## _cr15272

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### Executive summary — context, outlook, and immediate priorities
- Context and shocks:
  - Policy slippages and persistent financial difficulties in public enterprises preceded shocks from the regional Ebola outbreak’s impact on tourism and delayed summer rains in 2014.
  - Fund support: RCF disbursement in early April 2015 to meet urgent balance of payments needs.
  - Authorities adopted a strong 2015 budget and structural reforms under a staff‑monitored program (SMP) and sought donor support.
- Outlook and risks:
  - Major policy slippages since the RCF disbursement pushed the SMP off track and worsened the outlook; budget support grants will not be forthcoming.
  - In early May 2015 an Office of the President directive imposed an exchange rate overvalued by about 30 percent (staff assessment) and by more than 20 percent relative to prevailing market rates per other text.
  - Without corrective policies, external viability and fiscal sustainability could be at serious risk.
- Near‑term priorities to rebuild confidence:
  - Rescind the exchange rate directive immediately.
  - Unwind expenditure pressures in 2015 and implement contingency measures in addition to those in the 2015 budget.
  - Restore confidence to reinvigorate donor support.

### Key recent developments and quantitative highlights
- Growth and sector shocks:
  - Real per capita GDP growth over 2004–14 averaged less than ½ percent per year.
  - Tourism receipts for the 2014/15 season estimated to have been cut by more than half due to the Ebola-related tourism shock.
  - Delayed 2014 summer rains led to about a 15 percent decline of the year’s crop.
- Balance of payments and reserves:
  - Net impact of shocks on the balance of payments estimated at $40 million during 2014‒15 (over 5 percent of 2015 GDP).
  - Gross official reserves’ import coverage declined from 6 months at end‑2012 to below 3 months (temporary April 2015 swap operation boosted reserves by $20 million).
  - Exchange rate depreciated by about 10 percent during the first four months of 2015.
- Inflation and public debt:
  - Inflation hovering around 6½‒7¼ percent since late 2014, up from around 5½ percent in summer 2014.
  - Public debt stock rose from just below 70 percent of GDP at end‑2010 to 100 percent by end‑2014.
- Government financing and markets:
  - Government net domestic borrowing (NDB) surged from 3½ percent of GDP in 2012 to 12¼ percent of GDP in 2014.
  - T‑bill rates ticked up to over 20 percent; commercial banks’ subscription under‑subscribed by over 50 percent in the most recent weekly auction.
- Impacts of exchange rate directives:
  - FX interbank trade volumes plummeted by over 50 percent after the May 4 directive.
  - Loss of government revenue from taxes on imports; reduced remittance value for poor families; increased market risks for financial sector; weakened CBG ability to manage flexible exchange rate.

### Fiscal slippages, NDB developments, and immediate impacts (mid‑April 2015 onward)
- Current status and missed targets:
  - Government NDB increased sharply since mid‑April 2015 and, together with the exchange rate directive, pushed the SMP off track.
  - Revenue collections strong until April but slowed in May as overvalued exchange rates lowered the base for import duties and VAT on imports.
  - End‑June SMP indicative targets for NDB, NIR, and NDA were missed by wide margins; SMP structural agenda implementation is behind schedule.
- SOE pressures and extra‑budgetary spending:
  - NAWEC, GAMTEL, GAMCEL unable to remain within budgeted cash flow.
  - Gambia Groundnut Corporation (GGC) directed to sell fertilizer at a price below import costs under an expanded mandate.
- Staff estimates and projections (staff scenarios and numerical impacts):
  - Revenue loss compared to the RCF baseline would reach 1¼ percent of GDP in 2015 even if the exchange directive is lifted immediately.
  - NAWEC could run an operational loss of about 1½ percent of GDP in 2015.
  - GAMTEL and GAMCEL expected to run operational deficits of around ¼ percent of GDP each in 2015.
  - Under the immediate‑rescind + short‑term fiscal measures staff scenario, NDB expected to reach 5¼ percent of GDP in 2015 (SMP target: 1 percent of GDP).
  - Under the staff‑proposed medium‑term consolidation scenario, public debt ratio at end‑2020 would remain at around 80 percent of GDP.
  - Gross international reserves’ import coverage expected to remain below 3 months until end‑2015 even with strong near‑term corrective policy actions.

### Economic outlook and downside risk scenario
- Staff primary downside scenario assumptions:
  - Exchange directive not rescinded until end‑2015.
  - Spending pressures remain unchecked.
  - No implementation of measures to address public enterprises’ financial difficulties (beyond short‑term 2015 controls).
  - Expanded GGC mandate remains in place.
- Downside scenario projected outcomes:
  - NDB could exceed 13 percent of GDP in 2016.
  - Total public debt to GDP ratio could exceed 160 percent by 2018 if fiscal pressures and SOE difficulties continue unaddressed.
  - External reserve position could fall to about 1¼ months of import cover by end‑2015 (vs SMP target of 4 months).
  - Interest payments could consume almost 50 percent of government revenue by 2016, crowding out poverty‑reduction and growth spending.
  - Parallel market spreads would widen until the directive is rescinded; subsequent rapid depreciation could occur.
- Comparative numeric indicators (staff table excerpts):
  - Active policy scenario table entries: Net domestic borrowing 5.2 (2015) and 10.6 (2016); Budget support grant 0.7 (2015) and 0.5 (2016); Public debt 107.6 (2015) and 95.1 (2016) in percent of GDP.
  - Gross official reserves in months of next year’s imports: 2.6 (2015) and 1.3 (2016) under the active policy scenario shown in staff table.

### Exchange rate directive, reserves, and monetary stance
- Exchange rate directive assessment:
  - Directive fixed the exchange rate at a level overvalued by about 30 percent relative to market rates at the time (other text notes “more than 20 percent”).
  - Directive has been highly counterproductive—severely eroding exports and government revenue—and should be rescinded immediately.
  - FX shortages and import disruptions from the directive will lower real GDP growth in 2015 and raise inflation in coming months relative to the RCF baseline.
- Reserve adequacy metrics and staff projections:
  - Optimal reserve estimate: 3.1 months of imports in 2015 assuming opportunity cost of 3 percent.
  - Additional cushion for weak institutions: 2.1 months of imports.
  - Required reserve buffer: 5.2 months of imports.
  - Staff‑projected reserve coverage by end‑2015: 2.6 months under staff’s proposed scenario; 1.3 months if the directive is not rescinded and fiscal slippages persist.
- Monetary policy actions and guidance:
  - CBG raised policy rate by one percentage point to 23 percent and maintained an elevated required reserve ratio.
  - CBG advised to use monetary policy tools to lean against inflation; if exchange‑rate overshooting emerges when directive is rescinded, further tightening may be needed.
  - Staff advised delaying introduction of repos until fiscal dominance has ended and CBG has regained balance‑sheet control.

### Near‑term fiscal measures and expected impacts
- Immediate fiscal actions recommended:
  - Implement SMP expenditure‑saving measures quickly (downsizing diplomatic missions, fleet rationalization).
  - Prompt sales of government land plots expected to create privatization receipts of 0.6 percent of GDP.
  - Help NAWEC secure a second ECOWAS grant and introduce a levy of GMD10 on each NAWEC bill beginning July 2015 to partially cover street light costs.
  - Establish monthly monitoring of cash flow for NAWEC, GAMTEL, GAMCEL immediately.
  - Put expanded GGC mandate on hold until business and financial analyses completed.
  - Stop funding budget contingency lines identified in the 2015 budget (original contingency amounted to 1.1 percent of GDP).
  - Accelerate and expand downsizing measures, auction official vehicles, enforce vehicle entitlement policy, and sell government flats and land beyond SMP commitments.
  - Postpone or cancel lower‑priority 2015 spending.
- Expected fiscal impact:
  - Additional actions could bring NDB down to about 5 percent of GDP in 2015; further measures needed to approach the SMP commitment of 1 percent of GDP.

### Medium‑term restructuring and structural reforms (2016 onward)
- Deep budget restructuring objectives:
  - Reduce T‑bill rates substantially and create space for priority spending.
  - Rebuild fiscal buffers to sustain macroeconomic stability and social progress.
  - Reposition and restructure energy and telecommunication sectors to shore up fiscal sustainability from 2016 onwards and enhance growth prospects.
- Staff‑advised measures beginning in 2016 (selected):
  - Streamline the public sector, including reducing number of ministries and agencies.
  - Implement comprehensive civil service reforms to substantially reduce central administration personnel and the wage bill.
  - Enforce a new vehicles entitlement policy (restrict access to permanent secretary level and above; monetize/cap benefits; sell redundant vehicles).
  - Further downsizing diplomatic missions.
  - Streamline membership in non‑financial international organizations.
- Estimated fiscal savings in 2016 (percent of GDP):
  - Streamlining public sector: 1.3
  - Reforming official vehicle policy: 1.5
  - Further downsizing diplomatic missions: 1.2
  - Streamlining memberships in non‑financial international organisations: 0.1
  - Total: 4.1
  - Note: These estimates are preliminary; authorities should be ready to take additional measures if needed.

### Energy and telecommunications reform (medium term)
- Energy sector:
  - World Bank funded experts’ report under study; authorities aim to articulate medium‑term action plans by end‑September 2015 to secure World Bank energy sector loan and donor support for 2016–17.
  - Connection to a regional hydropower grid by 2018 could reduce energy generation cost by as much as 90 percent.
- Telecommunications:
  - With World Bank support, detailed time‑bound action plan to be completed by March 2016; possible measures include liberalizing international voice gateway, promoting open access infrastructure, privatizing GAMTEL/GAMCEL, and modernizing regulatory framework.

### Debt dynamics, scenarios, and fiscal risks
- Public debt dynamics and vulnerabilities:
  - Public debt rose to 100 percent of GDP by end‑2014.
  - Under staff medium‑term consolidation scenario, public debt ratio at end‑2020 around 80 percent of GDP.
  - Downside scenario: public debt could exceed 160 percent of GDP by 2018 if fiscal pressures and SOE difficulties are unaddressed.
- Debt management actions:
  - MOFEA and CBG hold monthly meetings on domestic and external debt to improve forecasting of interest payments.
  - MOFEA sent SOEs a template for debt and contingent liabilities database to be completed by end‑2015.

