## _cr13289 ## Source details **Canonical URL:** [_cr13289](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13289.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13289.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13289.pdf.json) --- ### Background and recent macroeconomic developments - Real GDP growth: - Between 2007 and 2010, real GDP growth averaged just over 6 percent a year. - Real GDP contracted by just over 4 percent in 2011 due to a severe drought. - Real GDP growth projected to increase modestly to 6-6½ percent in 2013; projected to return to trend (about 5½ percent a year) after crop production fully recovers by 2015. - Agriculture and tourism: - Crop production fell by 45 percent in 2011; crop production increased by 30 percent in 2012 (but the 2012 harvest was little more than half of the 2010 harvest). - Tourism sector gained momentum in 2012 and continues to show strength. - Inflation and monetary conditions: - Inflation has ranged between 2½ and 7 percent (year-on-year) since 2007. - Inflation rose to 5.8 percent year-on-year in June 2013. - Inflation projected to rise to about 7 percent (year-on-year) by end-2013, then to be limited to around 5 percent a year over the medium term (CBG objective). - Money growth picked up since late 2012 due to central bank financing of the fiscal deficit; money growth concentrated in currency in circulation. - External position and reserves: - Gross international reserves maintained at about 4½-5 months of import cover in recent years. - External current account deficit (excluding grants) in 2012 estimated to have jumped to nearly 20 percent of GDP. - Public finances and borrowing: - Overall fiscal balance fell into deficit exceeding 6 percent of GDP by 2010 after a 2007 surplus. - Government revenues fell by 2½ percentage points of GDP to less than 15 percent of GDP in 2010. - Net domestic borrowing (NDB) was 3½ percent of GDP in 2012 (roughly twice the budgeted target). - For 2013, deficit projected to be cut to about 2½ percent of GDP; NDB limited to the budget target of 1.9 percent of GDP under the authorities’ ECF-supported program. - Public debt and interest burden: - As of end-2012, total government debt stood at 77 percent of GDP; domestic debt was 34 percent of GDP. - Interest on debt reached 22½ percent of government revenues in 2012, of which nearly 18½ percentage points was paid on domestic debt. - Domestic debt mostly short-term Treasury bills, creating substantial rollover risk. - Poverty and social indicators: - Poverty incidence fell from 58 percent in 2003 to 48½ percent in 2010 (national poverty lines: US$1.00 a day for 2003 and US$1.25 a day for 2010). ### Exchange rate directives, market impact, and external competitiveness - Exchange rate directives (Oct 2012–Aug 2013): - Oct 22–Nov 15, 2012: targeted 28 GMD/USD vs prevailing market rate ~34 GMD/USD; initial restriction on shipments of foreign currencies lifted after one day; hoarding banned. - Jun 26–Jul 15, 2013: targeted 30-33 GMD/USD vs prevailing market rate ~37-39 GMD/USD; initial restriction lifted after one week; hoarding banned. - Jul 26–Aug 14, 2013: targeted 37 GMD/USD vs prevailing market rate ~40 GMD/USD; no restrictions on bank shipments; hoarding banned. - Aug 14, 2013–present: targeted 35 GMD/USD; licenses of FX bureaus declared null and void; bureaus can apply to the CBG for new licenses. - Market consequences: - Directives temporarily imposed over-valued fixed exchange rates and caused severe disruptions in the FX market. - When first two directives were lifted, the dalasi depreciated sharply amid signs of capital flight and a dampening of remittances. - Exchange rate directives undermined flexibility and market confidence; staff note potential issues under Article VIII, Sections 2(a) and 3, and non-observance of the continuous performance criterion under the ECF arrangement. - Exchange rate assessment (CGER-type results): - Macroeconomic balance (MB) approach: indicates overvaluation of 13 percent using model norm (projected underlying medium-term CA deficit 12½ percent of GDP vs estimated norm deficit 4 percent); using historical CA norm (9.8 percent of GDP) yields overvaluation of 4.5 percent. - External stability (ES) approach: overvaluation of about 7½–10 percent depending on NFA benchmark (-87 percent of GDP yields 10 percent; average -105 percent yields 7½ percent). - Equilibrium real exchange rate (ERER) approach: suggests an undervaluation of about 18½ percent. - Staff view: MB approach most appropriate; staff favors overvaluation estimate of about 4.5 percent using historical CA norm. - External stability and reserves: - Cost-benefit analysis suggests optimal GIR between 3½–5 months of import cover (assumptions: unit costs of 4 and 3 percent); under stress scenario optimal GIR rises to 4½–6 months. - The Gambia’s GIR at end-2012: about US$ 184 million, covering 4.8 months of projected imports in 2013; concluded as broadly adequate. ### Fiscal, debt, and financial sector issues - Fiscal slippage and expenditures: - Substantial fiscal slippage in 2012, largely from extrabudgetary spending and lapses in expenditure control (extrabudgetary drought relief accounted for 0.7 percent of GDP of additional NDB in 2012). - Spending trends reflect rising wage bill and increased foreign-financed capital spending. - Domestic financing and crowding out: - Heavy reliance on domestic borrowing: nearly 5 percent of GDP in 2010; 3½ percent of GDP in 2012. - Domestic borrowing crowded out private sector credit; private sector credit lagged growth in credit to government. - Public debt dynamics and targets: - Staff recommend limiting NDB to ½ percent of GDP by 2014 and over the medium term to reduce domestic debt to less than 20 percent of GDP by 2018. - Overall fiscal deficit envisaged to be reduced to about 1½-2 percent of GDP a year; scope for higher deficit if external financing is available on concessional terms (per joint Bank-Fund DSA). - Debt and interest burdens: - Interest payments reached 22½ percent of government revenues in 2012; nearly 18½ percentage points of this was on domestic debt. - Domestic public debt (percent of GDP) projected: 2013: 31.3; 2014: 27.8; 2015: 25.4; 2016: 23.5; 2017: 21.7; 2018: 20.1. ### Policy framework, recommendations, and program implementation - Core program recommendations (Article IV and ECF program): - Maintain a flexible exchange rate policy; rescind exchange rate directives. - Gradually reduce fiscal deficit so government’s net domestic borrowing falls to ½ percent of GDP by 2014. - Pursue comprehensive tax reform over the medium term—including introduction of a value-added tax (VAT)—to rebuild revenues and improve competitiveness; strengthen revenue administration. - Strengthen budget procedures and expenditure control; contain extrabudgetary spending within contingency component. - Improve debt management; issue longer-term bonds as yields fall with fiscal adjustment; limit external financing to concessional loans. - Eliminate fiscal dominance and develop tools for liquidity management; operationalize REPO instruments and target reserve money. - Maintain intensive surveillance of the banking system. - Improve economic statistics. - Advances in implementation: - VAT implemented in January 2013; compliance by large taxpayers improved. - Strategic plans for selected ministries piloted toward an MTEF; external debt database and projections improved. - Fiscal dominance reduced; major infrastructure investment in telecommunications completed; donor support approved for transport and agriculture. - Areas weakened or incomplete: - Substantial fiscal slippage in 2012. - Flexible exchange rate policy compromised by exchange rate directives; slow growth in international reserves. - Liquidity management tools still not operational. - National energy strategy yet to be updated. - Quality of economic statistics has not improved. ### Monetary policy and operational recommendations - Near-term and operational stance: - Tighten monetary policy by shifting government deficit financing back to the market and away from central bank financing. - Weekly T-bill auctions should aim for issuances in excess of government net borrowing requirement so the CBG reduces its holdings. - Target average reserve money (e.g., final month of each quarter); operationalize REPO instruments; develop mop-up strategies for unanticipated liquidity injections. - Avoid using reserve requirement on deposits as primary monetary instrument; recommend reducing reserve requirement from 15 percent back to 10 percent over the next couple of years; consider paying interest on higher reserve requirement as interim option. - CBG to target reserve money as intermediate instrument to contain broad money growth and inflation (target: 5 percent a year). - CBG may purchase foreign exchange to meet international reserves objective of 5 months of imports over the medium term, but avoid large quarter-end FX purchases. - Authorities’ recent actions: - Increased the policy rate twice (May and June 2013) and raised the reserve requirement on deposits from 12 percent to 15 percent in late June. - Yields on T-bills have been driven up by about 400 basis points. - CBG anticipates REPO instruments will soon be operational and plans to explore their use as a policy rate. ### Financial sector surveillance, risks, and supervisory recommendations - Banking sector structure and risks: - Between 2007 and 2010, the number of banks doubled (to 14 banks); two banks went into voluntary liquidation since 2010 for not meeting MCR increases. - System is well-capitalized and liquid, but non-performing loans (NPL) have remained high (NPL ratio: 2010: 15.0; 2011: 12.9; 2012: 11.6; 2013 1/: 11.0). - Concentration: largest 6 banks account for 81 percent of system assets; NPL ratios six largest banks averaged 11.8 percent; six smallest banks averaged 9.5 percent. - Top four borrowers account for 54 percent of loan portfolio (end-December 2012). - Supervisory capacity and recommendations: - CBG building supervisory capacity through staff hires and new electronic data collection; more capacity needed for effective off-site analysis for risk-based supervision. - Maintain procedures for intensive supervision; continue annual assessment of PCA indicators and engage banks not meeting thresholds. - Remedy delay of the 2013 assessment as soon as possible. - Enhance transparency and oversight of SSHFC; make finalized external audits widely available and build a proper regulatory agency over the medium term. - To reduce intermediation costs: ensure the Credit Reference Bureau (CRB) maintains timely borrower data and establish a collateral registry. - Liquidity stress test results: - Assumed deposit runs: 15% day 1; 15% day 2; 10% day 3; 10% day 4; 10% day 5. - All banks except the three medium banks can withstand up to three days of deposit runs without recourse to the CBG. - By day four, all medium banks, two small banks, and one large bank would become illiquid. - Pre-shock Liquidity Ratio: All Banks: 67.3; Large Banks: 75.5; Medium Banks: 16.3; Small Banks: 99.2. - Regulatory loan classification and provisioning rules (as provided): - Current < 30 days: 1% provision (General) - Special mention > 30 days: 5–10% provision - Sub-standard > 90 days: 20% provision (Specific) - Doubtful > 181 days: 50% provision (Specific) - Loss > 364 days: 100% provision (Specific) - Restructure: 5% provision (General); restructured loans are not classified as non-performing or as performing. ### Data quality, statistical capacity, and priorities - Shortcomings and implications: - Data have serious shortcomings that significantly hamper surveillance; national accounts and balance of payments data particularly problematic. - Staffing and capacity constraints at the Gambia Bureau of Statistics (GBoS) and insufficient source data are major obstacles. - Outdated methodology for estimating re-exports may seriously distort official trade data. - Base for CPI is outdated; GBoS updating and rebasing CPI using the 2010 Integrated Household Survey. - Recommendations and actions: - Engage development partners in coordinated support for capacity building at GBoS. - Government commitments on GBoS staffing and funding for source-data collection are critical. - CBG needs to address long-standing weaknesses in collection and compilation of balance of payments data. - CBG completed migration to SRFs for MFS submission (June 2012) and launched electronic reporting for commercial banks; BOP quarterly compilation aided by DfID-funded TA. ### Outlook, baseline assumptions, scenarios, and risks - Baseline assumptions (PAGE-consistent): - Fiscal adjustment to reduce government’s domestic borrowing needs; overall fiscal deficit projected to fall to 1½-2 percent of GDP a year beginning in 2014. - Net domestic borrowing limited to ½ percent of GDP over the medium term. - CBG to gradually rebuild gross international reserves to 5 months of imports by 2018 (staff estimate of adequate reserves). - Short- to medium-term projections (selected): - 2013: real GDP growth projected at 6-6½ percent; inflation projected to about 7 percent by end-2013; deficit about 2½ percent of GDP; NDB targeted at 1.9 percent of GDP. - Medium term: growth elevated through 2015 as crop production recovers; thereafter return to about 5½ percent a year. - Key quantified projections (selected table entries preserved exactly): - Nominal GDP (millions of dalasi): 2011: 26,465; 2012: 29,108; 2013: 32,886; 2014: 37,659; 2015: 42,015; 2016: 46,459; 2017: 51,379; 2018: 56,842. - GDP at