finance management as a path to job creation and poverty reduction. - Policy focus to narrow the budget deficit as key to reducing the debt burden and related interest payments. - Authorities appreciate and count on continued support from the IMF and the international community to realize development goals. *Source: _cr1217 - 4.3 percent in November 2011 from 6.1 percent and 5.8 percent in September and December* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1217.pdf_