### Financial stability, banking sector, and access to credit
- Banking system soundness and risks:
  - Banking system well capitalized and liquid but exposed to macro‑financial risks due to fiscal distress.
  - Commercial banks’ high exposure to government debt; credit to private sector contracted by 7½ percent in 2014 and continues to decline in 2015.
  - Elevated interest rates (driven by high NDB) damaged private sector and SOEs and contributed to NAWEC’s and GAMTEL/GAMCEL’s crises.
- Financial soundness indicators (period averages, 2011–2015Q1):
  - Regulatory capital to risk weighted assets: 27.1, 30.2, 27.7, 29.8, 31.4
  - Tier‑1 Capital to risk weighted assets: 28.2, 31.2, 28.5, 30.5, ....
  - Non‑performing loans to gross loans: 12.9, 11.6, 20.5, 7.2, 7.0
  - Return on assets: 0.0, 2.0, 1.6, 1.7, 0.5
  - Return on equity: 0.2, 8.0, 11.1, 73.4, 3.97
  - Liquid assets to short term liabilities: 64.2, 80.9, 75.8, 68.4, 89.8
  - Government debt held by commercial banks (percent of banks' total domestic assets): 50.3, 56.1, 49.5, 55.7, 56.1
- Staff recommendations for financial stability:
  - Upgrade credit risk stress testing.
  - Improve strategy to deal with weak banks; develop resolution and crisis management framework.
  - Staff advised divestiture of the CBG‑intervened commercial bank by early 2017 or liquidation if no investors found.
  - CBG to implement quarterly bank stress tests using a new template developed with MCM TA.

### Inclusive growth, competitiveness, and infrastructure priorities
- Social and structural indicators:
  - Visible progress since 2000 in child and maternal health and youth female literacy (improved by more than 20 percentage points since 2000).
  - High inequality: Gini coefficient among highest in ECOWAS; poverty concentrated in rural areas; over 60 percent of population engage in agriculture with low productivity and drought vulnerability.
- Competitiveness impediments:
  - Costly and complicated tax system/administration; limited access to financing; poor infrastructure.
- Priority infrastructure projects:
  - Connection to regional hydropower grid.
  - Trans‑Gambia River bridge construction (scheduled for 2017).
- Fiscal prioritization guidance:
  - Given elevated public debt, prioritize infrastructure investments that address poverty and improve business environment; strict prioritization required since public debt ratio reached 100 percent at end‑2014.
  - Authorities should not take on non‑concessional external loans.
- Tax reform opportunities:
  - Initiate detailed study on tax expenditures; simplify and rationalize business taxation per FAD TA recommendations.
  - Replace numerous local business fees with updated property tax; modernize property evaluation and introduce rolling property assessment program.

### Data and statistical issues
- Core data weaknesses hampering surveillance:
  - National accounts and balance of payments statistics suffer from capacity constraints, insufficient source data, outdated CPI base, and poor external sector measurement.
  - GBoS rebasing of CPI using 2010 IHS delayed; rebased CPI scheduled from January 2016 onward.
  - CBG compiled quarterly BOP through 2013; IIP statement for 2008–2013 not yet prepared.
- Actions underway:
  - GBoS establishing business register and conducting IHS; authorities working with Fund, World Bank, AfDB, IFAD to fund surveys and improve data quality.
  - CBG migrated to SRFs and launched electronic reporting for banks; Collateral Registry became operational in July 2015.
- Staff emphasis: Improve national accounts, balance of payments, and ensure adequate resources for data production, staffing, and training.

### Article VIII and legal assessment
- Exchange rate directives history:
  - Five directives issued since 2012; all rescinded except the fifth (May 4, 2015–present).
  - LEG and MCM assessing whether the fifth directive gives rise to exchange restrictions or multiple currency practices in breach of Article VIII, Sections 2(a) and 3.
- Staff position:
  - Directive highly counterproductive and should be rescinded immediately; prevailing market exchange rate was broadly in equilibrium at imposition.

### Staff appraisal and recommended program of action (summary)
- Recent shocks and slippages:
  - Policy slippages since 2012, compounded by Ebola and drought shocks in 2014, widened fiscal and external deficits.
  - RCF disbursement in April 2015 intended to catalyze donor support; donor disbursements only partial due to policy slippages.
  - Policy slippages and the overvalued exchange rate directive exacerbated FX shortages, reduced revenue, pushed up T‑bill rates, and raised inflationary pressures.
- Urgent recommendations:
  - Rescind the exchange rate directive immediately.
  - Implement contingency measures beyond the 2015 budget to unwind expenditure pressures and compensate for lower budget support.
  - Work closely with donor community to align external budget support with program commitments.
  - Articulate and implement deep budget restructuring beginning in 2016 to reduce T‑bill rates, buttress fiscal sustainability, and create space for priority spending.
  - Undertake bold civil service reforms, overhaul vehicle policy, rationalize diplomatic missions, and restructure energy and telecommunications sectors.
  - Strengthen CBG supervision, crisis management, and bank resolution capacity to safeguard financial stability.

_Italic: Source: IMF staff report excerpt._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The Gambia faced large balance of payments and fiscal imbalances caused by policy slippages and persistent financial difficulties in public enterprises, exacerbated by:
  - the regional Ebola outbreak’s impact on tourism, and
  - the delayed summer rains in 2014, which widened the imbalances further.
- The Fund supported The Gambia with an RCF disbursement in early April 2015 to meet urgent balance of payments needs arising from these shocks.
- The authorities embarked on an economic program with a strong 2015 budget and structural reforms to be monitored under a staff‑monitored program (SMP), and sought donor support.

### Outlook and risks
- Major policy slippages occurred since the RCF disbursement, pushing the SMP off track and worsening the outlook considerably, especially since budget support grants will not be forthcoming.
- In early May 2015, the Office of the President issued a directive imposing an exchange rate overvalued by about 30 percent, while the fiscal position deteriorated significantly since mid‑April.
- In the absence of corrective policies, The Gambia’s external viability and fiscal sustainability could be at serious risk.

### Rebuilding confidence (near‑term policy guidance)
- The exchange rate directive has been highly counterproductive and:
  - “severely erodes exports and government revenue,” and
  - should be rescinded immediately.
- Expenditure pressures in 2015 should be unwound and contingency measures, in addition to those in the 2015 budget, should be implemented promptly to:
  - support the fiscal position in 2015,
  - restore confidence, and
  - reinvigorate donor support.

### Buttressing fiscal and external sustainability (medium‑term agenda)
- It is essential to rebuild fiscal buffers to sustain macroeconomic stability and social progress over the medium term.
- The authorities should articulate expeditiously measures to realize a deep budget restructuring beginning in 2016 to:
  - reduce T‑bill rates substantially, and
  - create space for priority spending.
- Concrete medium‑term actions need to be delineated to reposition and restructure the energy and telecommunication sectors to:
  - shore up fiscal sustainability from 2016 onwards, and
  - enhance prospects for growth and competitiveness.
- Overarching fiscal consolidation and structural reforms would help ensure external sustainability.

### Promoting inclusive growth and competitiveness
- Given the elevated level of public debt, the government should prioritize infrastructure investments that:
  - help address poverty, and
  - improve the business environment.
- The authorities are encouraged to continue efforts to improve supervision capacity to enhance financial stability.

### Key recent developments and quantitative highlights
- Real per capita GDP growth over 2004–14 averaged less than ½ percent per year.
- The tourism shock associated with the regional Ebola outbreak is estimated to have cut tourism receipts for the 2014/15 season by more than half.
- The net impact of shocks on the balance of payments is estimated to be $40 million during 2014‒15 (over 5 percent of 2015 GDP).
- The delayed 2014 summer rains led to about a 15 percent decline of the year’s crop.
- Exchange rate developments: the exchange rate depreciated by about 10 percent during the first four months of 2015.
- Inflation: has been hovering around 6½‒7¼ percent since late 2014, up from around 5½ percent in the summer of 2014.
- Public debt stock rose from just below 70 percent of GDP at end‑2010 to 100 percent by end‑2014.
- Gross official reserves’ import coverage declined from 6 months at end‑2012 to below 3 months (and is even lower after accounting for a swap operation in April 2015 that temporarily boosted reserves by $20 million).
- Government net domestic borrowing (NDB) surged from 3½ percent of GDP in 2012 to 12¼ percent of GDP in 2014.
- The 2015 budget aimed at lowering NDB to 1 percent of GDP in 2015 from 12¼ percent in 2014, with broadly equal contributions from savings measures and external budget support, including the RCF disbursement.
- Since mid‑April 2015, the Office of the President issued an exchange rate directive in early May fixing the exchange rate at a level overvalued by more than 20 percent compared with prevailing market rates (staff assessment notes the directive imposed an overvaluation of about 30 percent relative to market rates at the time).
- T‑bill rates, which had begun to ease earlier in the year, reversed and recently ticked up to over 20 percent; commercial banks’ subscription of T‑bills in recent auctions dropped drastically, with under‑subscription of over 50 percent in the most recent weekly auction.
- Impacts of exchange rate directives (summary):
  - Directives have created policy uncertainties, loss of confidence, and chronic FX shortages; FX interbank trade volumes plummeted by over 50 percent after the May 4 directive.
  - Other negative consequences include loss of government revenue from taxes on imports, reduced value of remittances for poor families, increased market risks for the financial sector, and weakened CBG ability to manage a flexible exchange rate.

*August 4, 2015 — IMF staff*

### 8.      The government’s NDB has been increasing sharply since mid-April 2015 and, together

### _cr15272 - 8.      The government’s NDB has been increasing sharply since mid-April 2015 and, together

### Fiscal slippages, targets missed, and immediate impacts
- The government’s NDB has been increasing sharply since mid-April 2015 and, together with the inconsistent exchange rate policy, has pushed the SMP off track.  
- Revenue collections remained strong until April, but started slowing down in May as the overvalued exchange rates have lowered the base on which import duties and the VAT on imports are applied.  
- Strong spending pressures have reemerged recently, partly due to delayed implementation of the expenditure saving measures listed in the MEFP of the SMP for 2015, particularly the downsizing of embassies and of the fleet of official vehicles. Extra-budgetary spending magnified pressures.  
- As a result of these policy slippages, the SMP’s end-June NDB indicative target was missed by a wide margin, as were the net international reserves (NIR) and net domestic assets (NDA) indicative targets.  
- Implementation of the structural agenda under the SMP is behind schedule.  
- Financially distressed SOEs will add fiscal burden in coming months:
  - NAWEC, GAMTEL, and GAMCEL have been unable to remain within their budgeted cash flow.
  - The Gambia Groundnut Corporation (GGC) was directed to sell farmers fertilizer at a price that did not cover its import costs under its new business mandate.

- Noted operational and fiscal impacts (staff estimates and projections):
  - Revenue loss compared to the RCF baseline would reach 1¼ percent of GDP in 2015 even if the exchange directive is lifted immediately.
  - NAWEC could run an operational loss of about 1½ percent of GDP in 2015.
  - GAMTEL and GAMCEL are expected to run an operational deficit of around ¼ percent of GDP each in 2015.
  - Under the immediate-rescind + short-term fiscal measures staff scenario, NDB is expected to reach 5¼ percent of GDP in 2015, compared with the SMP target of 1 percent of GDP.
  - Under the staff-proposed medium-term consolidation scenario, the public debt ratio at end-2020 would remain at around 80 percent of GDP.
  - Gross international reserves’ import coverage is expected to remain below 3 months until end-2015 even with strong near-term corrective policy actions.