constant prices (percent change): 2011: 6.5; 2012: -4.3; 2013: 5.3; 2014: 6.4; 2015: 8.5; 2016: 6.5; 2017: 5.5; 2018: 5.5. - Consumer prices (end of period): 2011: 5.8; 2012: 4.4; 2013: 4.9; 2014: 7.0; 2015: 5.0; 2016: 5.0; 2017: 5.0; 2018: 5.0. - Broad money (percent change): 2011: 13.7; 2012: 11.0; 2013: 7.8; 2014: 7.0; 2015: 13.1; 2016: 12.6; 2017: 11.6; 2018: 11.6. - Average treasury bill rate (percent): 2011: 11.3; 2012: 10.0; 2013: 10.4. - Gross official reserves (millions US$): 2012: 183.8; 2013: 181.9; 2014: 199.3; 2015: 216.0; 2016: 233.9; 2017: 252.0; 2018: 272.8. - Reserves in months of next year's imports: 2012: 4.8; 2013: 4.5; 2014: 4.7; 2015: 4.8; 2016: 4.9; 2017: 4.9; 2018: 5.0. - Current account (excluding budget support, percent of GDP): 2012: -19.4; 2013: -16.9; 2014: -16.4; 2015: -16.0; 2016: -16.0; 2017: -15.9; 2018: -15.8. - Scenario analyses (2012—2017; summary of assumptions and projected impacts): - Fiscal Slippage Scenario: assumption: no fiscal adjustment during 2013—17; NDB kept at 3½ percent of GDP throughout 2017. Projected effects: creeping up of T-bill rates, some capital flight, severe undermining of fiscal sustainability and growth prospects; indicators affected include Treasury Bill Rates, Interest Payments (% of Government Revenue), Public Debt (% of GDP), Credit to Private Sector (12-Month Growth Rate), CPI, International Reserves (months of imports). - Protracted Global Slowdown Scenario: assumption: protracted growth slowdown in advanced economies per WEO adverse scenario. Transmission: reduced tourism receipts and remittances; partially offset by lower commodity prices. Indicators impacted include International Reserves, Treasury Bill Rates, Interest Payments, Public Debt, Credit to Private Sector, CPI. - Global Oil Price Shock (Full Pass Through) Scenario: assumption: international oil prices higher by 20 percent than baseline during 2013—15 with full pass-through to domestic fuel prices. Projected effects: worsened external current account and higher inflation; indicators include International Reserves, Treasury Bill Rates, Interest Payments, Public Debt, Credit to Private Sector, CPI. - Global Oil Price Shock (Partial Pass Through) Scenario: same 20 percent oil price increase with partial pass-through. Noted effect: negative impact on fiscal position, international reserves and credit to private sector larger than under full pass-through scenario, reflecting authorities’ commitment to eliminate fuel subsidies. ### Inclusivity of growth and structural reform priorities - Poverty and inclusivity: - Overall poverty rate declined to 48.4 percent in 2010, down from 58.0 percent in 2003. - Rural poverty incidence more than double urban; urban areas experienced a larger decline in poverty between 2003 and 2010. - Composition of consumption by quintiles (selected): - Share of poorest quintile in total household consumption: 1998: 4 percent; 2003: 8.8 percent; 2010: 5.6. - Share of richest quintile: 1998: 56 percent; 2003: 38 percent; 2010: 46.5 percent. - Policy measures to promote inclusive growth: - Strengthen execution of PAGE, focusing on agriculture to reduce rural poverty. - Coordinate donor-funded agricultural projects and ensure sustainability beyond donor financing. - Strengthen land tenure security and expand agricultural extension services. - Sustain business environment reforms; address energy and telecom constraints to unlock private-sector job creation. - Structural reform message: - Simulation results show moderate improvements in access to credit, investor protection, and tax administration/time to pay taxes can materially improve Doing Business rankings (example: from 147 to 137 globally and to 4th in ECOWAS after specified reforms). ### Tax reform findings and recommendations (Appendix III) - Fiscal context: - Tax revenue-to-GDP ratio rose to a peak in 2007, declined in 2008–10, and improved to 14.5 percent by 2012. - Tax buoyancy (2000–11): 0.67 (SSA average: 0.84). - Actual-to-potential tax ratio estimated at 58 percent as of 2011 (SSA average: 61¾ percent). - Recent measures: - VAT introduced in January 2013 to replace general sales tax. - Simplified tax regime for small businesses introduced. - Supplementary budget path for almost eliminating fuel subsidies by end of 2013. - PIT exemption threshold raised by 140 percent; rate brackets reduced by five percentage points without expanding base. - Short-term revenue options (quantified estimates preserved exactly): - Enforce the 15 percent withholding tax on interest and dividends in the 2014 budget — estimated increase in PIT tax revenue: 0.3 percent of GDP (note: part of this likely offset by increased domestic interest costs). - Include customs duties and charges in the base of excise in the 2014 budget — estimated increase in revenue: 0.4 percent of GDP. - Medium-term reforms: - Rationalize business taxation and streamline tax incentives; phase out tax holidays. - Expand PIT base, strengthen property taxation by local governments. - Integrate tax expenditure budgeting into annual budget process in stages. ### IMF Executive Board views and recommended priorities (Press Release No. 13/343) - Directors urged return to PAGE path to regain stability and foster inclusive growth. - Noted exchange rate directives disrupted FX market, encouraged capital flight, and dampened remittances; cautioned against prolonged overvalued exchange rate. - Recommended: - Maintain flexible exchange rate policy and tighten monetary and fiscal policies to ensure stability and preserve reserves. - Strong fiscal adjustment per PAGE to reduce domestic borrowing and public debt costs/risks; commended VAT implementation and progress on phasing out fuel subsidies. - Further tax reforms to strengthen revenues and address tax expenditures. - Enhance budget process, strengthen expenditure control, rein in extrabudgetary expenditure. - Continue reliance on grants or highly concessional financing for investment agenda. - Implement market-based monetary tools rather than reserve requirements and gradually return reserve requirement to 10 percent. - Maintain vigilant banking supervision; target intensive supervision where needed. - Strengthen statistics (BOP, national accounts) with development-partner support and adequate funding/staffing. *International Monetary Fund — The Gambia: staff report excerpts and related analyses as presented in the provided content.* ### 1. Exchange Rate Directives, 2012-13 _____________________________________________________________ 8 ### 1. Exchange Rate Directives, 2012-13 ### Background and recent macroeconomic developments - Real GDP growth: - Between 2007 and 2010, real GDP growth averaged just over 6 percent a year. - Real GDP contracted by just over 4 percent in 2011 due to a severe drought. - Real GDP growth projected to increase modestly to 6-6½ percent in 2013; projected to return to trend (about 5½ percent a year) after crop production fully recovers by 2015. - Agriculture and tourism: - Crop production fell by 45 percent in 2011; crop production increased by 30 percent in 2012 (but the 2012 harvest was little more than half of the 2010 harvest). - Tourism sector gained momentum in 2012 and continues to show strength. - Inflation and monetary conditions: - Inflation has ranged between 2½ and 7 percent (year-on-year) since 2007. - Inflation rose to 5.8 percent year-on-year in June 2013. - Inflation projected to rise to about 7 percent (year-on-year) by end-2013, then to be limited to around 5 percent a year over the medium term (CBG objective). - Money growth picked up since late 2012 due to central bank financing of the fiscal deficit; money growth concentrated in currency in circulation. - External position and reserves: - Gross international reserves maintained at about 4½-5 months of import cover in recent years (bolstered by one-time SDR allocation in 2009). - External current account deficit (excluding grants) in 2012 estimated to have jumped to nearly 20 percent of GDP. - Balance of payments weaknesses persisted after below-average harvests and curbed donor assistance in 2012. - Public finances and borrowing: - Overall fiscal balance fell into deficit exceeding 6 percent of GDP by 2010 after a 2007 surplus. - Government revenues fell by 2½ percentage points of GDP to less than 15 percent of GDP in 2010. - Net domestic borrowing (NDB) was 3½ percent of GDP in 2012 (roughly twice the budgeted target). - For 2013, deficit projected to be cut to about 2½ percent of GDP; NDB limited to the budget target of 1.9 percent of GDP under the authorities’ ECF-supported program. - Public debt and interest burden: - As of end-2012, total government debt stood at 77 percent of GDP; domestic debt was 34 percent of GDP. - Interest on debt reached 22½ percent of government revenues in 2012, of which nearly 18½ percentage points was paid on domestic debt. - Domestic debt mostly short-term Treasury bills, creating substantial rollover risk. - Poverty and social indicators: - Poverty incidence fell from 58 percent in 2003 to 48½ percent in 2010 (national poverty lines: US$1.00 a day for 2003 and US$1.25 a day for 2010). ### Exchange rate directives and market impact (Box 1) - Series of presidential directives between October 2012 and August 2013 imposed appreciated exchange rates relative to market and FX market restrictions; intended to eliminate speculation and illegal FX trading. - October 22–November 15, 2012: - Targeted exchange rate of 28 GMD/USD vs prevailing market rate of about 34 GMD/USD. - Initial restriction on shipments of foreign currencies lifted after one day; hoarding of FX banned; FX bureaus and unlicensed dealers monitored. - June 26–July 15, 2013: - Targeted exchange rate of 30-33 GMD/USD vs prevailing market rate of about 37-39 GMD/USD. - Initial restriction on shipments of foreign currencies lifted after one week; hoarding of FX banned; FX bureaus and unlicensed dealers monitored. - July 26–August 14, 2013: - Targeted exchange rate of 37 GMD/USD vs prevailing market rate of about 40 GMD/USD. - No restrictions on shipments of foreign currencies by commercial banks; hoarding of FX banned. - August 14, 2013–present: - Overrode previous directive; targeted exchange rate of 35 GMD/USD. - Licenses of FX bureaus declared null and void; bureaus can apply to the CBG for new licenses. - Market consequences: - Directives temporarily imposed over-valued fixed exchange rates and caused severe disruptions in the FX market. - When the first two directives were lifted, the dalasi depreciated sharply amid signs of capital flight and a dampening of remittances. - Exchange rate directives undermined flexibility and market confidence; staff note potential issues under Article VIII, Sections 2(a) and 3, and non-observance of the continuous performance criterion under the ECF arrangement. ### Fiscal, debt, and financial sector issues - Fiscal slippage and expenditures: - Substantial fiscal slippage in 2012, largely from extrabudgetary spending and lapses in expenditure control (extrabudgetary drought relief accounted for 0.7 percent of GDP of additional NDB in 2012). - Spending trends reflect rising wage bill and increased foreign-financed capital spending. - Domestic financing and crowding out: - Heavy reliance on domestic borrowing: nearly 5 percent of GDP in 2010; 3½ percent of GDP in 2012. - Domestic borrowing crowded out private sector credit; private sector credit lagged growth in credit to government. - Banking sector surveillance and stability: - Annual intensive surveillance of the banking system has been carried out; 2013 exercise pending. - Liquidity management tools not yet operational. - External debt classification: - Despite HIPC and MDRI relief, The Gambia was at high risk of debt distress until recently when classification improved to moderate. ### Policy framework, recommendations, and progress (Box 2 and program stance) - Key policy recommendations from 2011 Article IV and ECF program: - Gradually reduce the fiscal deficit so government’s net domestic borrowing falls to ½ percent of GDP by 2014. - Pursue comprehensive tax reform over the medium term—including introduction of a value-added tax (VAT)—to rebuild revenues and improve competitiveness; strengthen revenue administration. - Strengthen budget procedures and expenditure control. - Improve debt management. - Eliminate fiscal dominance and develop tools for liquidity management. - Maintain intensive surveillance of the banking system. - Maintain a flexible exchange rate policy and ample international reserves. - Pursue structural reform and infrastructure investments for inclusive growth. - Improve economic statistics. - Advances in implementation: - VAT implemented in January 2013; comprehensive tax reform debated; compliance by large taxpayers improved. - Strategic plans developed for selected ministries (pilot cases)—initial step toward a medium-term expenditure framework (MTEF); external debt database and projections of debt service obligations improved. - Fiscal dominance reduced. - Major infrastructure investment in telecommunications completed; support approved by development partners for transportation infrastructure and agriculture. - Areas where implementation weakened: - Substantial fiscal slippage in 2012. - Flexible exchange rate policy compromised by exchange rate directives; slow growth in international reserves. - Liquidity management tools still not operational. - National energy strategy yet to be updated. - Quality of economic statistics has not improved. ### Outlook, baseline assumptions, and risks - Baseline macroeconomic assumptions (PAGE-consistent): - Fiscal adjustment to reduce government’s domestic borrowing needs; overall fiscal deficit projected to fall to 1½-2 percent of GDP a year beginning in 2014. - Net domestic borrowing limited to ½ percent of GDP over the medium term. - Under these assumptions, crowding out would be essentially eliminated and fiscal savings from lower interest costs could be redirected to PAGE priorities. - CBG to gradually rebuild gross international reserves to 5 months of imports by 2018 (staff estimate of adequate reserves; see Appendix II). - Short- to medium-term projections: - 2013: real GDP growth projected at 6-6½ percent; inflation projected to about 7 percent by end-2013; deficit about 2½ percent of GDP; NDB targeted at 1.9 percent of GDP. - Medium term: growth elevated through 2015 as crop production recovers; thereafter return to about 5½ percent a year. - Key risks: - Continued policy inconsistencies (notably exchange rate directives) that undermine confidence and trigger capital flight and remittance weakness. - Slow implementation of fiscal consolidation and persistence of costly domestic debt with high rollover risk. - External shocks: repeated poor harvests and curtailed donor assistance exacerbate current account pressures. - Data quality and limited liquidity management tools constrain policy response. *International Monetary Fund — The Gambia: "1. Exchange Rate Directives, 2012-13" (extracted content).