### Economic outlook, risk scenarios, and macro vulnerabilities
- The imposition of the exchange rate directive has already damaged the near-term outlook and increased vulnerabilities; foreign exchange shortages and import disruptions will lower real GDP growth in 2015 and raise inflation in coming months relative to the RCF baseline.  
- The Gambia’s eroded policy buffers have significantly increased its vulnerability: elevated public debt, severely eroded international reserves, and very high domestic borrowing costs.  
- Staff primary downside scenario assumptions:
  - Exchange directive not rescinded until end-2015.
  - Spending pressures remain unchecked.
  - Measures to address public enterprises’ financial difficulties (other than short-term budget control measures for 2015) are not implemented.
  - Expanded GGC mandate remains in place.

- Downside scenario projected outcomes:
  - NDB could exceed 13 percent of GDP in 2016.
  - Total public debt to GDP ratio estimated to exceed 160 percent by 2018 if fiscal pressures and SOE difficulties continue unaddressed.
  - External reserve position expected to fall to about 1¼ months of import cover by end-2015 (far below the 4 months targeted under the SMP).
  - Parallel market spreads would widen until the directive is rescinded; subsequent rapid depreciation could occur.
  - Interest payments could consume almost 50 percent of government revenue by 2016 under the downside scenario, crowding out poverty-reduction and growth-oriented spending.
  - The Gambia’s heavy dependence on remittances implies that a lowered dalasi value of remittances would hit the poor particularly hard.
  - External public debt ratios would rise rapidly under depreciation/adjustment dynamics; external debt risk would remain moderate in the face of these dynamics.

- Comparative numeric indicators cited in staff summaries (selected):
  - Under an “active policy scenario (new baseline)” staff table entries include: Net domestic borrowing 5.2 (2015) and 10.6 (2016); Budget support grant 0.7 (2015) and 0.5 (2016); Public debt 107.6 (2015) and 95.1 (2016) in percent of GDP (table headings and context retained as in source).
  - Gross official reserves in months of next year’s imports: 2.6 (2015) and 1.3 (2016) under the active policy scenario shown in staff table.

### Near-term agenda — rebuilding confidence and monetary stance
- Immediate priorities:
  - Rescind the exchange rate directive immediately and return to a flexible exchange rate policy. Staff assessment: prevailing market exchange rates at the time of the directive were broadly in line with fundamentals. The directive fixed the exchange rate at a level overvalued by more than 20 percent compared with prevailing market rates.
  - CBG should use monetary policy tools under its control to continue leaning against inflationary pressures.
  - Staff welcomes the CBG’s intention to maintain the required reserve ratio at its presently elevated level and its action to raise the policy rate by one percentage point to 23 percent.
  - If indications of exchange rate overshooting emerge when the directive is rescinded, further tightening of monetary policy may be needed.
  - Staff welcomes CBG consideration of preemptive tightening of the required reserve ratio and commercial banks’ foreign exchange net open positions.

- CBG operational notes:
  - The required reserve ratio has been used effectively in the past to manage liquidity and contain exchange rate pressures; the CBG may use it again as a blunt instrument.
  - Staff cautioned that repeated presidential directives have undermined the CBG’s ability to manage a flexible exchange rate regime and build foreign exchange reserves.
  - CBG plans to introduce repos to enhance liquidity management capacity; staff advised delaying the launch until the period of fiscal dominance has ended and CBG has regained balance-sheet control.
  - Ensuring a well-functioning, liquid foreign exchange market requires policy consistency, immediate rescission of the directive, and improved debt management capacity.

### Policy recommendations and fiscal measures (near-term and beyond)
- Urgent implementation of SMP commitments and additional measures to restore fiscal balance and NDB trajectory:
  - Implement quickly the expenditure-saving measures committed under the SMP to shore up the NDB target in 2015, including downsizing diplomatic missions and fleet rationalization already pledged in the MEFP.
  - Prompt sales of government-owned land plots expected to create privatization receipts of 0.6 percent of GDP.
  - Help NAWEC secure the second ECOWAS grant disbursement and introduce a levy of GMD10 on each bill it issues beginning in July 2015 to partially cover the cost of street lights, as committed under the SMP.
  - Establish a monthly monitoring mechanism for key public enterprises’ (NAWEC, GAMTEL, GAMCEL) cash flow immediately.
  - Put the expanded business mandate of GGC on hold until thorough business and financial analyses are completed.
  - Immediately stop funding the budget lines identified as a contingency in the 2015 budget (the identified contingency originally amounted to 1.1 percent of GDP, but funding since the beginning of the year has lowered the size of the remaining contingency).
  - Accelerate and expand downsizing of diplomatic missions, auctioning off official vehicles while strictly enforcing vehicle entitlement policy, and sales of government-owned flats and land beyond SMP commitments.
  - Postpone or cancel lower-priority spending in the 2015 budget.

- Expected fiscal impact of additional measures:
  - The additional actions described could bring down the NDB to about 5 percent of GDP in 2015; further measures are needed to approach the SMP commitment of 1 percent of GDP.

### Longer-term structural and medium-term priorities
- Beyond immediate corrective actions, deep budget restructuring is urgently needed to establish and sustain macroeconomic stability.
- Recommended medium-term reforms:
  - Lower energy costs.
  - Improve financial sector surveillance.
  - Eliminate structural impediments to private-sector growth.
  - Increase debt management capacity to help rebuild foreign exchange buffers and improve policy credibility.

_Italic: Source: Central Bank of the Gambia._

### 19.       Strong efforts by the authorities to bring the NDB close to the target in 2015 and to

### _cr15272 - 19.       Strong efforts by the authorities to bring the NDB close to the target in 2015 and to

### Summary findings on 2015 policy stance and donor support
- Strong efforts by the authorities to bring the NDB close to the target in 2015 and to implement structural reforms under the SMP must be complemented by renewed efforts to attract more budget support grants after 2015 to ease the required fiscal consolidation.
- For the past several years The Gambia has received significantly smaller amounts of budget support from donors compared with other countries in the region, in large part on account of its record of weak policy implementation.
- Enhanced donor support would help reduce the size of needed consolidation measures in 2016 and reduce the domestic interest payment burden after 2016.
- The authorities indicated that embarking on the recommended exchange rate and fiscal policies would have to await a consensus among the authorities on the assessment of macroeconomic risks.
- The CBG shared staff’s concern on inflationary pressures and indicated readiness to further tighten the monetary policy stance, if necessary.

### Medium-term agenda — buttressing fiscal sustainability
- Creating fiscal buffers is essential to sustain macroeconomic stability and social progress over the medium term.
- The Gambia’s past pattern: repeated episodes of policy slippages, especially overspending, often followed exogenous shocks; exchange directives during external pressures were counter-productive to macroeconomic stability.
- Rebuild buffers and put in place strong fiscal institutions to allow consistent implementation of good macroeconomic policies.
- Sustained strong policy implementation will facilitate stronger donor response when shocks occur.
- The government should move away from cycles of overspending by rebuilding buffers, implementing structural reforms, and making targeted infrastructure investments to spur diversification and high growth.

### NDB, T-bill rates, and 2016 fiscal restructuring
- Staff urged quick development of measures to realize a deep restructuring of the budget beginning in 2016.
- To bring down T-bill rates to levels consistent with fiscal sustainability, the government’s NDB in 2016 should be contained close to the target of ½ percent of GDP under the SMP as indicated in the updated DSA.
- Given one-off measures in 2015 and higher than projected T-bill rates expected to prevail, significant additional saving measures will be necessary in 2016 beyond those to support the 2015 target.
- Estimated objective: bring NDB to about 1 percent of GDP in 2016 (with readiness to take additional measures if needed) and to ½ percent of GDP after 2017.

### Staff-advised measures to implement beginning in 2016
- Streamline the size of the public sector, including reduction of the number of ministries and government agencies.
- Implement comprehensive civil service reforms to reduce substantially the number of personnel in the central administration and government agencies, and hence the wage bill beginning in 2016.
- Develop and strictly enforce a new vehicles entitlement policy which:
  - restricts access to official vehicles to those at and above permanent secretary levels;
  - redesigns a new government vehicle scheme to keep capital, maintenance, and running costs under control;
  - considers monetizing and capping such benefits;
  - sells all redundant vehicles.
- Further downsizing diplomatic missions in addition to that implemented in 2015.
- Streamline the country’s membership in non-financial international organizations.

### Estimated fiscal saving impact of potential measures in 2016 (in percent of GDP)
- Streamlining of the public sector: 1.3
- Reforming the official vehicle policy: 1.5
- Further downsizing diplomatic missions: 1.2
- Streamlining the country's membership in non-financial international organisations: 0.1
- Total: 4.1
- Note: These estimated savings are preliminary; authorities should be ready to take additional measures if needed.

### Energy and telecommunication sector reform (medium term)
- Authorities should firm up expeditiously the medium-term restructuring strategy for energy and telecommunication sectors to secure planned fiscal adjustment.
- Government studying World Bank funded experts’ report on comprehensive energy sector reform; aims to articulate medium-term action plans by end-September 2015 to secure World Bank energy sector support loan and donor support for 2016–17.
- By 2018, The Gambia is expected to be connected to a regional hydropower grid that could reduce energy generation cost by as much as 90 percent and improve financial health of the energy sector and competitiveness.
- With World Bank support, authorities are working on a detailed time-bound action plan for telecommunication sector to be completed by March 2016; envisaged reform plan could include:
  - liberalizing the international voice gateway;
  - promoting open access to telecommunications infrastructure and acceleration of broad band access;
  - privatizing GAMTEL/GAMCEL;
  - modernizing institutional and regulatory framework for the sector.

### Box 4 — Possible measures to create permanent budget savings (highlights)
- Streamlining the size of the public sector:
  - 22 ministries, 6 ministerial offices in central government, numerous subvention agencies.
  - Non-security civil service staff at ministries and ministerial offices increased by more than 50 percent since 2007.
  - Staff estimates a reduction of the wage bill by at least 20 percent could be implemented even with significant salary increases by substantially reducing ministries, agencies, and personnel.
- Reforming the official vehicle policy:
  - Total number of official vehicles estimated at around 1,500 at ministries and ministerial offices.
  - Auctioning off redundant vehicles could create privatization proceeds of about 1 percent of GDP in 2016 and permanent budget savings of about ¼ percent of GDP in fuel and maintenance costs.
- Downsizing diplomatic missions:
  - Government indicated potential permanent saving of up to about 1 percent of GDP by closing embassies with lower strategic importance.
- Rationalizing memberships in non-financial international organizations:
  - Could create a saving of 0.1 percent of GDP by terminating memberships to lower priority organizations.

### Public debt management and fiscal risks
- Recent progress to improve public debt management is welcomed, but prudent macroeconomic policy is key to avoid debt distress.
- MOFEA and CBG hold monthly meetings on domestic and external debt to improve information exchange and forecasting of interest payments.
- MOFEA sent SOEs a template for database on debt and contingent liabilities aiming to complete the database by end-2015 to plan contingency measures for SOEs after 2016.
- Comprehensive fiscal consolidation and structural reforms in electricity and telecommunication sectors are central to guarding against elevated public debt distress risk.

### Political economy and implementation challenges
- At technical level, authorities concurred with need to implement deep budget restructuring beginning in 2016, but political commitment is lacking.
- Economic team, MOFEA and CBG agree on urgency and need for bold consolidation measures, but sensitive nature of measures requires highest-level political support.
- Staff advised economic team to start preparing technical measures for deep budget restructuring to be implemented in 2016 despite limited political consensus.

### Financial stability and financial deepening
- Banking system is well capitalized and liquid, but macro-financial risks have emerged due to fiscal distress.
- Commercial banks have high exposure to government debt; credit to the private sector contracted by 7½ percent in 2014 and continues to decline in 2015.
- Elevated interest rates caused by high NDB have damaged private sector and SOEs; contributed to NAWEC’s and GAMTEL/GAMCEL’s financial crises.
- Financial soundness indicators (period averages) shown for 2011–2015Q1 include:
  - Regulatory capital to risk weighted assets: 27.1, 30.2, 27.7, 29.8, 31.4
  - Tier-1 Capital to risk weighted assets: 28.2, 31.2, 28.5, 30.5, ....
  - Non-performing loans to gross loans: 12.9, 11.6, 20.5, 7.2, 7.0
  - Return on assets: 0.0, 2.0, 1.6, 1.7, 0.5
  - Return on equity: 0.2, 8.0, 11.1, 73.4, 3.97
  - Liquid assets to short term liabilities: 64.2, 80.9, 75.8, 68.4, 89.8
  - Government debt held by commercial banks (percent of banks' total domestic assets): 50.3, 56.1, 49.5, 55.7, 56.1
- Staff encouraged the CBG to step up measures to safeguard financial stability:
  - Upgrade credit risk stress testing;
  - Improve strategy to deal with weak banks;
  - Develop resolution and crisis management framework.
- CBG progress: developing a bank resolution and crisis management framework submitted to WAMI task force; one intervened commercial bank remains under CBG control and is improving; staff advised divestiture by early 2017 at latest or liquidation if no investors found.
- CBG plans to implement bank stress tests on a quarterly basis using the new stress testing template developed with recent MCM TA.

### Enhancing prospects for inclusive growth and competitiveness
- Visible progress in social indicators since 2000 (child and maternal health; youth female literacy improved by more than 20 percentage points since 2000).
- High inequality: The Gambia’s Gini coefficient is among the highest in the ECOWAS region; poverty concentrated in rural areas; over 60 percent of population engage in agriculture with low productivity and high vulnerability to erratic rainfall.
- Major impediments to competitiveness and doing business:
  - costly and complicated tax system/administration;
  - limited access to financing;
  - poor infrastructure.
- Staff encouraged strategy to reduce vulnerability to droughts; government formulating National Development Plan (NDP) for 2017–20 to succeed PAGE and should prioritize investment in water management to boost agricultural productivity and rural incomes.
- Priority infrastructure projects given high priority: connection to regional hydropower grid and Trans-Gambia River bridge construction.
- Given total public debt to GDP ratio reached 100 percent at end-2014, scaling up investment is not feasible in immediate future; strict prioritization of resources required.
- Even with ambitious fiscal adjustments, public debt ratio would remain above 80 percent until 2019.
- Resource mobilization and capacity to implement key infrastructure projects must be strengthened; private sector participation needed; authorities should not take on non-concessional external loans.
- Tax system reform opportunity:
  - Detailed study on tax expenditures to be initiated in coming months to simplify and rationalize business taxation based on FAD TA recommendations.
  - Replace numerous “nuisance” local business fees with an updated property tax to help attract FDI.
  - Modernize property evaluation system and introduce rolling property assessment program over the medium term; intensive short-term capacity-building for property evaluation recommended by FAD TA.

*Source: IMF staff report excerpt.*

### 35.      The authorities are advised to step up efforts to increase access to credit and promote

### _cr15272 - 35.      The authorities are advised to step up efforts to increase access to credit and promote

### Access to credit and financial sector measures
- The very high domestic interest rates are attributed to crowding out by the public sector, a tight monetary stance, and legal and institutional difficulties in recovering loans and realizing collateral.
- The CBG, with collaboration of related ministries, has made visible progress towards developing a Collateral Registry, which became operational in July 2015.
- Staff advised the CBG to encourage commercial banks to update the data in the Credit Reference Bureau in a timely manner.
- Expected effects of these measures:
  - Reduce lending risks.
  - Lower lending rates for creditworthy borrowers.
- Recommendation: Early divestiture of the bank intervened by the CBG in 2014 and still under its control would help build confidence in the CBG’s capacity to supervise the banking system.

### Inclusive growth, infrastructure, and sectoral implications
- Authorities agree that addressing infrastructure gaps in energy and transportation are key priorities.
- High energy costs and frequent power outages:
  - Are a bottleneck for promoting economic diversification.
  - Are a drag on the financial health of GAMTEL/GAMCEL.
- Authorities’ expectations and projects:
  - Looking forward to The Gambia being connected to the regional hydro power grid as an important element to boost medium term growth prospects.
  - Completion of the Trans-Gambia Bridge, scheduled for 2017, expected to:
    - Greatly facilitate economic diversification.
    - Improve productivity of the agriculture and fishery sectors.
    - Help reduce rural poverty.
- Guidance on fiscal prioritization: In light of elevated public debt, the government should prioritize infrastructure investments that support competitiveness and inclusive growth.

### Data provision and quality
- Persistent weaknesses in national accounts and balance of payments statistics continue to hamper surveillance.
- Main constraints:
  - Capacity constraints at the Gambia Bureau of Statistics (GBoS) and CBG.
  - Insufficient source data.
- Consequences:
  - Staff estimates of GDP and the BOP have often differed from the authorities’ figures.
  - The base and the method of averaging used in calculating the consumer price index (CPI) is outdated; concerns that inflation has been underestimated.
- Actions underway:
  - GBoS has been in the process of updating and rebasing its CPI data using the 2010 Integrated Household Survey.
  - Authorities working closely with the joint international institutions (Fund, World Bank, AfDB, and IFAD) to improve quality of economic and financial data, including funding for surveys and raw data collection.
- Staff emphasis: Particular focus on improving statistics of national accounts and balance of payments; ensure adequate resources for data production, staffing, and training.

### Article VIII and exchange rate directives
- Although the exchange rate arrangement is classified as floating, the Office of the President issued five exchange rate directives that temporarily imposed overvalued fixed exchange rates since 2012:
  - October 22–November 15, 2012
  - June 26–July 15, 2013
  - July 26–August 14, 2013
  - August 14–October 8, 2013
  - May 4, 2015–present
- All directives rescinded except the fifth directive issued on May 4th, which is still in effect.
- LEG, in consultation with MCM, is assessing if the fifth directive gives rise to exchange restrictions or multiple currency practices in breach of The Gambia’s obligations under Article VIII, Sections 2(a) and 3.
- Staff recommendation: The exchange rate directive had been highly counterproductive and should be rescinded immediately; the prevailing market exchange rate was broadly in equilibrium at the time the directive was imposed.

### Staff appraisal: macroeconomic vulnerabilities, support, and policy slippages
- Recent developments and shocks:
  - Persistent policy slippages since 2012, particularly loose fiscal policy, led to widening fiscal and external current account deficits.
  - The regional Ebola outbreak and delayed summer rains in 2014 widened these imbalances further.
- IMF support:
  - The Fund supported The Gambia with an RCF disbursement in early April 2015 to meet urgent balance of payments needs and smooth adjustment.
  - RCF was expected to catalyze additional donor support; donors committed assistance but disbursement has been only partial owing to policy slippages.
- Program and implementation:
  - Authorities committed to strong policy measures under an SMP to address acute BOP needs; good implementation until mid-April 2015 was in line with SMP commitments.
  - Policy slippages in recent months severely worsened the outlook; the imposition of a significantly overvalued exchange rate exacerbated foreign exchange shortages, reduced government revenue collection, pushed up T-bill rates, and raised inflationary pressures.
  - Spending pressures reemerged since the RCF disbursement; these slippages pushed the SMP off track and led to suspension of donor support.
- Risks and urgencies:
  - In the absence of prompt corrective actions beyond those committed under the SMP, The Gambia’s external viability and fiscal sustainability are at grave risk.
  - Delaying difficult corrective measures could lead to a very costly forced adjustment.
- Recommendations to rebuild confidence and restore stability:
  - Rescind the exchange rate directive immediately.
  - Implement contingency measures, in addition to those in the 2015 budget, to unwind expenditure pressures and compensate for lower budget support grant disbursements.
  - Work closely with the donor community to align external budget support with program commitments.
  - Articulate expeditiously measures to realize a deep budget restructuring beginning in 2016 to:
    - Reduce T-bill rates substantially.
    - Buttress medium-term fiscal sustainability.
    - Create space for priority spending.
  - Specific fiscal consolidation measures suggested:
    - Bold civil service reforms to drastically reduce the wage bill.
    - Overhaul government vehicle policy.
    - Rationalize diplomatic missions to create sizable permanent savings.
  - Articulate a medium-term strategy to restructure the energy and telecommunication sectors during the year to support fiscal sustainability from 2016 onwards and enhance prospects for inclusive growth and competitiveness.
- Institutional and financial sector measures:
  - CBG’s efforts to improve supervision of banks and crisis management capacity are timely.
  - Steps to improve fiscal policy implementation and restore macroeconomic stability are critical to mitigate emerging risks from commercial banks’ high exposure to government debt.

### Social outcomes and inclusive growth priorities
- Despite significant social gains, ample room remains to enhance prospects for inclusive growth and competitiveness.
- Observations:
  - Poverty is concentrated in rural areas and productivity in agriculture is low.
  - Improving infrastructure in energy and transportation is key to:
    - Enhance diversification from agriculture.
    - Address rural poverty.
    - Create a better business environment and realize tourism potential.
- Noted projects that could improve prospects:
  - Ongoing construction of the Trans-Gambia Bridge.
  - Connection to the regional hybrid power grid.

*Source: Excerpt from the provided IMF staff report text.*

### 49.      Staff recommends that the next Article IV consultation with The Gambia should be

### 49. Staff recommends that the next Article IV consultation with The Gambia should be held on a standard 12-month cycle.