* ### 9. There are significant downside risks to this baseline outlook (Table 8), but there is also ### 9. There are significant downside risks to this baseline outlook (Table 8), but there is also ### Downside and upside risks; key scenario drivers - Main downside risk: possible fiscal slippages (Figures 2-5). - Failure to achieve planned fiscal adjustment and reduction in government’s NDB could put macroeconomic policies on an unsustainable path, especially given the high rollover needs of domestic debt. - Spillover effects of a possible prolonged global economic slowdown, particularly in the Euro zone, would be mixed: - Negative impact on tourism and remittances. - Largely offset by lower commodity prices for imports of food and fuel. - Vulnerability to adverse commodity price shocks depends on pass-through to domestic prices: - If there is no pass-through, an increase in world oil prices would have a more severe balance of payments impact and negative fiscal effects from increased subsidies. - Natural disasters are a major risk to the agricultural base (e.g., the 2011 drought). - Upside potential: structural reforms and major infrastructure investments supported by development partners could lift medium-term growth significantly above the baseline. - Notable agricultural and growth assumptions: - Crop production is expected to increase by 30-35 percent this year, yielding a harvest of about ¾ of the 2010 pre-drought level. - Under normal weather: crop production growth of about 25 percent in 2014 and 10 percent in 2015, before returning to trend of about 5½ percent a year thereafter. - Baseline projection assumes growth rates in non-agricultural sectors mostly return to trend beginning in 2014; trend defined as the median growth rate in each sector from 2005 to 2012 (telecom sector exception). - This baseline does not factor productivity gains from reforms and investments until measures are at an advanced stage of implementation. - Fiscal note: This target includes an increase of 0.3 percent of GDP from the original target to accommodate a shortfall of donor assistance for the 2013 census; based on preliminary data, NDB was slightly above target through end-June. ### A. Near-term agenda: Stabilizing the dalasi and rebuilding confidence - Staff’s recommended two-pronged approach: - Tighten monetary policy by shifting financing of government deficits back to the market, not central bank financing: - Weekly T-bill auctions should aim for issuances in excess of the government’s net borrowing requirement so the CBG reduces its current holdings. - Rising yields would attract investor interest, stem or reverse capital flight, and dampen depreciation pressures. - Achieve fiscal discipline: - Curtail government borrowing in line with existing targets to restore confidence that fiscal policy is returning to a sustainable path. - Take visible actions for revenue building or cost cutting. - Establish an effective communications strategy to inform investors and the public of policy implementation. - Exchange rate policy: - Recent exchange rate directives should be rescinded and a flexible exchange rate policy maintained. - Over-valued exchange rate directives create expectations of dalasi depreciation and undermine monetary tightening; they threaten competitiveness for the tourism season. - Authorities’ actions and views: - Authorities increased the policy rate twice (May and June 2013) and raised the reserve requirement on deposits (from 12 percent to 15 percent) in late June. - Yields on T-bills have been driven up by about 400 basis points. - Authorities find disciplined budget execution difficult, particularly for expenditures ordered by directives; exchange rate directives were described as political measures and not a switch to a fixed exchange rate regime. - Based on preliminary data, NDB was slightly above target through end-June, but performance after the mid-year target is questionable. ### B. Medium-term policy framework: Fiscal policy - Broad agreement: fiscal adjustment is necessary to achieve sustainability and reduce the high costs and burden of government’s domestic debt. - Recent measures in 2013: - Implementation of a new value-added tax (VAT). - Renewed fuel price adjustments to eliminate remaining subsidies. - Staff’s fiscal recommendations: - Adhere to fiscal targets in the 2013 budget and the PAGE. - Stick to the original target of limiting NDB to ½ percent of GDP in 2014 and beyond, as in the PAGE. - By following this path, domestic debt could be reduced to less than 20 percent of GDP by 2018, generating fiscal savings from lower interest costs. - Achieving goals requires further buildup in tax revenues and spending discipline. - Overall fiscal deficit envisaged to be reduced to about 1½-2 percent of GDP a year, with scope for a higher deficit if external financing is available on concessional terms (per joint Bank-Fund staff debt sustainability analysis). - Tax reform recommendations: - Comprehensive tax reform needed to enhance growth and international competitiveness. - Recent measures (VAT and elimination of fuel subsidies) expected to yield an additional ½ percentage point of GDP in 2014. - Staff recommended reforms to broaden the tax base and simplify the system, including eventual elimination of investment incentives and tax exemptions, and removal of low-yielding “nuisance” taxes. - Near-term actions: quantify cost of tax expenditures (including investment incentives and exemptions) and move toward including these costs in the budget. - Strengthen tax administration, particularly for large taxpayers and customs; reduce corruption and combat tax evasion, including mobilizing the anti-money laundering framework. - Spending and public financial management: - Need greater progress to control extrabudgetary expenditures and enhance the budget process to ensure “value-for-money”. - Directives for extrabudgetary spending are leading causes of breakdowns in fiscal discipline; contain extrabudgetary spending within the contingency component of the budget. - Strengthen cash-budgeting approach for near-term expenditure control; implement an MTEF to facilitate planning and allocation. - Public debt management: - Issue longer-term bonds as part of the medium-term debt strategy to reduce rollover risk of domestic debt; interest rates currently prohibitively high and issuance should wait until yields fall with fiscal adjustment. - External financing should be limited to concessional loans (with exception noted for an Islamic Development Bank loan to support the groundnut sector). - Authorities have substantially improved the external debt database; establishing a database on debts and contingent liabilities, especially of state-owned enterprises, is prudent. - Authorities’ views and constraints: - Differences with staff mainly on the pace of fiscal adjustment and tax reforms. - Authorities caution observing the NDB ceiling for 2013 will be a challenge and suggest modest easing of the ceiling for 2014. - Authorities emphasize entrenching the VAT before further tax policy changes; will rely on revenue administration efforts to raise the tax-to-GDP ratio. - Authorities are assessing costs and benefits of investment incentives and currently see incentives as needed to overcome other impediments to competitiveness. - Fiscal specifics and notes: - Fuel subsidies averaged about 6 percent of the full pass-through prices in early 2013. - In a supplementary budget approved in June 2013, authorities re-instituted regular monthly price adjustments until subsidies are completely eliminated (most likely in 2014, given recent increases in world prices and the dalasi’s depreciation). - Staff recommended directing additional revenues from elimination of fuel subsidies to well-targeted pro-poor programs. ### Monetary and exchange rate policies - Agreed framework once exchange rate stabilizes: - CBG will target reserve money as an intermediate instrument to contain broad money growth and inflation (at 5 percent a year). - Broad money growth should modestly exceed expected nominal GDP growth; reserve money growth should be somewhat tighter. - As government contains domestic borrowing needs, expansion in broad money should allow growth of commercial banks’ credit to the private sector. - CBG aims to maintain a flexible exchange rate policy and refrain from intervening except to maintain orderly market behavior. - CBG may purchase foreign exchange to meet international reserves objective of 5 months of import coverage over the medium term. - Exchange rate directives are highly disruptive and should cease completely. - Staff’s views and operational recommendations: - CBG tends to focus on meeting monetary and international reserve targets at quarter-ends rather than a consistent path through the period. - CBG relies heavily on non-market instruments (notably reserve requirement on deposits) instead of daily liquidity management and REPO instruments. - Recommend targeting average reserve money (e.g., final month of each quarter) and operationalizing REPO instruments. - Develop strategies for mopping up unanticipated liquidity injections. - Recent increases in reserve requirement on deposits are a setback to financial intermediation by increasing banks’ intermediation costs; recommend reducing reserve requirement ratio back to 10 percent over the next couple of years. - Reserve money targets should be tightened accordingly; interim option: consider paying interest on the higher reserve requirement. - Avoid large foreign exchange purchases at quarter-ends as they can put sudden pressure on the exchange rate; improve transparency and manage reserve accumulation on a consistent basis. - Authorities’ operational context: - CBG faces extraordinary challenges beyond its control but seeks improved coordination with fiscal authorities and better communication on public sector borrowing requirements and foreign-financed project flows. - CBG anticipates REPO instruments will soon be operational and plans to explore whether the REPO market may provide the basis for a more effective policy interest rate. ### Financial sector policies - Banking sector developments and risks: - After rapid expansion, the banking system has undergone modest consolidation. - Between 2007 and 2010, the number of banks doubled (to 14 banks). - Two banks went into voluntary liquidation since 2010 for not meeting the two-step increase in the minimum capital requirement (MCR) implemented at end-2010 and end-2012. - MCR increases ensured adequate capitalization, but non-performing loans have remained high (Table 9). - Most banks are foreign-owned with very little direct exposure to foreign assets on their balance sheets. - Strong expansion helped deepen financial intermediation, but credit to the private sector has lagged regional peers (Figure 6), partly due to structural bottlenecks in the credit market. - Costs of financial intermediation remain high. *THE GAMBIA INTERNATIONAL MONETARY FUND* ### 26. There was broad agreement that banking supervision must remain vigilant. The CBG ### _cr13289 - 26. There was broad agreement that banking supervision must remain vigilant. The CBG ### Banking supervision and financial sector stability - Findings - The CBG has been building up its supervisory capacity through staff hires and new electronic data collection. - Capacity building is needed for effective off-site analysis and assessments, which is critical for moving to a more risk-based approach for supervision. - The CBG remains active in the regional college of banking supervisors and has maintained close surveillance of cross-border issues. - The banking system is well-capitalized and liquid, however, non-performing loans have remained persistently high. - There is no effective supervision of the Social Security and Housing Finance Corporations (SSHFC). - Staff recommendations - Maintain procedures for intensive supervision. - Continue annual assessment of individual banks’ prompt corrective action financial indicators and, if necessary, engage banks in intensive supervision of banks that do not met the requisite thresholds. - Remedy the delay of the 2013 assessment as soon as possible. - Enhance transparency for SSHFC by making finalized external audits widely available to allow greater public scrutiny. - Over the medium term, build supervisory capacity for SSHFC by establishing a proper regulatory agency. - To reduce intermediation costs: ensure that the Credit Reference Bureau (CRB) can maintain timely data on borrowers and establish a collateral registry to facilitate secured lending operations. - Authorities’ view - The CBG intends to conduct the bank-by-bank analysis for intensive supervision soon and will strive to maintain a regular annual schedule for this exercise. - Authorities noted progress on resolving the technical glitches of the CRB and are exploring the establishment of a collateral registry. - The CBG agreed its capacity was too stretched to monitor the SSHFC and, for now, transparency is the best option. ### External stability, exchange rate assessment, and international competitiveness - Findings - Recent directives to introduce a temporarily fixed and over-valued exchange rate have disrupted the foreign exchange market. - When authorities have maintained a flexible exchange rate policy, the dalasi has been broadly aligned with medium-term fundamentals (Box 3 and Appendix V). - The recent directives can have adverse effects on international competitiveness, creating a substantial risk for The Gambia’s tourism sector. - A burdensome tax system and the high cost of financial intermediation are impediments to competitiveness and the business environment, along with severe infrastructure problems. - The introduction of the VAT is a major step forward, but further progress with comprehensive tax reform will be gradual. - Recent efforts to facilitate financial intermediation have been mixed. - Investment incentives, particularly tax holidays, are cautioned against because they can be difficult to administer, costly in forgone revenues, and tend to attract investors with short time horizons. - External stability assessment (Box 3 findings) - Macroeconomic balance approach: finds an overvaluation of 13 percent, implied by the current account gap calculated as the difference between the projected underlying medium-term current account deficit of 12½ percent of GDP and the estimated current account “norm” deficit of 4 percent. - External stability approach: indicates the dalasi is overvalued by about 7½–10 percent. Using the end-2012 NFA position of -87 percent of GDP as a benchmark, the current account deficit needed to maintain this position is estimated at about 6 percent of GDP, indicating an overvaluation of 10 percent. When the benchmark is set to the average NFA position of -105 percent over 2004–2012, the overvaluation is slightly lower at about 7½ percent. - Equilibrium real exchange rate approach: suggests an undervaluation of about 18½ percent, sensitive to the recent exchange rate trend—depreciation since 2008—and the equilibrium REER appreciated slightly largely reflecting the strengthening of the terms of trade. - Cost-benefit analysis of optimal GIR: suggests an optimal level of GIR between 3½ 5 months of import cover, assuming unit costs of 4 and 3 percent, respectively. Under a stress scenario where all external shocks are set to their worst historical values, the optimal level of reserves would rise to 4½–6 months of imports. These results indicate that the current level of reserves is broadly adequate given the macroeconomic and external risks facing The Gambia. - Opportunities and donor support - With substantial donor support, there is strong potential for inclusive growth. - Several donors have begun to support PAGE strategies for infrastructure investment. - Major advances are underway in telecommunications and construction of the Trans-Gambia Bridge could generate opportunities to reinvigorate The Gambia’s role as a regional trade center. - The African Development Bank has approved nearly US$100 million of grant financing for the bridge. - Authorities are preparing to address problems in the energy sector, including the insolvency of the National Water and Electricity Company (NAWEC) and the current monopoly of fuel importation. - Authorities are working closely with a coordinated group of development partners in agriculture and water management; over US$130 million (nearly 15 percent of current GDP) of grant financing has been approved for disbursement over the next four years. - Authorities’ view - Authorities agreed the exchange rate was not misaligned and argued that until impediments to the business environment and international competitiveness are resolved, The Gambia would have to continue to offer investment incentives, which they noted are closely monitored. ### Fiscal, monetary, and structural policy recommendations (Staff appraisal highlights) - Macroeconomic policy - Immediate return to a flexible exchange rate policy and tightening of macroeconomic policies—both monetary and fiscal—to stabilize the dalasi and restore confidence. - Fiscal policy and public debt - Steady fiscal adjustment aimed at reducing the escalating cost and risks of the government’s heavy debt burden, particularly from domestic debt. - Curtail the government’s net domestic borrowing to help lower interest rates, ease crowding out of the private sector, and generate fiscal savings for PAGE priorities. - Continue to seek grant or highly concessional financing for the investment agenda to minimize exposure to external debt risks. - Tax policy and revenue administration - Further tax reform should await further entrenchment of the new value-added tax as the foundation of the Gambian tax system. - Prepare a medium-term tax reform agenda aimed at simplifying taxes and broadening the tax base to allow lowering of tax rates without losing revenues. - Step up revenue administration efforts for customs and large taxpayers. - Monitor tax expenditures—notably from investment incentives and fuel subsidies—to guide tax simplification and base broadening. - Expenditure control and budget process - Enhance the budget process and expenditure control to ensure maximum value from government spending. - Minimize spending by directive and keep such spending within the allocation for contingencies. - Monetary policy and financial intermediation - Implement monetary policy on a consistent basis and make market-based liquidity management tools operational as soon as possible. - Central Bank of The Gambia should refrain from using the reserve requirement on deposits as a monetary policy tool and should aim to lower the requirement back to 10 percent over the next couple of years. - Do not delay other pending structural measures to facilitate intermediation. - Financial sector transparency and governance - Ensure maximum transparency of SSHFC accounts; public scrutiny would encourage sound management. ### Data quality and statistical capacity - Findings - Data have serious shortcomings that significantly hamper surveillance; national accounts and balance of payments data are particularly problematic. - Staffing and capacity constraints at the Gambia Bureau of Statistics (GBoS), as well as insufficient source data, have been major obstacles to deriving quality statistics. - For the BOP, an outdated methodology for estimating the re-export trade may be seriously distorting official trade data. - As a result, staff estimates of GDP and the BOP have often differed significantly from the authorities’ figures. - The base for the consumer price index (CPI) is outdated and there are concerns that inflation has been understated. GBoS is in the process of updating and rebasing its CPI data using the 2010 Integrated Household Survey. - Recommendations - Engage development partners in a coordinated effort to support capacity building at GBoS. - Government commitments on GBoS staffing and funding for collection of source data are critical to success. - The CBG needs to address long-standing weaknesses in the collection and compilation of balance of payments data. *International Monetary Fund — The Gambia, Staff appraisal and related analyses as presented in the provided content* ### 44. Staff recommends that the next Article IV consultation with the Gambia be held in ### _cr13289 - 44. Staff recommends that the next Article IV consultation with the Gambia be held in ### Consultation recommendation - Staff recommends that the next Article IV consultation with the Gambia be held in accordance with the Board Decision No. 14747-(10/96), adopted September 28, 2010 (as amended), on Article IV consultation cycles. ### Scenario analyses and assumptions - Fiscal Slippage Scenario (2012—2017) - Assumption: no fiscal adjustment during 2013—17; NDB is kept at 3½ percent of GDP, the level observed in 2012, throughout 2017. - Projected effects described: loss of confidence among investors would lead to a creeping up of T-bill rates and some capital flight; fiscal sustainability and growth prospects would be severely undermined. - Indicators shown (baseline vs. fiscal slippage) include: Treasury Bill Rates (Percentage), Interest Payments (Percentage of Government Revenue), Public Debt (Percentage of GDP), Credit to Private Sector (12-Month Growth Rate), Consumer Price Index (Percentage Change), International Reserves (Months of imports of goods and services). - Protracted Global Slowdown Scenario (2012—2017) - Assumption: protracted growth slowdown in advanced economies in line with the latest WEO adverse scenario. - Transmission: reduction in tourism receipts and remittances; impact partially offset by downward pressure on commodity prices. - Indicators shown (baseline vs. protracted slow global growth) include: International Reserves (Months of imports), Treasury Bill Rates (Percentage), Interest Payments (Percentage of Government Revenue), Public Debt (Percentage of GDP), Credit to Private Sector (12-Month Growth Rate), Consumer Price Index (Percentage Change). - Global Oil Price Shock Scenario with Full Pass Through to Domestic Prices (2012—2017) - Assumption: international oil prices higher by 20 percent than the baseline during 2013—15 with full pass-through to domestic fuel prices. - Projected effects: worsened external current account balance and higher inflation. - Indicators shown (baseline vs. oil price shock) include: International Reserves (Months of imports), Treasury Bill Rates (Percentage), Interest Payments (Percentage of Government Revenue), Public Debt (Percentage of GDP), Credit to Private Sector (12-Month Growth Rate), Consumer Price Index (Percentage Change). - Oil Price Shock Scenario with Partial Pass Through to Domestic Fuel Prices (2012—2017) - Assumption: international oil prices higher by 20 percent than the baseline during 2013—15 with partial pass-through to domestic prices. - Noted effect: negative impact on the fiscal position, international reserves and credit to private sector would be larger than under a full pass-through scenario, reflecting the significance of the authorities’ commitment to eliminate fuel subsidies. - Indicators shown (baseline vs. oil price shock) include: International Reserves (Months of imports), Treasury Bill Rates (Percentage), Interest Payments (Percentage of Government Revenue), Public Debt (Percentage of GDP), Credit to Private Sector (12-Month Growth Rate), Consumer Price Index (Percentage Change). ### Cross-country comparison highlights - Statements from Figure 6 captions and notes: - "...but GDP per capita remains below the ECOWAS average. The Gambia maintained reasonably high growthrates during the global crisis..." - "Inflation compares favorably within the region... but government revenue is below average." - "The Gambia's financial deepening measured by broad money compares relatively well with regional counterparts... but credit to private sector is lagging behind." ### Key projections and indicators (selected, as reported) - National account and prices (millions of dalasi; percent change) - Nominal GDP: 2011: 26,465; 2012: 29,108; 2013: 32,886; 2014: 37,659; 2015: 42,015; 2016: 46,459; 2017: 51,379; 2018: 56,842 - Nominal GDP (percent change): 2011: 11.1; 2012: -0.7; 2013: 10.0; 2014: 13.0; 2015: 14.5; 2016: 11.6; 2017: 10.6; 2018: 10.6 - GDP at constant prices (percent change): 2011: 6.5; 2012: -4.3; 2013: 5.3; 2014: 6.4; 2015: 8.5; 2016: 6.5; 2017: 5.5; 2018: 5.5 - GDP per capita (US$): 2011: 558; 2012: 508; 2013: 497; 2014: 478; 2015: 486; 2016: 511; 2017: 534; 2018: 558 - GDP deflator: 2011: 4.3; 2012: 3.7; 2013: 4.5; 2014: 6.2; 2015: 5.6; 2016: 4.7; 2017: 4.8; 2018: 4.8 - Consumer prices (average): 2011: 5.0; 2012: 4.8; 2013: 4.6; 2014: 6.0; 2015: 5.0; 2016: 5.0; 2017: 5.0; 2018: 5.0 - Consumer prices (end of period): 2011: 5.8; 2012: 4.4; 2013: 4.9; 2014: 7.0; 2015: 5.0; 2016: 5.0; 2017: 5.0; 2018: 5.0 - External sector (percent change; unless otherwise indicated) - Exports, f.o.b.: 2011: 0.9; 2012: 16.3; 2013: -8.8; 2014: 9.5; 2015: 8.9; 2016: 7.6; 2017: 7.5; 2018: 8.1 - Imports, f.o.b.: 2011: 5.3; 2012: 7.1; 2013: 8.7; 2014: -2.1; 2015: 4.1; 2016: 6.4; 2017: 6.2; 2018: 6.5 - Terms of trade (deterioration -): 2011: -1.4; 2012: 1.8; 2013: 3.7; 2014: 3.9; 2015: 3.5; 2016: 2.7; 2017: 2.0; 2018: 1.8 - Monetary and credit (percent change) - Broad money: 2011: 13.7; 2012: 11.0; 2013: 7.8; 2014: 7.0; 2015: 13.1; 2016: 12.6; 2017: 11.6; 2018: 11.6 - Net foreign assets: 2011: 1.3; 2012: 5.6; 2013: 2.3; 2014: 3.6; 2015: 5.8; 2016: 6.4; 2017: 7.0; 2018: 7.0 - Credit to the government (net): 2011: 16.8; 2012: 8.2; 2013: 6.1; 2014: 3.8; 2015: 0.8; 2016: 0.8; 2017: 0.8; 2018: 0.8 - Credit to the private