### Recent economic developments (2009–15)
- Real GDP growth: Real GDP is expected to rebound as agriculture and tourism recover from effects of the 2014 drought and Ebola outbreak.
- Inflation: Inflation picked up in recent months, largely driven by the agriculture supply shock. Charts distinguish Overall, Food, Non-food.
- International reserves: Gross Official Reserves have been under pressure since 2013.
- Exchange rate: GMD/US$ Interbank Mid-Market Rate — pressure on the exchange rate intensified in recent months.
- T-bill rates: T-bill rates have remained at an elevated level.
- Fiscal: Fiscal balance is largely in line with the program in the first quarter of 2015 but spending pressures are increasing since then.

### Indicators of public debt (staff’s proposed baseline and alternative scenarios, 2015–35)
- Scenarios shown: Baseline; Public debt benchmark; Most extreme shock (the stress test yielding the highest ratio on or before 2025); Historical scenario; Fix Primary Balance.
- Indicators presented as time series (2015–2035):
  - PV of Debt-to-Revenue Ratio.
  - PV of Debt-to-GDP Ratio.
  - Debt Service-to-Revenue Ratio.
- Note: Revenues are defined inclusive of grants.

### Indicators of public and publicly guaranteed external debt (2015–35)
- Scenarios shown: Baseline; Historical scenario; Most extreme shock (varies by panel: Combination shock, Exports shock, One-time depreciation shock).
- Indicators presented as time series (2015–2035):
  - Debt accumulation (rate and grant-equivalent financing as % of GDP; grant element of new borrowing on right scale).
  - PV of debt-to-GDP ratio.
  - PV of debt-to-revenue ratio.
  - PV of debt-to-exports ratio.
  - Debt service-to-exports ratio.
  - Debt service-to-revenue ratio and rate of debt accumulation.

### Rapid Credit Facility (RCF) baseline, active policy, and alternative scenarios (2014–2016)
- Variables and outcomes illustrated for each scenario (RCF Baseline, Alternative, Active Policy):
  - Government net domestic borrowing (Percentage of GDP).
  - Interest payments (Percentage of Government Revenue).
  - Gross international reserves (Months of imports of goods and services).
  - Credit to private sector (12-Month Growth Rate).
  - Public debt (Percentage of GDP).
  - CPI inflation (Percentage).
- Alternative scenario assumptions:
  - Exchange rate fixed at 40 GMD/$ until end-2015 (in line with recently imposed directive).
  - Fiscal slippages continue unresolved; no public enterprise reform; no corrective actions on overspending.
  - Fixed exchange rate leads to loss of competitiveness, worsened current account, loss of investor confidence, capital flight, discouraged direct investment, spike in T-Bill rates.
  - External budget support grants ceased throughout the period.

### Selected economic indicators (Table 1) — national accounts, prices, external sector, fiscal, reserves, Fund use
- Nominal GDP (millions of dalasi): 26,662 (2011); 26,465 (2012); 29,191 (2013); 32,320 (2014); 34,380 (2015 Prel.); projections through 2020 shown (e.g., 64,831 in 2020 Active Policy Scenario).
- Nominal GDP growth rates: 11.1; -0.7; 10.3; 10.7; 6.4; 11.1; 10.9; 12.0; 11.0; 11.0; 11.0 (period labels align with table).
- GDP at constant prices growth: 6.5; -4.3; 5.6; 4.8; -0.2; 4.7; 5.5; 7.0; 5.9; 5.9; 5.9.
- GDP per capita (US$): 551; 506; 499; 479; 427; 385; 373; 394; 414; 435; 456.
- GDP deflator and consumer prices: GDP deflator — 4.3; 3.7; 4.5; 5.7; 6.6; 6.2; 5.1; 4.6; 4.8; 4.8; 4.8. Consumer prices (average) — 5.0; 4.8; 4.6; 5.2; 6.2; 6.5; 5.3; 5.0; 5.0; 5.0; 5.0.
- External sector: Exports, f.o.b. — 0.9; 7.0; 22.6; 5.4; -6.6; -9.1; 8.8; 5.3; 7.6; 4.1; 5.5. Imports, f.o.b. — 5.3; -6.1; 11.3; -6.7; 10.2; -12.9; 1.5; 8.2; 9.7; 7.7; 7.8.
- Gross official reserves (millions of US$): 157.6; 169.7; 183.8; 161.1; 111.9; 80.2; 111.5; 136.9; 163.1; 198.6; 229.4. In months of next year's imports: 5.1; 5.1; 6.0; 4.8; 3.7; 2.6; 3.3; 3.8; 4.2; 4.7; 5.1.
- Current account balance (excluding budget support, percent of GDP): -16.3; -12.3; -8.9; -10.2; -15.5; -21.6; -11.9; -11.0; -10.6; -10.6; -10.5 (2011–2020 sequence).
- Public debt (percent of GDP): 69.6; 77.3; 77.0; 83.3; 101.1; 107.6; 102.4; 95.0; 87.9; 84.4; 78.7.
- External public debt (millions of US$): 377.6; 386.2; 375.8; 394.1; 411.2; 410.0; 418.3; 431.4; 435.5; 440.1; 447.0.
- Use of Fund resources: Disbursements — 2.0; 2.3; 9.3; 1.6; 0.0; 7.8; 0.0; 0.0; 0.0; 0.0; 0.0. Repayments — 0.0; 0.0; -0.2; -1.0; -2.1; -3.8; -4.3; -5.2; -5.5; -4.6; -2.8.

### Central government operations (Tables 2 and 3) — levels and percent of GDP
- Revenue (millions of local currency): 5,026 (2010); 5,619 (2011); 7,397 (2012); 5,992 (2013); 7,720 (2014); 9,060 (2015); projections through 2020 shown (e.g., 15,781 in 2020 Active Policy Scenario).
- Taxes (millions): 3,528; 3,780; 4,221; 4,579; 5,529; 6,799; projections shown.
- Grants (millions): 1,065; 1,355; 2,611; 725; 1,285; 1,540; projections shown.
- Total expenditures and net acquisition of financial assets (percent of GDP): 24.3; 25.8; 29.8; 27.7; 32.4; 35.4; projections shown.
- Net lending (+)/borrowing (–) (millions): -1,266; -1,252; -1,278; -2,760; -3,421; -2,388; projections through 2020 shown.
- Overall balance (percent of GDP): -5.4; -4.5; -4.5; -8.8; -14.0; -8.0; projected path through 2020 shown.
- Basic balance (percent of GDP): -2.9; -2.1; -2.1; -5.2; -8.3; -5.2; projected values through 2020 shown.
- Domestic public debt (millions/local currency): 7,847; 8,773; 9,718; 11,991; 16,152; 18,555; projections through 2020 shown.
- Interest payments as percent of government revenue: 19.3; 22.7; 22.5; 24.8; 29.4; 38.8; projected series shown.

### Monetary accounts (Tables 4 and 5)
- Net foreign assets (millions local currency): 3,808 (2012); 4,548 (2013); 4,883 (2014); 4,481 (2015); projections through 2020 shown (e.g., 16,658 in 2020 Active Policy Scenario).
- Net foreign assets (millions US$): 134; 150; 144; 118; projected series through 2020.
- Net domestic assets and domestic credit: Domestic credit — 10,161; 11,570; 12,628; 15,792; 18,164; projections through 2020 shown.
- Claims on central government (net): 5,041; 6,135; 7,042; 9,179; 12,076; projections.
- Broad money (millions local currency): 13,292; 14,753; 15,902; 18,309; 20,365; projections through 2020 shown (e.g., 43,908 in 2020).
- Reserve money (end period): 3,503; 3,934; 4,203; 5,383; 6,021; projections.
- Growth rates (percent): Broad money growth — 13.7; 11.0; 7.8; 15.1; 11.2; 11.0; projections through 2020. Reserve money growth — 10.5; 12.3; 6.8; 28.1; 11.9; 11.3; projections.
- Net usable international reserves (millions US$): 126.5; 135.1; 135.1; 111.4; 68.3; 43.6; projections through 2020 shown.

### Balance of payments (Table 6)
- Table 6 initiated but detailed rows beyond the header are not included in the supplied content. The broader balance of payments indicators in Table 1 include:
  - Overall balance of payments (millions US$): -23.8; 8.4; 0.1; -23.6; -18.7; -37.1; 37.4; 32.9; 34.1; 42.1; 34.9.

### Key policy-related observations and scenario implications
- Staff recommendation: Next Article IV consultation with The Gambia on a standard 12-month cycle.
- Risks highlighted by scenarios:
  - Fixing the exchange rate at 40 GMD/$ and allowing fiscal slippages would reduce competitiveness, worsen current account, trigger capital flight, discourage investment, spike T-bill rates, and eliminate external budget support grants.
  - Debt and external vulnerability metrics under alternative shocks show materially higher PV debt ratios and debt-service burdens under the most extreme and combination shocks (stress-test focus on outcomes by 2025).
- Fiscal stance: Fiscal balance was broadly in line with program in Q1 2015, but rising spending pressures suggest risks to program targets without corrective action.

*International Monetary Fund staff report (The Gambia).*

### 1. Current account

### _cr15272 - 1. Current account

### A. Level and composition of the current account (USD millions)
- Goods and services: -180.2 -131.2 -122.2 -105.5 -160.4 -170.3 -121.7 -123.0 -128.7 -137.8 -146.1
- Trade balance: -216.6 -190.7 -200.6 -171.9 -211.5 -179.6 -174.0 -192.0 -213.4 -234.7 -256.4
- Exports, f.o.b.: 95.6 102.3 125.4 132.2 123.5 112.2 122.0 128.5 138.3 143.9 151.8
  - Of which: domestic goods: 10.9 11.0 18.3 11.5 12.3 10.9 10.7 12.4 11.6 12.2 13.3
- Imports, f.o.b.: -312.2 -293.1 -326.0 -304.1 -335.0 -291.8 -296.1 -320.5 -351.7 -378.6 -408.1
  - Of which: oil: -40.9 -69.7 -94.3 -76.2 -76.9 -55.4 -53.5 -60.5 -65.7 -72.7 -77.9

- Services (net): 36.4 59.5 78.4 66.4 51.1 9.3 52.4 69.1 84.7 97.0 110.3
  - Services exports: 130.7 135.4 155.3 131.7 120.5 80.0 128.4 149.1 168.9 186.4 205.3
    - Of which: travel income: 70.9 78.1 94.4 72.1 60.5 30.6 62.7 72.9 81.4 88.2 95.9
  - Services imports: -94.3 -75.8 -76.9 -65.3 -69.4 -70.7 -76.0 -80.1 -84.2 -89.4 -95.0

- Income (net): -29.9 -31.9 -29.3 -22.4 -23.5 -28.8 -32.7 -34.2 -35.8 -37.5 -39.3
  - Income debits: -32.2 -34.4 -31.5 -24.2 -25.3 -31.0 -35.3 -36.9 -38.6 -40.5 -42.4
    - Of which: interest on government debt: -7.3 -7.5 -7.6 -7.0 -5.2 -8.0 -8.0 -8.0 -8.0 -8.0 -8.0