sector (net): 2011: 4.7; 2012: 2.8; 2013: 1.3; 2014: 2.6; 2015: 6.5; 2016: 5.5; 2017: 4.3; 2018: 4.3 - Average treasury bill rate (in percent): 2011: 11.3; 2012: 10.0; 2013: 10.4 - Central government budget (levels, millions of local currency; percent of GDP) - Domestic revenue (taxes and other revenues, millions): 2010: 5,026; 2011: 5,619; 2012: 7,397; 2013: 7,271; 2014: 8,551; 2015: 9,500; 2016: 10,413; 2017: 11,434; 2018: 12,613 - Taxes (millions): 2010: 3,528; 2011: 3,780; 2012: 4,221; 2013: 5,001; 2014: 5,919; 2015: 6,592; 2016: 7,276; 2017: 8,044; 2018: 8,897 - Grants (millions): 2010: 1,065; 2011: 1,355; 2012: 2,611; 2013: 1,659; 2014: 1,934; 2015: 2,114; 2016: 2,260; 2017: 2,420; 2018: 2,643 - Total expenditures and net acquisition of financial assets (millions): 2010: 6,466; 2011: 6,871; 2012: 8,675; 2013: 8,149; 2014: 9,292; 2015: 10,330; 2016: 11,210; 2017: 12,301; 2018: 13,370 - Interest (millions): 2010: 766; 2011: 967; 2012: 1,079; 2013: 1,160; 2014: 1,366; 2015: 1,207; 2016: 1,250; 2017: 1,292; 2018: 1,337 - Net lending (+)/borrowing (–) (millions): 2010: -1,440; 2011: -1,252; 2012: -1,278; 2013: -878; 2014: -741; 2015: -830; 2016: -797; 2017: -868; 2018: -757 - Net incurrence of liabilities (millions): 2010: 1,560; 2011: 1,150; 2012: 1,261; 2013: 874; 2014: 684; 2015: 754; 2016: 718; 2017: 785; 2018: 807 - Domestic public debt (millions): 2010: 7,847; 2011: 8,773; 2012: 9,718; 2013: 10,284; 2014: 10,472; 2015: 10,682; 2016: 10,914; 2017: 11,164; 2018: 11,430 - Interest payments as a percent of government revenue: 2010: 19.3; 2011: 22.7; 2012: 22.5; 2013: 20.7; 2014: 20.6; 2015: 16.3; 2016: 15.3; 2017: 14.3; 2018: 13.4 - Fiscal ratios (percent of GDP) - Revenue: 2010: 18.9; 2011: 21.2; 2012: 25.4; 2013: 22.1; 2014: 22.7; 2015: 22.6; 2016: 22.4; 2017: 22.3; 2018: 22.2 - Grants: 2010: 4.0; 2011: 5.1; 2012: 9.0; 2013: 5.0; 2014: 5.1; 2015: 5.0; 2016: 4.9; 2017: 4.7; 2018: 4.6 - Expenditures: 2010: 24.3; 2011: 26.0; 2012: 29.8; 2013: 24.8; 2014: 24.7; 2015: 24.6; 2016: 24.1; 2017: 23.8; 2018: 23.5 - Net lending (+)/borrowing (–): 2010: -5.4; 2011: -4.7; 2012: -4.4; 2013: -2.7; 2014: -2.0; 2015: -2.0; 2016: -1.7; 2017: -1.7; 2018: -1.3 - Basic balance: 2010: -3.3; 2011: -2.1; 2012: -2.1; 2013: -2.1; 2014: -1.3; 2015: -1.4; 2016: -1.4; 2017: -1.3; 2018: -1.9 - Domestic public debt (percent of GDP): 2010: 29.4; 2011: 33.2; 2012: 33.4; 2013: 31.3; 2014: 27.8; 2015: 25.4; 2016: 23.5; 2017: 21.7; 2018: 20.1 - External public debt and reserves - External public debt (percent of GDP): 2010: 40.2; 2011: 44.1; 2012: 43.8; 2013: 46.1; 2014: 43.0; 2015: 41.1; 2016: 39.3; 2017: 37.6; 2018: 36.0 - External public debt (millions of US$): 2010: 377.6; 2011: 386.2; 2012: 375.8; 2013: 384.2; 2014: 396.5; 2015: 409.6; 2016: 421.0; 2017: 433.2; 2018: 445.1 - Gross official reserves (millions): 2010: 157.6; 2011: 169.7; 2012: 183.8; 2013: 181.9; 2014: 199.3; 2015: 216.0; 2016: 233.9; 2017: 252.0; 2018: 272.8 - Reserves in months of next year's imports of goods and services: 2010: 4.4; 2011: 4.4; 2012: 4.8; 2013: 4.5; 2014: 4.7; 2015: 4.8; 2016: 4.9; 2017: 4.9; 2018: 5.0 - Current account balance (percent of GDP) - Excluding budget support: 2010: -16.0; 2011: -15.5; 2012: -19.4; 2013: -16.9; 2014: -16.4; 2015: -16.0; 2016: -16.0; 2017: -15.9; 2018: -15.8 - Including budget support: 2010: -16.0; 2011: -15.5; 2012: -17.0; 2013: -16.2; 2014: -15.6; 2015: -15.2; 2016: -15.3; 2017: -15.4; 2018: -15.3 ### Monetary accounts and banking sector (selected) - Monetary aggregates (levels, millions of local currency) - Broad money: 2012: 13,292; 2013: 14,753; 2014: 15,902; 2015: 17,015; 2016: 19,246; 2017: 21,665; 2018: 24,173; later 26,975; 30,113 - Currency outside banks: 2012: 2,065; 2013: 2,376; 2014: 2,819; 2015: 2,964; 2016: 3,352; 2017: 3,773; 2018: 4,157; later 4,578; 5,044 - Deposits (of which time and savings deposits): 2012: 11,228; 2013: 12,377; 2014: 13,083; 2015: 14,052; 2016: 15,894; 2017: 17,891; 2018: 20,017; later 22,396; 25,069 - Credit to private sector (claims): 2012: 4,240; 2013: 4,612; 2014: 4,809; 2015: 5,217; 2016: 6,325; 2017: 7,377; 2018: 8,313; later 9,351; 10,521 - Central bank and reserve indicators - Reserve money: 2012: 3,503; 2013: 3,934; 2014: 4,203; 2015: 5,071; 2016: 5,359; 2017: 5,663; 2018: 6,258; later 6,918; 7,651 - Net usable international reserves (in millions of U.S. dollars): 2012: 126.5; 2013: 135.1; 2014: 135.1; 2015: 130.9; 2016: 146.4; 2017: 166.3; 2018: 190.5; later 216.5; 237.1 - Money velocity (levels): 2012: 2.01; 2013: 1.79; 2014: 1.83; 2015: 1.93; 2016: 1.96; 2017: 1.94; 2018: 1.92; later 1.90; 1.89 - Broad money (percent of GDP): 2012: 49.9; 2013: 55.7; 2014: 54.6; 2015: 51.7; 2016: 51.1; 2017: 52.0; 2018: 52.5; later 53.0 - Credit to the private sector (percent of GDP): 2012: 15.9; 2013: 17.4; 2014: 16.5; 2015: 15.9; 2016: 16.8; 2017: 17.6; 2018: 17.9; later 18.2; 18.5 *Sources: Gambian authorities and Fund staff estimates and projections.* ### 1. Current account ### 1. Current account ### A. Goods and services (levels, US$ millions) - Goods and services (net): -179.4, -165.1, -201.2, -178.3, -182.5, -192.6, -206.1, -220.3, -235.0 - Trade balance: -216.6, -223.3, -262.0, -244.6, -249.4, -263.9, -278.7, -294.4, -311.1 - Exports, f.o.b.: 95.7, 111.3, 101.5, 111.2, 121.0, 130.3, 140.0, 151.3, 163.9 - Of which: domestic goods: 11.0, 14.8, 6.3, 10.9, 14.1, 16.0, 17.8, 19.7, 21.9 - Imports, f.o.b.: -312.2, -334.6, -363.5, -355.7, -370.4, -394.1, -418.7, -445.7, -475.0 - Of which: oil: -40.9, -50.3, -53.4, -55.6, -57.9, -59.0, -60.0, -61.6, -63.7 - Services (net): 37.1, 58.2, 60.8, 66.2, 66.9, 71.3, 72.5, 74.1, 76.1 - Of which: travel income: 70.9, 84.0, 92.9, 102.4, 106.4, 110.2, 114.2, 118.5, 123.3 ### A. Goods and services (percent of GDP) - Goods and services (net): -18.6, -18.3, -22.2, -19.9, -19.5, -19.0, -19.0, -18.9, -18.7 - Trade balance: -22.5, -24.7, -28.9, -27.3, -26.6, -26.1, -25.6, -25.2, -24.8 - Exports, f.o.b.: 9.9, 12.3, 11.2, 12.4, 12.9, 12.9, 12.9, 13.0, 13.1 - Of which: domestic goods: 1.1, 1.6, 0.7, 1.2, 1.5, 1.6, 1.6, 1.7, 1.7 - Imports, f.o.b.: -32.4, -37.1, -40.1, -39.7, -39.5, -38.9, -38.5, -38.2, -37.8 - Of which: oil: -4.2, -5.6, -5.9, -6.2, -6.2, -5.8, -5.5, -5.3, -5.1 - Services (net): 3.9, 6.4, 6.7, 7.4, 7.1, 7.0, 6.7, 6.3, 6.1 - Of which: travel: 7.4, 9.3, 10.2, 11.4, 11.4, 10.9, 10.5, 10.1, 9.8 ### B. Income (net) - Income (net, US$ millions): -29.9, -33.1, -34.9, -35.0, -34.4, -35.2, -36.0, -36.7, -37.4 - Income credits: 2.3, 2.5, 2.5, 2.6, 3.1, 3.2, 4.4, 5.4, 6.0 - Income debits: -32.2, -35.6, -37.4, -37.6, -37.5, -38.4, -40.4, -42.0, -43.3 - Of which: interest on government debt: -7.3, -7.5, -7.6, -6.0, -6.1, -6.4, -6.7, -7.0 - Income (net, percent of GDP): -3.1, -3.7, -3.8, -3.9, -3.7, -3.5, -3.3, -3.1, -3.0 - Income credits (percent of GDP): 0.2, 0.3, 0.3, 0.3, 0.3, 0.3, 0.4, 0.5, 0.5 - Income debits (percent of GDP): -3.3, -3.9, -4.1, -4.2, -4.0, -3.8, -3.7, -3.6, -3.5 - Of which: interest on government debt (percent of GDP): 0.8, 0.8, 0.8, 0.7, 0.6, 0.6, 0.6, 0.6, 0.6 ### C. Current transfers - Current transfers (US$ millions): 55.0, 57.9, 81.8, 68.3, 70.8, 73.4, 75.3, 77.5, 80.6 - Official transfers: 0.0, 0.0, 21.5, 6.6, 7.4, 7.7, 7.0, 6.4, 6.8 - Note: The figure for 2012 includes US$ 14.3 million in donor assistance for drought relief, which was not included in the 2012 prog. column. - Remittances: 45.2, 47.8, 49.9, 51.1, 52.6, 54.6, 56.9, 59.4, 61.8 - Other transfers: 9.8, 10.1, 10.3, 10.6, 10.9, 11.1, 11.4, 11.7, 12.0 - Current transfers (percent of GDP): 5.7, 6.4, 9.0, 7.6, 7.6, 7.3, 7.4, 7.7, 6.4 - Official transfers (percent of GDP): 0.0, 0.0, 2.4, 0.7, 0.8, 0.8, 0.6, 0.5, 0.5 - Remittances (percent of GDP): 4.7, 5.3, 5.5, 5.7, 5.6, 5.4, 5.2, 5.1, 4.9 - Other transfers (percent of GDP): 1.0, 1.1, 1.1, 1.2, 1.2, 1.1, 1.0, 1.0, 1.0 ### Current account balances - Current account (excl. budget support, US$ millions): -154.3, -140.3, -175.9, -151.7, -153.5, -162.0, -173.8, -185.9, -198.6 - Current account (incl. budget support, US$ millions): -154.3, -140.3, -154.4, -145.1, -146.1, -154.4, -166.8, -179.5, -191.8 - Current account (excl. budget support, percent of GDP): -16.0, -15.5, -19.4, -16.9, -16.4, -16.0, -16.0, -15.9, -15.8 - Current account (incl. budget support, percent of GDP): -16.0, -15.5, -17.0, -16.2, -15.6, -15.2, -15.3, -15.4, -15.3 ### Key observations from goods, services, income, and transfers - Exports rise from 95.7 to 163.9 (2010–2018) while imports increase from -312.2 to -475.0. - Travel income grows from 70.9 to 123.3 (2010–2018). - Remittances steadily increase from 45.2 to 61.8 (2010–2018). - Net income outflows remain significant: income debits increase from -32.2 to -43.3 (2010–2018). ### Notes on composition - Domestic goods consist of (in decreasing order of importance): groundnuts, fruits and vegetables, zircon, fish, and cotton. - Project grants explain the entire amount of the capital account. *The above figures are sourced from Gambian authorities and Fund staff estimates and projections.* ### 5. Growth is considered to be inclusive if it is high and sustained (a crucial condition ### 5. Growth is considered to be inclusive if it is high and sustained (a crucial condition for poverty reduction) ### Assessment of inclusivity of growth in The Gambia - Growth is considered inclusive if it is: high and sustained; broad-based across sectors and inclusive of a large part of the country’s labor force; and characterized by equality of opportunity in terms of access to markets and resources (IMF 2013). - Inclusive growth should focus on sectors with the highest potential for creating stable wage-paying jobs (McKinsey Global Institute (2012)). ### Poverty dynamics and regional variation - Overall poverty rate declined to 48.4 percent in 2010, down from 58.0 percent in 2003. - Decline in overall poverty suggests a fairly high elasticity of poverty with respect to growth and therefore a relatively inclusive pattern of growth in broad terms. - Large regional variations: - Incidence of poverty in rural areas is more than double that of urban areas and is also above the national average. - Between 2003 and 2010, urban areas experienced a much higher decline in poverty than rural areas. - High levels of inequality and concentration of poverty in rural areas undermine the inclusivity of growth. ### Composition of consumption by wealth quintiles (1998–2010) - Share of the 1st quintile (poorest) in total household consumption: - 1998: 4 percent - 2003: 8.8 percent - 2010: 5.6 - Share of the richest quintile in total household consumption: - 1998: 56 percent - 2003: 38 percent - 2010: 46.5 percent - Interpretation: - Growth was pro-poor during 1998－2003 (significant reduction in disparities). - There was a reversal during 2003－2010 (inequality widened again). - Given disparities and the pattern of growth during 2003－2010, more could be done to make growth more inclusive. ### Policy measures to make growth more inclusive - Strengthen execution of the authorities’ Programme for Accelerated Growth and Employment (PAGE), which emphasizes developing the agriculture sector, to reduce rural poverty. - Ensure donor-funded agricultural projects are: - Well coordinated. - Sustainable beyond the duration of donor financing to have a noticeable impact on poverty. - Strengthen land tenure security. - Provide farmer education through wide coverage of agricultural extension services to enhance poverty reduction through agricultural activities. - Sustain reforms to enhance the business environment to underpin sustainable economic growth and private sector employment. - The Gambia’s Doing Business 2013 rank: 147th out of 185 countries, with drops in all indicators except enforcing contracts. - Reforms needed in the energy and telecom sectors to unlock infrastructure potential for high growth and employment, especially for youth. --- ### Appendix II: Reserve Adequacy in The Gambia — key findings - Staff estimates from a cost-benefit analysis for low-income countries indicate an optimal level of gross international reserves (GIR) between 3½–5 months of the following year’s imports for The Gambia. - The Gambia’s GIR at end-2012: about US$ 184 million, covering 4.8 months of projected imports in 2013. - Historical average import cover: 4.1 months. - Under baseline analytical framework (assumptions presented in Table 1), estimated optimal GIR between 3½–5.0 months of import cover, assuming opportunity costs of 4 and 3 percent, respectively. - Sensitivities and caveats: - Optimal level highly sensitive to opportunity cost of holding reserves. - Real interest rate differential between domestic and US treasury bills averaged about 9½ percent during 2005–2012, pointing to an optimal import coverage of one month under that metric. - Structural instability, risk of high inflation from global shocks and bad weather, and high reliance on food imports support higher reserve buffers. - Panel regression does not consider a sharp fall in remittances, which could lead to underestimation of optimal reserves. - Under a stress scenario (external shocks set to worst historical values), optimal reserves would rise to 4½ – 6 months of imports. - Conclusion: current level of reserves (4.8 months) is broadly adequate given macroeconomic and external risks facing The Gambia. - Selected baseline assumptions (Table 1): - Government balance, percent of GDP: 1/-4.0 - CPIA: 2/3.4 - Exchange rate regime: flexible - External demand growth: -2.8 - Terms of trade growth: -16.3 - Change in FDI to GDP ratio: -2.4 - Change in aid to GDP ratio: -1.5 - Notes: 1/ Average over 2005-2012; 2/ Average over 2009-2011; 3/ Bottom 10th percentile of the distribution over 2005-2012 - Selected stress scenario assumptions (Table 2): - Government balance, percent of GDP: 1/-6.4 - CPIA: 2/3.4 - Exchange rate regime: flexible - External demand growth: -4.5 - Terms of trade growth: -16.5 - Change in FDI to GDP ratio: -2.8 - Change in aid to GDP ratio: -1.9 - Notes: same averaging conventions as baseline. --- ### Appendix III: Tax reform options — key findings and recommendations - Background: - Tax burden in The Gambia relatively low compared with other SSA countries. - Tax revenue-to-GDP ratio rose to a peak in 2007, declined in 2008–10, and improved to 14.5 percent by 2012. - Tax buoyancy (elasticity of tax revenue with respect to nominal GDP) in The Gambia for 2000–11: 0.67 (SSA average: 0.84). - Tax revenue-to-GDP ratio in The Gambia remains lower than peers’ average (as of 2011) of around 16 percent. - Recent reforms (early 2013): - Introduced a value-added tax (VAT) to replace a general sales tax. - Introduced a simplified tax regime for small businesses. - Supplementary budget path for almost eliminating costly fuel subsidies by end of 2013. - Exemption threshold for personal income tax (PIT) raised by 140 percent; rate brackets reduced by five percentage points without expanding the tax base. - Tax revenue potential estimates: - Panel estimates for 173 countries (1995–2011) used to estimate taxable capacity. - Explanatory variables include population size; labor participation rate; per capita income; inflation; trade openness; oil exporter dummy; agriculture value added; M2-to-GDP; quality of institutions. - The Gambia’s actual-to-potential tax ratio estimated at 58 percent as of 2011. - SSA average actual-to-potential tax ratio: 61¾ percent. - ECOWAS members’ average (excluding The Gambia and Cote d’Ivoire): 61¼ percent. - FAD TA mission recommendations (principles): - Simplify the tax system. - Broaden the tax base to create room for lower rates. - Enhance transparency about the legal framework. - Short-term revenue-boosting options: - Enforce the 15 percent withholding tax on interest and dividends (part of PIT legislation but not applied) in the 2014 budget — estimated increase in PIT tax revenue: 0.3 percent of GDP. - Note: part of this revenue increase likely offset by an increase in domestic interest costs because withholding tax on interest from T-Bills would lead to an increase in T-Bill yields. - Include customs duties and charges in the base of excise in the 2014 budget — estimated increase in revenue: 0.4 percent of GDP. - Medium-term reforms: - Rationalize business taxation and streamline tax incentives. - Eliminate minimum taxes on specific types of income and reduce the minimum business income tax. - Streamline exemptions and improve allowance and depreciation schedules. - Allow initial capital allowance and first annual depreciation to run concurrently to enhance investment incentives. - Phase out tax holidays over time. - Expand PIT base and strengthen property taxation by local governments. - 2013 PIT reform estimated revenue loss: about ½ percent of GDP. - PIT should be applied to public and pension benefits; include allowances paid to civil servants over time. - Local governments should invest in fiscal cadastre and property revaluation to exploit immovable property tax potential and reduce reliance on business taxation. - Integrate tax expenditure budgeting into the annual budget process over time via a step-by-step approach: - Short run: prepare a tax expenditure budget listing main tax expenditures and intended purposes. - Next: expand to include full costing of all main tax expenditures. - Medium term: integrate tax expenditure budgeting into the annual budget process. *Source: The Gambia — IMF staff report excerpts (content unit provided).* ### 11. Successful tax reforms in other SSA countries highlight the importance of ### 11. Successful tax reforms in other SSA countries highlight the importance of ### Tax reform lessons and outcomes - Simplifying the system, broadening the base, and enhancing transparency are highlighted as key elements of successful tax reforms in other sub-Saharan Africa (SSA) countries. - Mozambique: administrative changes combined with tax policy reforms (simplification and base-broadening measures) and gradually doing away with tax expenditure to rationalize incentives have led to an upward trend in tax revenue. - Mauritius: overhauled PIT and business taxes by introducing a 15 percent flat-rate tax while broadening the tax base by halving the size of tax expenditure in 2007. - It ranks 11th in terms of ease of paying taxes in the 2012 World Bank Doing Business indicators—the highest ranking among SSA countries. - While causation is not clear, tax revenue has been significantly higher than that before 2007. - Senegal: a comprehensive study on tax expenditure served as a key input for the tax system overhaul introduced in 2013. *References cited in text: Drummond and others (2012).* --- ### Appendix IV: Banking Sector Stability in The Gambia ### Background and structure - The Gambia’s financial system is dominated by commercial banks. - Between 2007 and 2010, the number of banks doubled (to 14 banks), leading to intense competition and diminished profits; modest consolidation followed as two banks went into voluntary liquidation rather than meeting the two-step increase in the minimum capital requirement (MCR) implemented at end-2010 and end-2012. - Financial deepening, measured by the credit-to-GDP ratio, is still relatively low compared with regional peers. - High lending rates and constrained credit to firms and households are largely attributed to structural factors, notably banks’ high funding and operating costs. - Characteristics of the banking system: - Relatively low rate of interbank lending. - High concentration of government treasury bills as a share of banks’ total assets. - Largely domestic source (deposit liabilities) of banks’ funding despite dominance of foreign-based banks. ### Major risks in the Gambian banking system - Aggregate system is well capitalized and has ample liquidity, but the share of loans that are non-performing has remained high. - After the increase in the MCR, the ratio of capital adequacy has been well above prudential norms (see Table 1 and Table 2 referenced). - Non-performing loans (NPL) have declined but still comprise a large share of total loans; NPL is a core area needing intensive supervision. - Fierce competition for deposits, loans and qualified staff has raised cost of funds, provisions, and staff remuneration, eroding banks’ earnings. - The Prompt Corrective Action (PCA) framework implemented in 2010 requires incrementally stepped-up supervision for higher PCA ratings; aggregate PCA ratings slightly worsened in early 2013 for NPL, earnings, and liquidity. - Aggregate numbers mask vulnerabilities at the individual bank level: - The largest 6 banks account for 81 percent of banking system assets; their CAR averages 11.9 percent (ranging from 6.1 to 21.1 percent). - The smallest 6 banks’ CAR averages 31.9 percent (ranging from 20.8 to 35.4 percent). - NPL ratios: six largest banks averaged 11.8 percent; six smallest banks averaged 9.5 percent. - Four of 12 banks are loss-making―one medium and three small banks. - Share of assets held by banks with PCA rating at 5 for liquid assets to total assets rose to 20 percent in 2013Q1 from zero in 2012Q1. ### Credit risks and regulatory weaknesses - Credit risk is the major risk for the banking system; high NPL ratio underscores this. - Weaknesses in the asset classification and provisioning rule: - Relies primarily on delinquency parameter; forward-looking judgment marginally embedded. - Loans are classified as current up to 90 days of delinquency, with corresponding provisioning rate of only 1 percent. - Classification regime does not include a watch or special-mention category that typically captures loans delinquent up to 90 days and requires a provisioning rate of 5 percent. - Regulation governing restructured loans allows banks to provision for restructured loans at a rate of only 5 percent; restructured loans are not classified as non-performing, or as performing. - Concentration risks: - Top four borrowers account for 54 percent of the loan portfolio (end-December 2012). - Single-borrower limit is set at 25 percent of capital but only applies to unsecured credit, allowing concentrated exposures beyond sound levels. - Weaknesses in collateral registration and enforcement reduce recovery rates on secured credit. ### Supervision capacity - Stretched supervisory resources are a concern: - Informal analysis of PCA indicators suggests 11 out of 12 banks may need intensive supervision for at least one PCA component. - Central Bank of The Gambia (CBG) supervision department increased full-time staff to 26; intends to hire six additional staff trained in IFRS. - On-site visits currently take place at an annual frequency, with full-scale or follow-up visit determined by off-site analysis. ### Regulatory loan classification and provisioning rule (as provided) - Delinquency Threshold (days) / Regulatory Provisioning Rate / Provisioning Classification - Current < 30 / 1% / General - Special mention > 30 / 5-10 % - Sub-Standard > 90 / 20% / Specific - Doubtful > 181 / 50% / Specific - Loss > 364 / 100% / Specific - Restructure / 5% / General - Exemption from asset classification regulation for small consumer loan (up to GMD 25,000). - Note: Restructured loans are not classified as non-performing, or as performing. Early restructuring is not allowed (CBG Guideline 5, Para 18 stipulates that they "...will have been classified as non-accrual credits"). ### Key financial soundness indicators and dispersion across banks - Table 1: Period averages (2010–2013Q1) highlights (percent): - Regulatory Capital to risk-weighted assets: 2010: 26.0; 2011: 27.1; 2012: 30.2; 2013 1/: 27.7 - Tier-1 Capital to risk-weighted assets: 2010: 26.9; 2011: 28.2; 2012: 31.2; 2013 1/: 20.2 - Non-performing loan ratio to gross loans: 2010: 15.0; 2011: 12.9; 2012: 11.6; 2013 1/: 11.0 - Return on assets (average): 2010: -0.5; 2011: 0.0; 2012: 2.0; 2013 1/: 1.2 - Return on equity (average): 2010: -2.7; 2011: 0.2; 2012: 8.0; 2013 1/: 8.0 - Net interest income to gross income: 2010: 29.6; 2011: 37.1; 2012: 35.3; 2013 1/: 35.3 - Operating expenses to gross income: 2010: 65.2; 2011: 59.5; 2012: 58.0; 2013 1/: 57.7 - Liquid assets to total assets: 2010: 37.3; 2011: 41.6; 2012: 52.1; 2013 1/: 48.9 - Liquid assets to short-term liabilities: 2010: 59.7; 2011: 64.2; 2012: 80.9; 2013 1/: 75.6 - Net open FX position to capital: 2010: 1.3; 2011: -1.0; 2012: 4.5; 2013 1/: 17.2 - PCA Rating notes: 1/ Data for 2013 cover only the first quarter. - Table 2: Dispersion of financial soundness indicators across banks (end of period in percent) - Capital Adequacy CAR 2013 Q1: aggregate 27.7; median 21.0; mean 21.4; max 43.0; min 6.1 - CAR 2012 Q1: aggregate 26.0; median 15.5; mean 27.3; max 47.5; min 219.0 - NPL 2013 Q1: aggregate 11.0; median 0.0; mean 11.6; max 10.6; min 24.8 - NPL 2012 Q1: aggregate 12.7; median 0.0; mean 12.2; max 11.4; min 34.1 - ROA 2013 Q1: aggregate 1.2; median -1.1; mean 0.2; max 0.2; min 1.1 - ROA 2012 Q1: aggregate 1.1; median -14.7; mean 0.6; max -0.7; min 3.5 - LAR 2013 Q1: aggregate 48.9; median 3.8; mean 26.2; max 27.8; min 55.2 - LAR 2012 Q1: aggregate 56.1; median 26.0; mean 52.0; max 51.5; min 78.0 ### Liquidity risks and stress-testing - Liquidity stress test assumption: - Withdrawal of 15 percent of deposits on day one, another 15 percent on day two, 10 percent on day three, 10 percent on day four, and 10 percent on day five. - Stress test results: - All banks, except the three medium banks, can withstand up to three days of deposit runs without recourse to the CBG. - By the fourth day of deposit runs, all medium banks, two small banks, and one large bank would become illiquid. - Table 3: Results of the Liquidity Stress Tests (Based on data as of 2013 Q1) - Pre-shock Liquidity Ratio 1/: - All Banks: 67.3 - Large Banks: 75.5 - Medium Banks: 16.3 - Small Banks: 99.2 - Illiquid banks after days 1–5 (aggregate counts): - After day 1: 2 - After day 2: 3 - After day 3: 3 - After day 4: 6 - After day 5: 7 - Breakdown by bank size indicated in table and figure referenced. - Shock absorption capacity caveat: - Highly dependent on market liquidity of government securities since available liquid assets mainly consist of cash and Treasury bills. - Deposits account for the bulk of liquid liabilities (67 percent on average). - If authorities’ commitments to fiscal consolidation and flexible exchange rate policy are called into question, T-bill rates could spike and the government could face difficulties rolling over its securities, severely undermining banks’ capacity to absorb liquidity shocks. - Policy implication: prudent macroeconomic policy conduct by the authorities is important to keep the banking system sound. --- ### Appendix V: External Stability Assessment ### External balance assessment and risks - The Gambia’s external balance is projected to remain broadly stable over the medium term given the envisaged fiscal adjustment and ample international reserves but remains vulnerable to large external shocks such as spikes in commodity prices and bad weather. - Staff estimates from CGER-type analyses indicate that The Gambia’s exchange rate is broadly in line with medium-term fundamentals, although poor quality of BOP statistics and a wide range of estimates call for caution against a definitive assessment. - Survey-based indicators show recent depreciation has helped maintain relative external competitiveness in the region, but lack of progress in reforms addressing institutional bottlenecks could start eroding competitiveness. ### Evolution of the balance of payments and financing - Current account developments: - The current account deficit rose from 4.5 percent of GDP in 2004 to 17.5 percent in 2012, mainly driven by increasing merchandise trade deficit excluding re-exports. - From 2004 to 2012: - Merchandise exports fell from 6 percent of GDP to 1 percent. - Imports for domestic consumption climbed from 23 percent to 30 percent. - Net deficit increased from 17 percent to 29 percent. - Major external shocks contributing to widening trade deficit: crop failures caused by drought (2005, 2011), oil and food price hikes (2008, 2011), and the global financial crisis (2009). Crop failures particularly damaged domestic exports, mainly groundnuts. - Financing the current account deficit: - Rising current account deficits were financed mostly by non-debt creating capital inflows. - Prior to the global financial crisis, FDI was the dominant source of foreign capital due to a boom in telecommunications and tourism sectors. - After the crisis, FDI declined to an average of 8 percent, with external borrowing following a broadly similar downward trend. - Project grants steadily increased, partly offsetting the decline in FDI and external borrowing. *Prepared by staff as part of The Gambia country report sections excerpted above.