- Current transfers: 55.0 52.8 59.3 36.3 75.9 67.2 70.4 73.3 77.5 82.0 84.4
  - Official transfers: 0.0 0.0 9.2 0.0 19.5 32.6 6.2 6.5 7.6 8.7 7.5
  - Remittances: 45.2 27.2 61.8 48.7 50.1 53.5 55.2 57.6 60.5 63.6 67.0
  - Other transfers: 9.8 25.6 8.3 -12.5 6.3 8.8 9.0 9.2 9.4 9.7 9.9

- Current account (excl. budget support): -155.1 -110.3 -81.3 -91.6 -127.5 -164.4 -90.2 -90.4 -94.7 -102.0 -108.5
- Current account (incl. budget support): -155.1 -110.3 -72.1 -91.6 -108.0 -131.8 -84.0 -83.9 -87.1 -93.3 -101.0

### B. Capital and financial account; reserves and financing (USD millions)
- Capital account: 38.0 46.0 81.4 20.2 28.8 25.7 31.1 25.2 27.3 28.6 29.8
- Financial account: 139.0 103.1 108.2 71.2 60.5 69.0 90.3 91.6 93.9 106.8 106.1
  - Foreign direct investment: 85.6 60.6 101.6 85.7 76.8 59.8 87.1 85.0 96.8 109.5 107.8
  - Portfolio investment: -1.5 -1.1 -1.1 -2.1 -2.1 -1.9 -1.9 -2.1 -2.2 -2.4 -2.6
  - Other investment: 54.8 43.6 7.7 -12.3 -14.2 11.0 5.1 8.7 -0.7 -0.3 0.9
    - Change in the NFA of commercial banks (increase -): -22.9 -0.5 5.0 -0.2 -24.8 12.1 3.8 -0.6 -5.7 0.2 0.3
    - Official other investment (net): 11.1 11.4 11.2 18.3 17.2 6.4 7.2 10.8 1.4 1.8 3.0
      - Loans: 23.6 25.3 27.7 34.7 46.7 26.0 26.5 29.6 21.1 22.0 23.5
      - SDR Allocations: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
      - Amortization: -12.6 -13.9 -16.5 -16.4 -29.5 -19.6 -19.3 -18.8 -19.7 -20.2 -20.5

- Capital and financial account (total): 177.0 149.1 189.6 91.4 89.3 94.7 121.4 116.8 121.2 135.4 135.9
- Errors and omissions: -45.7 -30.3 -117.4 -23.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Overall balance: -23.8 8.4 0.1 -23.6 -18.7 -37.1 37.4 32.9 34.1 42.1 34.9

Financing
- Net international reserves (increase -): 23.8 -8.4 -0.1 23.6 18.7 37.1 -37.4 -32.9 -34.1 -42.1 -34.9
  - Change in gross international reserves: 20.7 -12.1 -14.0 22.7 21.9 31.7 -31.3 -25.4 -26.2 -35.4 -30.8
  - Use of IMF resources (net): 3.1 3.7 14.0 0.8 -3.2 -5.4 -6.1 -7.5 -7.9 -6.6 -4.1
    - Disbursements: 3.1 3.7 4.3 2.4 0.0 10.8 0.0 0.0 0.0 0.0 0.0
    - Repayments: 0.0 0.0 -0.3 -1.5 -3.2 -5.4 -6.1 -7.5 -7.9 -6.6 -4.1

Memorandum items
- Exports of goods and services: 226.4 237.7 280.8 263.9 244.0 192.2 250.4 277.6 307.2 330.3 357.0
- Imports of goods and services: -406.6 -368.9 -403.0 -369.4 -404.4 -362.5 -372.0 -400.6 -435.9 -468.0 -503.1
- Gross International Reserves (US$ millions): 157.6 169.7 183.8 161.1 111.9 80.2 111.5 136.9 163.1 198.6 229.4
- Months of current year's imports of goods and services: 4.7 5.5 5.5 5.2 3.3 2.7 3.6 4.1 4.5 5.1 5.5
- Months of next year's imports of goods and services: 5.1 5.1 6.0 4.8 3.7 2.6 3.3 3.8 4.2 4.7 5.1

### C. Key ratios (percent of GDP)
- Goods and services (percent of GDP): -18.9 -14.6 -13.4 -11.7 -19.5 -22.4 -16.0 -14.9 -14.5 -14.3 -14.1
- Trade balance (percent of GDP): -22.8 -21.2 -22.0 -19.1 -25.7 -23.6 -22.9 -23.3 -24.0 -24.4 -24.8
- Exports, f.o.b. (percent of GDP): 10.0 11.4 13.8 14.7 15.0 14.7 16.1 15.6 15.5 15.0 14.7
  - Domestic goods (percent of GDP): 1.1 1.2 2.0 1.3 1.5 1.4 1.4 1.5 1.3 1.3 1.3
- Imports, f.o.b. (percent of GDP): -32.8 -32.6 -35.8 -33.8 -40.7 -38.3 -39.0 -38.9 -39.5 -39.4 -39.4
  - Oil (percent of GDP): -4.3 -7.8 -10.4 -8.5 -9.3 -7.3 -7.1 -7.3 -7.4 -7.6 -7.5

- Services (net, percent of GDP): 3.8 6.6 8.6 7.4 6.2 1.2 6.9 8.4 9.5 10.1 10.6
  - Travel (percent of GDP): 7.5 8.7 10.4 8.0 7.3 4.0 8.3 8.8 9.1 9.2 9.3

- Income (net, percent of GDP): -3.1 -3.5 -3.2 -2.5 -2.9 -3.8 -4.3 -4.2 -4.0 -3.9 -3.8
  - Income credits (percent of GDP): 0.2 0.3 0.3 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3
  - Income debits (percent of GDP): -3.4 -3.8 -3.5 -2.7 -3.1 -4.1 -4.7 -4.5 -4.3 -4.2 -4.1
    - Interest on government debt (percent of GDP): 0.8 0.8 0.8 0.8 0.6 1.1 1.1 1.0 0.9 0.8 0.8

- Current transfers (percent of GDP): 5.8 5.9 8.7 4.0 5.2 8.8 7.3 8.9 8.7 8.5 8.2
  - Official transfers (percent of GDP): 0.0 0.0 1.0 0.0 2.4 4.3 0.8 0.8 0.9 0.9 0.7
  - Remittances (percent of GDP): 4.7 3.0 6.8 5.4 6.1 7.0 7.3 7.0 6.8 6.6 6.5
  - Other transfers (percent of GDP): 1.0 2.8 0.9 -1.4 0.8 1.1 1.2 1.1 1.1 1.0 1.0

- Current account (excl. budget support, percent of GDP): -16.3 -12.3 -8.9 -10.2 -15.5 -21.6 -11.9 -11.0 -10.6 -10.6 -10.5
- Current account (incl. budget support, percent of GDP): -16.3 -12.3 -7.9 -10.2 -13.1 -17.3 -11.1 -10.2 -9.8 -9.7 -9.7

- Financial account (percent of GDP): 14.6 11.5 11.9 7.9 7.3 9.1 11.9 11.1 10.6 11.1 10.2
  - FDI (percent of GDP): 9.0 6.7 11.2 9.5 9.3 7.9 11.5 10.3 10.9 11.4 10.4
  - Other investment (percent of GDP): 5.8 4.9 0.8 -1.4 -1.7 1.4 0.7 1.1 -0.1 0.0 0.1

- Capital and financial account (percent of GDP): 18.6 16.6 20.8 10.2 10.8 12.4 16.0 14.2 13.6 14.1 13.1
- Errors and omissions (percent of GDP): -4.8 -3.4 -12.9 -2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Overall balance (percent of GDP): -2.5 0.9 0.0 -2.6 -2.3 -4.9 4.9 4.0 3.8 4.4 3.4

### D. Reserve adequacy and vulnerabilities (narrative findings and assessment)
- Fund staff assessment: "Fund’s reserve adequacy metrics indicate that The Gambia’s 2015 projected reserve level is not adequate, given the adjustment to shocks and policy slippages."
- Authorities introduced an exchange rate directive administratively fixing the rate "at a level that is overvalued by more than 20 percent compared with the prevailing market rate." The directive, if continued, "would have serious negative implications for external competitiveness and viability."
- Specific implications of maintaining the directive until end-2015: "the overvalued exchange rates would also reduce revenue collections and puts upward pressure on NDB and T-bill rates."

### E. Exchange rate assessment and current account normative analysis (EBA-lite and complementary approaches)
- EBA-lite staff estimate: the dalasi is slightly overvalued by 8½ percent (under the SMP baseline scenario with a flexible regime).
- Policy gap contribution to the current account: 1.1 percent of GDP
  - Of which: Fiscal Policy 1.0 percent of GDP
  - Of which: Change in Reserves -0.2 percent of GDP
  - Of which: Private Credit 0.3 percent of GDP
- Current account norm (including policy gap): deficit of about 10¾ percent of GDP in 2015.
- EBA-lite implies an overvaluation of 8.5 percent under the baseline flexible exchange rate scenario.
- External sustainability approach: indicates the dalasi is overvalued by about 8½–11¾ percent
  - Using end-2014 NFA position of -86.4 percent of GDP as benchmark → overvaluation estimated at 11¾ percent
  - Using average NFA position of -120.8 percent of GDP over 2000–14 as benchmark → overvaluation estimated at 8½ percent
- Macro-balance approach: indicates a smaller misalignment, overvaluation at around 2½ percent (with actual CA deficit in 2014).

### F. Diagnostic conclusion (from the Annex I narrative)
- The widening current account is the main driver of a worsening external balance; the current account deficit remains the main source of debt-creating flows.
- Staff judgment: The Gambian exchange rate under policy directives is materially misaligned; reserve levels are not adequate to insure against shocks given current policy slippages.

*Sources: Gambian authorities and Fund staff estimates and projections (Table 7, Table 8, Annex I, _cr15272 - 1. Current account).*

### 6.      It is critical that the recent exchange rate directive is rescinded immediately to return

### 6.      It is critical that the recent exchange rate directive is rescinded immediately to return to a flexible exchange rate policy.

### Exchange rate directive: findings and risks
- The directive fixes the exchange rate at a level overvalued by almost 30 percent compared with the equilibrium indicated by the EBA-lite approach.
- The directive has already led to a significant shortage of foreign exchange supply.
- Risks from the directive:
  - Could lead to a shortage of imported basic goods.
  - Could lead to higher inflation in coming months.
  - This directive is more damaging than previous ones because of the higher overvaluation and lower level of reserve this time around.
- Historical/market context:
  - Past experience suggests the likelihood of overshooting, when the directive is rescinded, is low since the financial market is shallow and agents self regulating the movement of the exchange rate to prevent directives from re-emerging.
  - Policy recommendation: If indications of exchange rate overshooting emerge, the CBG should stand ready for further tightening of monetary policy.
- Policy recommendation: The directive should be rescinded immediately to return to a flexible exchange rate policy, which "had served the country well."