* ### 3. While The Gambia’s BOP position is ### _cr13289 - 3. While The Gambia’s BOP position is ### Balance of Payments outlook and medium-term projection - Current account deficit projected to decline to 15 percent of GDP in 2018, driven by: - return of crop production to its pre-drought level over 2013–2015 - a robust 7 percent annual growth of tourism receipts owing to continued marketing effort and investment in relevant infrastructure - Capital account: project grants relative to GDP projected to be maintained at about 6½ percent on average over the medium term, partly reflecting the Trans-Gambia Bridge project with a projected total disbursement of US$ 100 million - Main risks to the baseline projection: - bad weather - terms of trade shocks from a spike in global commodity prices - fiscal slippages leading to higher imports and a potentially unsustainable public debt path - Buffer: The Gambia’s level of gross international reserves provides an adequate buffer to large external shocks ### Debt sustainability analysis (DSA) findings - DSA indicates The Gambia is at moderate risk of external debt distress, although vulnerable to various adverse shocks - Depending on the DSA indicator, the worst shock varies between: - a one-time depreciation shock (30 percent) - and a higher interest rate for new borrowing - These shocks lead to protracted breaches of debt thresholds - Policy implication: need for the authorities to adhere to a prudent borrowing plan associated with an approved medium-term debt management strategy ### Exchange rate assessment: historical movements and recent pressures - Real exchange rate developments: - real exchange rate has depreciated by about 21 percent from 2008 to 2012, reaching the lowest level since 2003 - both the nominal and CPI-based real effective exchange rate appreciated by about 15 percent from 2005 to 2008, driven by a foreign direct investment boom in the tourism and the telecommunication sectors - after 2008 appreciation, NEER and REER returned to long-term depreciation paths, declining by an average of 6 percent a year during 2009–2012 in line with the widening current account deficit - depreciation pressure intensified since the second half of 2012, partly owing to high import needs associated with slow crop production recovery and the weak market sentiment following the issuance of Presidential Directive in October 2012 ### CGER-type methodologies and misalignment estimates - Methodologies applied: macroeconomic balance (MB) approach, external sustainability (ES) approach, equilibrium real exchange rate (ERER) approach - MB approach: - current account gap calculated as the difference between projected underlying medium-term current account deficit of 12.5 percent of GDP and estimated current account “norm” deficit of 4 percent - assuming a trade elasticity of -0.72 350, MB indicates a depreciation of 13 percent is needed to close this gap (model norm) - using the historical average CA deficit over 2000–2012 (9.8 percent of GDP) as the norm yields a much lower misalignment of 4.5 percent - External stability (ES) approach: - using end-2012 NFA position of -87 percent of GDP as benchmark, estimated CA deficit needed to maintain this position is about 6 percent of GDP, indicating an overvaluation of 10 percent - using average NFA position of -105 percent over 2004–2012 as benchmark indicates an overvaluation of about 7.5 percent - ERER approach: - suggests an undervaluation of about 18.5 percent - much of the 18.5 percent reflects the currency’s ongoing large depreciation since 2008 projected to stay about 14 percent below its historical average over the medium term, and a projected equilibrium REER about 4 percent above its historical average (attributable to projected strengthening of the terms of trade, improvement in the fiscal balance, and a gradual increase in productivity) - Staff view and judgment: - among the three methodologies, staff views the MB approach as the most appropriate and reliable methodology for The Gambia, given poor quality and limited availability of data for other approaches - staff takes the view that using the historical average of 9.8 percent of GDP as the “norm” for the current account deficit makes the most sense, yielding an overvaluation of about 4.5 percent ### Competitiveness assessment and institutional constraints - Business environment and competitiveness rankings: - 2013 World Bank’s Doing Business Survey ranks The Gambia 147th globally and 5th among ECOWAS countries in terms of overall ease of doing business - ranked 3rd in cross-border trading and enforcing contracts (Doing Business) - 2012–2013 Global Competitiveness Index ranking: 98th, attributed to relatively good overall infrastructure, flexible labor market, and well-educated workforce - Concern: lack of progress in addressing key institutional bottlenecks could begin to undermine The Gambia’s relative competitiveness in the region - cumulative change in Doing Business score from 2008 to 2013 indicates little progress; The Gambia is lagging behind all other ECOWAS countries by a substantial margin - recent depreciation is important in maintaining the economy’s external competitiveness *Source: IMF staff report excerpt (The Gambia).* ### 13. To stay competitive, The Gambia ### 13. To stay competitive, The Gambia ### Structural reform message - To stay competitive, The Gambia needs to augment its structural reform efforts. - Simulation results show that even moderate improvements in ensuring better access to credit, better investor protection, and removing impediments for paying taxes could yield large competitiveness gains for The Gambia. - By reducing the time to prepare and pay taxes, as well as lowering total tax rate measured as percentage of profit to ECOWAS averages, The Gambia’s global ranking improves from 147 to 137 and to 4th among ECOWAS countries, surpassing Sierra Leone. - Successful reforms in all three areas to the ECOWAS average would place The Gambia in the 2nd place within the group, only next to Ghana. ### 2013 World Bank Ease of Doing Business Global (ECOWAS) Rankings — The Gambia row (preserve exact values) - Starting a Business: 147 (5) - Dealing with Construction Permits: 123 (8) - Getting Electricity: 90 (3) - Registering Property: 119 (7) - Getting Credit: 120 (6) - Protecting Investors: 159 (15) - Paying Taxes: 177 (14) - Trading Across Borders: 179 (14) - Enforcing Contracts: 87 (3) - Resolving Insolvency: 65 (3) - [Final column value shown for the row]: 108 (5) ### Competitiveness gains from targeted reforms (themes reported) - Better Credit Availability: identified as a simulation target that can improve The Gambia’s global ranking. - Better Investor Protection: identified as a simulation target that can improve The Gambia’s global ranking. - Easier Tax System (reducing time to prepare and pay taxes and lowering total tax rate as percentage of profit): identified as a simulation target that can improve The Gambia’s global ranking. - Combined reforms (Better Credit Availability + Better Investor Protection + Easier Tax System) produce larger cumulative improvements in global ranking than individual reforms. ### Contextual and supporting information in the chapter - Source dataset cited: 2013 World Bank Ease of Doing Business Survey and staff calculations. - Cumulative Improvement in Ease of Doing Business: 2008–2013 is presented with index baseline "Index 2008 = 0" (chart referenced). - The Gambia’s ranking movement cited explicitly: from 147 to 137 (global ranking) and to 4th in ECOWAS after specified tax and tax-time reforms; full convergence to ECOWAS averages across three areas would yield 2nd place in ECOWAS, after Ghana. *Prepared by staff of the International Monetary Fund in consultation with the World Bank; sources: 2013 World Bank Ease of Doing Business Survey and staff calculations.* ### 3. Repo operations ### 3. Repo operations ### Requests for Work Program Inputs - Fund request to Bank: Periodic updates on: CPIA, PFM reform, and civil service reform. - Bank request to Fund: Periodic updates on macroeconomic framework. - Resident advisor currently in place: September 2013; September 2013; September 2013; December 2013; May 2014. - Joint products in next 12 months: Joint DSA March 2014 May 2014. ### Statistical Issues — Assessment of Data Adequacy for Surveillance (As of August 15, 2013) - General: Data have serious shortcomings that significantly hamper surveillance. The most affected areas are balance of payments, national accounts, and external debt statistics. - National Accounts: - Main constraints: inadequate source data due to inadequate survey coverage, poor quality of external sector data, and lack of attention to other important sources (such as the livestock census and the census of industrial production). - GBoS faces human and financial constraints to undertaking surveys and processing data. - Participation in EDDI funded by U.K. DfID. In 2012-2013, STA missions and technical experts financed by DfID advised GBoS on improving national accounts, including price statistics. - November 2012: government held forum for dialogue among users and producers of the National Statistical System. - Government increased budget allocations for GBoS for 2013 to recruit and train staff; line ministries to contribute to sectoral statistics. - Price Statistics: - World Bank technical assistance to update CPI using the 2003 household expenditure survey. - In early 2007, GBoS began publishing a new national CPI based on an August 2004 representative expenditure basket. - GBoS working on rebasing the CPI using the 2010 integrated household survey. - Government Finance Statistics: - Authorities release central government transaction data with a lag of about four weeks for revenues and expenditures. - IFMIS introduced in 2010; compilation by functional category and administration now possible, but not regularly published. - Compilation of project grant disbursements and use remains 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. - Monetary and Financial Statistics: - CBG improved data reporting to the Fund; June 2012 completed migration to SRFs for MFS submission. - June 2012 launched electronic reporting system for commercial banks. - Early 2013: CBG started collection of new data, including term structure of commercial banks’ assets and liabilities. - Shortcoming: depository corporation survey excludes non-bank deposit taking institutions. - External Sector Statistics: - Serious shortcomings: delays in trade, customs, and tourist arrival data; outdated methods for re-export trade estimation; poor data on capital flows; lack of register of firms engaged in external transactions; poor classification and inconsistent 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 to STA (showing small current account surplus except in 2012) and AFR-adjusted data (indicating large current account deficit). - CBG produces BOP statistics according to BPM5. Quarterly BOP compiled through DfID-funded TA; most recent data available are for Q1 2013. - Surveys conducted: tourism expenditures and re-exports in 2011; FDI and trade credits and advances in 2012. - GBoS, CBG, and GRA hold regular quarterly meetings on re-exports to standardize procedures and reports. - CBG plans to rebuild staffing levels and capacity in the BOP unit in line with DfID-funded STA TA mission recommendations (early 2013). ### Data Standards and Quality - Participant in GDDS since 2003. Metadata and GDDS improvement plans not updated since 2007, except for BOP and gross official reserves updated in 2011. - Data ROSC published on December 1, 2005. - Financial sector surveillance: Only basic market-based indicators available; coverage, valuation and timeliness vary. Data insufficient for stress tests or Balance Sheet Approach analysis. Cross-border exposure data for financial corporations not available. ### Reporting to STA - Some FSIs provided to IMF database; not all core FSIs reported and reported indicators are not timely. - No data reported for publication in the Government Finance Statistics Yearbook or IFS (historical note). - Since June 2012, monthly SRF-based monetary statistics have been reported to STA for publication in IFS. - BOP statistics submitted for publication in IFS and IMF Balance of Payments Statistics Yearbook since 2005. ### Executive Board Assessment and Key Policy Recommendations (Press Release No. 13/343, September 13, 2013) - Macroeconomic context and performance: - Economy recovering from 2011 drought which caused large drop in crop production and sharp contraction in real GDP in 2011. - Growth picking up but balance of payments weaknesses persist, causing depreciation pressures on the dalasi; inconsistent economic policies intensified these pressures. - Large fiscal deficits financed mostly by domestic borrowing have increased government debt burden. Interest on debt reached 22½ percent of government revenues in 2012, most paid on domestic debt. - PAGE (Programme for Accelerated Growth and Employment) launched December 2011 aims to gradually reduce fiscal deficit and ease debt burden. - Prior to drought, significant progress in poverty reduction; poverty remains widespread. - IMF projections and outlook: - Real GDP growth projected to increase slightly to 6-6½ percent in 2013. - Inflation expected to fall back to around 5 percent a year over the medium term. - Main downside risk: possible fiscal slippages. Upside potential if critical reforms achieved. - Directors’ recommendations and views: - Urged return to PAGE path to regain stability and foster inclusive growth. - Noted that recent exchange rate directives disrupted FX market, encouraged capital flight, and dampened remittances; cautioned against prolonged overvalued exchange rate. - Urged authorities to maintain a flexible exchange rate policy and to tighten monetary and fiscal policies to ensure stability and preserve adequate reserve levels. - Recommended strong fiscal adjustment as outlined in PAGE to reduce domestic borrowing and public debt costs and risks. Commended VAT implementation and progress on phasing out fuel subsidies. - Advised further tax reforms to strengthen revenues and address costly tax expenditures while improving international competitiveness. - Encouraged enhancing budget process, strengthening expenditure control, and rein in extra-budgetary expenditure. - Welcomed progress in managing external debt burden; advised continued reliance on grants or highly concessional financing. - Called for consistent implementation of monetary policy; encouraged market-based monetary policy tools rather than reserve requirements on deposits and a gradual return to lower reserve requirements to lower financial intermediation costs. - Noted banking system is well capitalized and liquid following two-step minimum capital increases at end-2010 and end-2012; however, non-performing loans remain high and require vigilance and intensive supervision where needed. - Highlighted poor economic data as impediment to policymaking; welcomed initiatives with development partners to strengthen statistics, notably BOP, requiring adequate funding and staffing. ### Selected Economic Indicators — Key Figures (as presented) - Nominal GDP (millions of dalasi): 26,662 (2010 Act.), 26,465 (2011 Act.), 29,108 (2012 Prel.), 32,886 (2013 Proj.), 37,659 (2014 Proj.), 42,015 (2015 Proj.), 46,459 (2016 Proj.), 51,379 (2017 Proj.), 56,842 (2018 Proj.) - GDP at constant prices (percent change): 6.5 (2010 Act.), -4.3 (2011 Act.), 5.3 (2012 Prel.), 6.4 (2013 Proj.), 8.5 (2014 Proj.), 6.5 (2015 Proj.), 5.5 (2016 Proj.), 5.5 (2017 Proj.), 5.5 (2018 Proj.) - GDP per capita (US$): 558 (2010), 508 (2011), 497 (2012), 478 (2013), 486 (2014), 511 (2015), 534 (2016), 558 (2017), 584 (2018) - Consumer prices (average): 5.0, 4.8, 4.6, 6.0, 5.0, 5.0, 5.0, 5.0, 5.0 (2010–2018 series as shown) - Real GDP growth projection 2013: 6-6½ percent - Interest on debt: 22½ percent of government revenues in 2012 - Broad money (percent change): 13.7, 11.0, 7.8, 7.0, 13.1, 12.6, 11.6, 11.6, 11.6 (2010–2018 series as shown) - Net foreign assets (percent change): 1.3, 5.6, 2.3, 3.6, 5.8, 6.4, 7.0, 7.0, 5.8 (2010–2018 series as shown) - Credit to government (net, percent change): 16.8, 8.2, 6.1, 3.8, 0.8, 0.8, 0.8, 0.8, 0.8 - Domestic revenue (percent of GDP): 14.9 (2010), 16.1 (2011), 16.4 (2012), 17.1 (2013), 17.6 (2014), 17.6 (2015), 17.5 (2016), 17.5 (2017), 17.5 (2018) - Grants (percent of GDP): 4.0, 5.1, 9.0, 5.0, 5.0, 5.1, 4.9, 4.7, 4.6 - Total expenditures and net acquisition of financial assets (percent of GDP): 24.9, 25.8, 29.9, 24.8, 24.5, 24.4, 24.0, 23.8, 23.6 - Net incurrence of liabilities (percent of GDP): 5.8, 4.3, 4.3, 2.7, 1.8, 1.8, 1.5, 1.5, 1.4 - Foreign: 1.5, 0.8, 1.1, 0.9, 1.3, 1.3, 1.0, 1.0, 1.0 - Domestic: 4.4, 3.5, 3.2, 1.7, 0.5, 0.5, 0.5, 0.5, 0.5 - Basic balance (percent of GDP): -3.3, -2.1, -2.1, -2.1, -1.3, -1.4, -1.4, -1.3, -1.9 - Public debt (percent of GDP): 69.6, 77.3, 77.2, 77.4, 70.8, 66.5, 62.8, 59.4, 56.1 - Domestic public debt (percent of GDP): 29.4, 33.2, 33.4, 31.3, 27.8, 25.4, 23.5, 21.7, 20.1 - External public debt (percent of GDP): 40.2, 44.1, 43.8, 46.1, 43.0, 41.1, 39.3, 37.6, 36.0 - External public debt (millions of US$): 377.6, 386.2, 375.8, 384.2, 396.5, 409.6, 421.0, 433.2, 445.1 - Current account balance (excluding budget support, percent of GDP): -16.0, -15.5, -19.4, -16.9, -16.4, -16.0, -16.0, -15.9, -15.8 - Current account balance (including budget support, percent of GDP): -16.0, -15.5, -17.0, -16.2, -15.6, -15.2, -15.3, -15.4, -15.3 - Current account balance (Millions of U.S. dollars, excluding budget support): -154.3, -140.3, -175.9, -151.7, -153.5, -162.0, -173.8, -185.9, -198.6 - Current account balance (Millions of U.S. dollars, including budget support): -154.3, -140.3, -154.4, -145.1, -146.1, -154.4, -166.8, -179.5, -191.8 - Overall balance of payments (Millions of U.S. dollars): -23.8, 8.4, 0.1, -5.6, 15.8, 17.8, 24.5, 26.2, 29.4 - Gross official reserves (Millions of U.S. dollars): 157.6, 169.7, 183.8, 181.9, 199.3, 216.0, 233.9, 252.0, 272.8 - Reserves in months of next year's imports of goods and services: 4.4, 4.4, 4.8, 4.5, 4.7, 4.8, 4.9, 4.9, 5.0 - Use of Fund resources (Millions of SDRs) — Disbursements: 2.0, 2.3, 9.3, 3.1, 3.1, 3.1, 0.0, 0.0, 0.0 - Use of Fund resources — Repayments: 0.0, 0.0, -0.2, -0.6, -2.1, -3.8, -4.3, -5.2, -5.5 - Financing gap (possible ECF financing): 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 *Source: _cr13289 - 3. Repo operations; IMF Press Release No. 13/343 (September 13, 2013) and associated staff material.* ### Introduction ### _cr13289 - Introduction ### Overview and strategic objectives - Economic policies and structural reforms are anchored on the Program for Accelerated Growth and Employment (PAGE). - PAGE focuses on improving infrastructure and human development, agriculture, energy and tourism to accelerate diversified economic growth, strengthen resilience, and reduce poverty. - Key challenges: enhancing revenue performance in the medium term, containing spending, reducing unemployment, and addressing high rural poverty. - Structural reform agenda: deepen the financial sector and improve the efficiency of public financial management. ### Recent economic developments - Real GDP growth: - "Real GDP grew on average by a little over 6 percent per annum" over recent years. - Real GDP growth in 2012: 5.3 percent, led by rebound in agriculture and recovery in tourism. - Inflation: - Headline inflation increased to 4.9 percent at end-2012 from 4.4 percent at the end of the preceding year. - Fiscal outcomes: - Budget deficit remained at 4.5 percent of GDP in 2012 (unchanged from 2011) due to drought-related spending. - Fiscal performance weakened in the last quarter of 2009 and in 2010 following increased spending and shortfall in budget support; corrective expenditure and revenue measures improved public finances in 2011. - External sector: - Current account deficit: 16.0 percent of GDP in 2010; narrowed to 15.5 percent in 2011; widened to 17.0 percent of GDP in 2012 due to imports for drought relief and new projects. - Gross international reserves: rose to 4.8 months of imports of goods and services from 4.4 months in 2010 and 2011 respectively. ### Medium-term outlook and projections - Policy objective: maintain stable macroeconomic environment to support strong, sustainable broad-based growth, increase employment, and hasten poverty reduction. - Real GDP projections: - 2013: 6.4 percent - 2014: 8.5 percent - Return to trend growth in the outer years thereafter. - Inflation: - Consumer price inflation stood at 5.9 percent in July 2013. - Projected to reach 7.0 percent at the end of 2013. - Medium-term objective: contain inflation to not more than 5.0 percent as the central bank implements tight monetary policy. - External sector: - External current account deficit forecast to narrow in 2013-14 due to improvement in the trade balance from export growth. - Gross international reserves in months of import cover projected at 4.5 months in 2013 and 4.7 months in 2014. ### Fiscal policy measures and priorities - Overriding objective: keep expenditure under control to reduce government borrowing requirements and ease pressures on monetary policy, creating fiscal space for infrastructure, agriculture and social services. - Public financial management reforms: intensify reforms to ensure improved fiscal discipline, strengthen budget procedures, and enhance quality of expenditure outcomes. - Revenue measures: build on gains in tax administration (large taxpayer unit and customs), pursue further tax reforms, broaden the tax base, simplify the tax system, rationalize tax exemptions, and conduct cost-benefit analysis of investment incentive framework. - Expenditure controls: - Strengthen implementation of the cash budget system to eliminate nonstatutory. spending. - Progress toward implementing the medium-term expenditure framework. - Phase out fuel subsidies by end-2013 by applying monthly fuel price increases and restricting extrabudgetary expenditures. - Expected outcomes: improve public finances, keep overall fiscal spending within budget limits, and reduce dependence on borrowing and grants. ### Monetary and exchange rate policies - Monetary focus: contain inflation at not more than 5 percent and maintain exchange rate stability. - Central Bank of The Gambia (CBG) actions: - Tighten monetary policy and rely on open market operations to manage domestic liquidity. - Monetary stance supported by fiscal consolidation and reduced government access to direct credit from the CBG. - Plans to introduce the repurchase facility (repos) before the end of 2013 to enhance potency of monetary instruments, sterilize domestic liquidity, and deepen the inter-bank market. - CBG working on modalities of conducting repos following the "go-live" of the electronic security management system in April 2013. - CBG may use the repo rate as the policy rate to replace the rediscount rate once the repo is tested and liquidity well anchored. - Intend to rely less on the reserve requirement as a primary instrument of liquidity management, consistent with staff recommendations. - Exchange rate policy: maintain a floating exchange rate, intervening only to safeguard orderly market conditions; may purchase foreign exchange from the domestic interbank market to meet gross international reserves requirement. - Note: recent administrative orders related to the exchange rate aim to bring orderliness in the market, while the CBG continues to manage foreign exchange and monetary policy in line with its mandate. ### Financial sector policy and reforms - Capital requirements: - Minimum capital requirement of banks increased twice: December 2010 and December 2012. - Banking industry remains sound and satisfactorily capitalized; risk-weighted capital adequacy ratio remains well above the statutory requirements. - Regulatory and supervisory focus: enhance framework to reduce cost of financial intermediation; strengthen capacity of the Financial Supervision Department through staffing and training. - Credit environment improvements: - More robust credit reference application system installed and became operational in July 2013. - Bill for an Act to create security interests over moveable assets and establish a Security Interests on Moveable Assets (Collateral) Registry expected to be considered by the National Assembly at its September 2013 sitting. - New electronic data submission and off-site supervision system (V-RegCoSS) was completed. ### Debt management policy - Objectives: strengthen both external and domestic debt management to avoid a "dept trap". - Approach: - Create enabling environment to attract non-debt creating foreign direct investment and explore public private partnerships. - Limit foreign financing to concessional loans and grants. - Strengthen debt management capacity at the Ministry of Finance to enhance recording and management of public debt statistics, review loan documents, and assess concessionality levels of new loans. ### Conclusion - Authorities are committed to prudent fiscal and monetary policies, sustained debt management practices, and deepening structural reforms to attain stable growth, expand job opportunities, and hasten poverty reduction. - Authorities appreciate IMF and international community support and hope for its continuation to alleviate capacity and financial constraints in pursuit of macroeconomic policy objectives. *Source: _cr13289 - Introduction* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13289.pdf_