### Reserve adequacy assessment: benchmarks and staff estimates
- Analytical framework: Optimal level of GIR determined by a cost-benefit analysis balancing benefits of holding reserves against financial cost (interest rate differential between domestic and US treasury bills), accounting for country fundamentals.
- Optimal reserve estimate:
  - Optimal level of reserve given the Gambian fundamentals is estimated to be 3.1 months of import in 2015 assuming opportunity cost of 3 percent.
- Additional cushion for weak institutions:
  - Staff estimates the need for an additional cushion of 2.1 months of import to offset past policy slippages following external and domestic shocks.
- Resulting required reserve buffer:
  - A reserve buffer of 5.2 months of import is deemed necessary for The Gambia (combining optimal level and additional cushion).
- Staff-projected reserve outcomes for end-2015:
  - Under staff’s proposed scenario, reserve coverage by the end of 2015 will be 2.6 months of next year import.
  - Assuming the directive is not rescinded and fiscal slippages are left unaddressed, reserves would be depleted down to 1.3 months of next year import.
- Assessment: Reserves are inadequate against the benchmarks determined above.
- Policy recommendation: Authorities should make every effort to improve the policy environment and build more buffers against shocks; the policy mix should aim to rebuild the reserves to 5‒6 months of imports in line with the CBG’s medium-term target.

### Competitiveness assessment: institutional bottlenecks and reforms
- The Gambia risks undermining its relative competitiveness in the region due to lack of progress in addressing key institutional bottlenecks.
- Despite favorable ranks in some Doing Business and Global Competitiveness categories, the cumulative change in Doing Business score from 2008 to 2014 indicates The Gambia made little progress and is lagging behind all other ECOWAS countries by a substantial margin.
- Business community survey: Major impediments to doing business include:
  - Access to finance
  - Tax policy
  - Foreign exchange regulations
  - Inflation
  - Infrastructure
- Policy recommendations to improve competitiveness:
  - Moderate improvements in enhancing access to credit, better investor protection, and removing impediments for paying taxes could yield large competitiveness gains.
  - Ensuring the authorities’ commitment to the flexible exchange rate regime would also improve the business environment.

### Growth episodes and policy slippages: historical context and impacts
- Growth performance and vulnerability:
  - Per capita real GDP growth averaged less than ½ percent per year in the past decade.
  - Per capita GDP was about US$500 in 2014.
  - Over 60 percent of The Gambia’s population depends on agriculture, while the sector contributes just about 20 percent to GDP.
  - The Gambia has been impacted by eleven instances of drought over the last 50 years, each leading to significant downturns in economic growth.
- Potential gains from reducing weather vulnerability:
  - With a mechanism to reduce the dependence of agriculture on erratic rainfall, growth could have been more favorable: compared to about ¼ percent per capita real GDP growth during 2004–14, growth could have reached approximately 1½ percent if 50 percent of the agriculture shocks could have been avoided.
- Growth episode characterization:
  - The Gambia has had just three short-lived episodes—a combined duration of 16 years—of growth spells (periods of real per capita GDP growth in excess of 2 percent).
  - The remaining years were characterized by either low or negative per capita GDP growth, including three spells of a combined duration of 22 years with average per-capita growth negative.
  - In its frequency of growth breakdowns, The Gambia resembles fragile countries, although it is not considered a fragile economy.
- Policy slippages exacerbating macroeconomic imbalances:
  - After the 2011 drought, grants increased—4 percent of GDP increase—but the government’s 2012 NDB overshot the target adjusted for shocks by 1¼ percent of GDP due to extra-budgetary spending late in the year.
  - The magnitude of fiscal slippages widened in 2013 with NDB overshooting the target by 5¼ percent of GDP.
  - After the Ebola and drought related shocks in 2014/15, the 2014 shock-adjusted NDB target was overshot by about 9¼ percent of GDP largely due to quasi-fiscal spending on behalf of financially distressed key state-owned enterprises.
  - These sizeable fiscal slippages lead to spiraling interest rates and private sector crowding out.
- Policy recommendation: Authorities should address weak policy implementation, remove distortions due to exchange rate directives, and rebuild buffers to manage shocks and support medium-term growth.

*Italic: Source: Gambian Authorities and Fund staff estimates and calculations, as presented in the provided IMF document excerpt.*

### 7.      During 2012–14, the Office of the President issued several foreign exchange directives

### _cr15272 - 7.      During 2012–14, the Office of the President issued several foreign exchange directives

### Foreign exchange directives and immediate effects
- During 2012–14, the Office of the President issued several foreign exchange directives imposing overvalued exchange rates leading to a loss of confidence and increased policy uncertainty.
- The exchange rate directives have negative effects on inflation, government revenue and central bank’s foreign reserves buildup.
- More broadly, the break down in policy in the aftermath of shocks has compounded The Gambia’s growth problems as negative growth episodes tend to be associated with fiscal slippages, higher inflation and loss of international reserves (Figure 8 and Box 1).

### Historical policy slippages: 2002–07 negative growth episode
- Policy slippages were prevalent during the early part of the 2002–07 negative growth episode, with acute difficulties in policy implementation and governance shortcomings particularly in 2002–03 and 2005.
- Significantly higher than programmed fiscal deficits were caused by expenditure overruns unrelated to drought-related shocks.
- The fiscal slippages were mainly financed by the central bank causing a spike in monetary expansion, a sharp increase in inflation rate to 17½ percent in 2003 and decline in gross international reserves.

### Selected tabulated indicators (preserve source formatting)
- 201220132014
  - NIR Targe t139.6130.8126.5
  - Actual  NIR 134.3107.168.3
  - Negative impact of shock on BOP...0.015.0
  - Sources: Gambian authorities and Fund staff estimates.
  - (in millions of US$)
- BOP and Net Usable Reserves (NIR)
  - 1998- 2001      2002200320042005    2006    2007    2002- 2007      
  - AverageAverage
- End Period CPI Inflation
  - Actual2.513.017.68.14.80.46.08.3
  - Staf f proj e cti on5.54.03.03.04.03.53.8
- Gross International reserves (months of imports)
  - Actual5.54.03.94.14.24.04.24.1
  - Staff Projection5.15.35.56.06.56.45.8
- (Sources: Gambian authorites and Fund staff estimates.)

### Figure 8: Role of policy slippages in explaining growth episodes, 1996–2014 (summary points)
- Episodes compared: 1996-2001, 2002-2007, 2008-2010, 2011-2014.
- Fiscal deficits (percentage of GDP): negative growth episodes vs growth spells shown across episodes.
- Change in Gross International Reserves (Months of imports): positive (negative) values represent increase (loss) of reserves.
- CPI Inflation rate, period average (percentage change): negative growth episodes vs positive growth episodes.
- The Gambia - Total Expenditure and Revenue (Period average in current GMD million): trends shown across episodes.

### Box 1 — Factors distinguishing growth spells and negative growth episodes
- Exogenous Shocks:
  - 2008–2010: Despite oil price shock in 2008 and 2009-10 global economic crisis, economic growth held up well during 2008-2010 with about 3¼ percent average growth, aided by rebound in agriculture.
  - 2011–14: Economic growth declined by about 1¼ percent on average during period 2011–14 on account of two droughts in 2011 and 2014 compounded by the effects of the 2014 drop in tourism caused by the regional Ebola outbreak.
- Policy slippages:
  - Fiscal policy was much more prudent during the growth episode with a deficit of 3½ percent of GDP, on average, compared to 7¾ percent during the negative growth spell.
  - The fiscal slippages of 2011–14 were mainly financed by the central bank and had negative effects on international reserves and inflation.
- Policy buffers:
  - The 2009 SDR allocations to IMF member countries boosted The Gambia’s gross international reserves with import cover peaking at 6.2 months of imports in 2009.
  - Completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in December 2007 created some fiscal space.
  - After 2010, policy slippages eroded buffers significantly; policy slippages after the massive exogenous shocks in 2014 left the authorities with little wiggle room.

### C. Medium-term strategies to break through the low growth trap (key recommendations)
- Structural reforms are needed to unlock growth potential and prevent frequent growth breakdowns:
  - Agriculture:
    - The agricultural sector is concentrated in crops that are vulnerable to droughts, leading to low productivity.
    - Measures needed to improve productivity in agriculture sector through investments in improved water management systems, cultivation of drought-resistant crop varieties, and diversifying within the agriculture sector to reduce reliance on crops.
    - Diversifying into agro-processing activities is also needed.
    - The authorities’ new National Development Plan covering 2017–20 should continue to prioritize such investments.
  - Tourism and backward linkages:
    - While tourism has emerged as the main source of foreign exchange for the economy, it also entails significant imports of goods consumed by tourists.
    - Increasing the backward linkages of the tourism sector with other sectors, e.g. agriculture and fisheries, would help The Gambia to retain a larger share of value added within the country and lower the population’s dependence on agriculture.
    - Additional reform efforts are also needed to diversify the range of services offered by the hospitality industry, raise the level of tourist spending and smooth seasonality.
  - Transport and regional trade:
    - The Gambia River is an open natural highway for transport, which together with improved port infrastructure, has the potential to make The Gambia a more competitive transit center for regional trade.
- Diversification requires greater foreign direct investment and private sector participation:
  - This requires progress towards restoring macroeconomic stability and improving the business environment.
  - In particular, investments in infrastructure, energy supply and human capital, simplifying the tax system, and easing access to finance, are needed.
- Political commitment:
  - Strong political commitment is necessary in order to improve macroeconomic management and to build buffers to ensure policy consistency.
  - The Gambia has benefitted from significant levels of technical assistance, but political commitment to continued sound macroeconomic policies has been noticeably lacking.
  - Without such reforms it will be difficult for The Gambia to durably break from the stop-go nature of its growth experience.

*Source: The Gambia — Staff Report for the 2015 Article IV Consultation — Informational Annex (prepared by the staff of the International Monetary Fund in Consultation with the World Bank).*

### 1. Economic Governance Reform

### 1. Economic Governance Reform

### Work program, coordination, and joint products
- Gambia Energy Project: July 2015 (tentative); September 2015; To be determined; To be determined.
- Fund work program in next 12 months: Policy Advice including Article IV consultation; Staff Visit; Article IV consultation.
- Technical Assistance: Bank supervision (June 2015; September 2015; June 2016); Bank Supervision (July/August 2015; October 2015; September 2015; n.a; September 2016).
- B. 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.
  - Timing: July and Sep/Oct 2015 and Feb/Mar 2016 (tentative).
- C. Agreement on Joint Products and Missions:
  - Joint products in next 12 months: Joint DSA June 2016; September 2016.

### Statistical issues — assessment of data adequacy for surveillance
- General:
  - Data have serious shortcomings that significantly hamper surveillance; most affected areas: balance of payments, national accounts, and external debt statistics.
- National Accounts (NA):
  - Gambia Bureau of Statistics (GBoS) disseminated in March 2015 annual GDP estimates—by activity and by expenditure approaches for 2004-2013 based on the 2006 Economic Census with 2004 as benchmark year.
  - Data issues: shortage/inadequate survey coverage and poor quality of external sector data.
  - IMF October 2014 and March 2015 TA missions: annual processing systems are as good as they are going to be until updated data (principally new Economic Census results) are available.
  - GBoS progress: establishment survey for updating business register—first phase complete; Integrated Household Survey (IHS) under preparation to be used for new benchmark estimates of Household Final Consumption Expenditure (HFCE).
  - Timeliness: GBoS faces capacity and financial constraints; compilation and dissemination timeliness remains a concern.
  - Collaboration: Improved somewhat; line ministries will continue to contribute to sectoral statistics (agriculture, health, education, transport, construction).
- Price Statistics:
  - Current CPI introduced in January 2007 with weight reference period of 2004.
  - GBoS target to rebase CPI using 2010 IHS results and release rebased CPI by January 2015 missed; rebased CPI now scheduled to be released from January 2016 onward.
  - GBoS revising methodology for calculation of CPI elementary aggregates; expected to improve CPI compilation and make CPI movements more reflective of underlying price movements.
- Government Finance Statistics (GFS):
  - Authorities release central government transactions with about four weeks lag for revenues and expenditures.
  - IFMIS introduced in 2010 enables compilation of expenditure by functional category and by administration, but regular public release has not occurred.
  - Compilation of project grant disbursements and project grant use has been a challenge, leading to financing discrepancies.
  - Monthly data on domestic government financing available with about four weeks delay.
  - The Gambia suspended reporting GFS data to the Government Finance Statistics Yearbook from fiscal year 2010 onwards.
- Monetary and Financial Statistics (MFS) and Financial Soundness Indicators (FSIs):
  - Central Bank of The Gambia (CBG) completed migration to Standardized Report Forms (SRFs) in June 2012 and launched electronic reporting system for commercial banks in June 2012.
  - Collection of new data (term structure of commercial banks’ assets and liabilities) started in early 2013.
  - Electronic returns validation is manual; rollout delayed due to bank connectivity problems.
  - Depository corporation survey excludes non-bank deposit taking institutions (a growing sector).
  - STA TA mission on FSIs visited CBG in February 2015; work ongoing and foreseen to be completed by 2015Q3; FSI limitations expected concerning coverage and balance sheet breakdowns.
  - Financial sector surveillance: Data quality improved after automated platform for regulatory returns; comprehensive stress tests implemented for first time; cross-border exposure data for financial corporations are not available.
- External sector statistics:
  - Balance of payments statistics affected by delays in collection of trade, customs, and tourist arrival data; outdated methods for estimating re-exports; poor data on capital flows; lack of register of firms engaged in external transactions; poor classification and lack of consistent methodology.
  - Institutional weaknesses impede improvement; official grant and loan disbursements and repayments generally well recorded, but gaps exist in project disbursements.
  - Large discrepancy between BOP data reported by authorities to STA (pointing to a small current account surplus except in 2012) and adjusted AFR data (indicating a large current account deficit).
  - CBG produces BOP statistics according to BPM5; has compiled quarterly BOP through a Fund-administered TA project funded by DfID; most recent data available are for the third quarter of 2013.
  - An IIP statement in standard format has not yet been prepared for 2008-2013 (primary goal following February 2015 TA mission).
  - CBG conducted surveys: tourism expenditures and re-exports in 2011; FDI and trade credits and advances in 2012.
  - GBoS, CBG, and Gambian Revenue Authorities (GRA) hold regular quarterly meetings on re-exports to standardize procedures and reports.
  - CBG plans to rebuild staffing and build capacity in the BOP unit at the Economic Research Department per DfID-funded STA TA mission recommendations (early 2013).

### Data standards, reporting, and participation
- Participant in the Fund’s General Data Dissemination System (GDDS) since 2003.
- Metadata and GDDS improvement plans not updated since 2007, except balance of payments and gross official reserves updated in 2011.
- A data ROSC was published on December 1, 2005.
- 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 in the International Financial Statistics (IFS) (except as noted below).
  - Since June 2012, monthly SRF-based monetary statistics reported to STA for publication in IFS.
  - Balance of payments statistics submitted for publication in IFS and in the Balance of Payments Statistics Yearbook since 2005.

### Common Indicators Required for Surveillance (selected entries preserved as in source)
- Exchange Rates: Date of latest observation 10/7/15; Date received 16/7/15; Frequency of Data D; Frequency of Reporting W; Frequency of Publication M.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 31/5/15; Date received 01/7/15; Frequency of Data W; Frequency of Reporting W; Frequency of Publication M.
- Reserve/Base Money: Date of latest observation 10/7/15; Date received 16/7/15; Frequency of Data D; Frequency of Reporting W; Frequency of Publication M; Data Quality – Methodological: LO, LO, LO, LO; Data Quality – Accuracy and reliability: LNO, LO, O, LO, LNO.
- Broad Money: Date of latest observation 31/5/15; Date received 01/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Central Bank Balance Sheet: Date of latest observation 31/5/15; Date received 01/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Consolidated Balance Sheet of the Banking System: Date of latest observation 31/5/15; Date received 01/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Interest Rates: Date of latest observation 08/7/15; Date received 16/7/15; Frequency of Data W; Frequency of Reporting W; Frequency of Publication M.
- Consumer Price Index: Date of latest observation 30/6/15; Date received 16/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation 30/6/15; Date received 16/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation 30/6/15; Date received 16/7/15; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- External Current Account Balance: Date of latest observation 31/12/14; Date received 16/7/15; Frequency of Data Q; Frequency of Reporting I; Frequency of Publication A.
- Exports and Imports of Goods and Services: Date of latest observation 31/12/14; Date received 16/7/15; Frequency of Data Q; Frequency of Reporting I; Frequency of Publication A.
- GDP/GNP: Date of latest observation 31/12/14; Date received 09/7/2015; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A.
- Gross External Debt: Date of latest observation 30/4/15; Date received 16/7/15; Frequency of Data Q; Frequency of Reporting I; Frequency of Publication A.
- International Investment Position: N/A; N/A.

### Statement by Ms. Chileshe Mpundu Kapwepwe and Ms. Gillian Nkhata (September 18, 2015) — key points
- Opening acknowledgements:
  - Authorities thank staff for frank and constructive policy dialogue and appreciate continuing engagement with the Fund.
  - Authorities broadly agree with staff’s assessment but hold a more optimistic view of the outlook.
  - Authorities convey continued commitment to strong macroeconomic management, restoring macroeconomic stability, and promoting inclusive growth.
- Recent economic developments and outlook:
  - The Gambia remained Ebola free, but economy faced urgent balance of payments needs triggered mostly by regional outbreak impact on tourism, which contributes around 20 percent of GDP.
  - Outbreak estimated to have cut tourism receipts by more than half for the 2014/15 season.
  - Overall impact of shocks on balance of payments during 2014/15 estimated to be $40 million (over 5 percent of GDP in 2015, even taking into account the positive impact of lower global fuel prices).
  - Gross international reserves declined to cover less than two months of imports, from almost 5 months of imports at end-2013.
  - Delayed rains in 2014 led to a 15 percent decline in the year’s crop, pushing down real GDP and threatening food security.
  - GBoS reports real GDP grew by 1.6 percent in 2014, an upward revision from the estimated 1.4 percent contraction.
  - Medium term outlook: growth expected to return to trend and could exceed 5 percent already in 2016 with strong policy implementation and projected rebound in agricultural output and tourism (together account for 40 percent of GDP).
  - Agricultural production estimated to have declined by 8.4 percent (less severe than the 22.7 percent decline previously reported).
  - With recovery in agriculture and tourism, external current account deficit expected to narrow in the medium term; gross international reserves to be restored; inflation expected to return to the targeted 5 percent given subdued international food and fuel prices.
- Performance under the Staff Monitored Program (SMP) and recent financing:
  - ECF program was pushed off track and cancelled earlier in the year.
  - On April 2, the Board approved a disbursement of US$10.8 million under the Rapid Credit Facility (RCF) intended to support authorities’ adjustment efforts and catalyze donor financing.
  - RCF disbursement supported by a one-year SMP under which authorities committed to lowering net domestic borrowing (NDB) to 1 percent of GDP in 2015 from 12¼ percent in 2014.
  - About US$22 million was expected in external budget support.
  - Health sector support grant of $5 million from the World Bank was received; other donor financing, including expected budget support, was not forthcoming.
  - European Union announced stopping around $16 million in development aid in December 2014 based on non-program related issues.
- Fiscal policy:
  - Authorities committed to fiscal consolidation; measures included adjusting fuel prices to eliminate subsidies, bringing utility tariffs closer to cost recovery, strengthening revenue collection and administration.
  - Introduction of the value added tax helped raise revenue to GDP ratio from 16 percent in 2012 to 18 ¾ percent in 2014.
  - Steps to address financial problems of key public enterprises (NAWEC, GAMTEL, GAMCEL); switching spending toward strategic priority infrastructure and social sector projects.
  - Measures to restrict nonessential travel, cut foreign missions, and introduce comprehensive government vehicle policy.
  - Government action to meet SMP NDB target in 2015: executive approval secured to articulate measures and strategy for implementation; evaluator contracted for proposed sale of government-owned land plots; NAWEC secured a second ECOWAS grant disbursement; framework being developed for implementation of GMD 10 levy on each NAWEC bill.
  - Paper to cabinet on streamlining membership to non-financial international organizations to minimize costs; taskforce reviewing Foreign Service Regulations to minimize staff-related costs with intended implementation start of 2016.
  - Authorities developing a strategy on streamlining and reducing number of government ministries and agencies; a concept note will be submitted to the Executive for approval when finalized.
  - Civil service reform work: World Bank engaged to support civil service reform program; Project Design work commenced.
  - Authorities considering deeper budget restructuring and recognize need to garner donor support; discussions underway with some nontraditional bilateral partners.
- Public debt management:
  - Steps to improve public debt management: Ministry of Finance and CBG coordinate regularly on domestic and external debt to improve information exchange and forecasting of interest payments.
  - Ministry compiling a database on debt and contingent liabilities of SOEs.
- Monetary policy and exchange rate policies:
  - CBG has deployed available instruments to control inflationary pressures, managing to contain inflation within the single digits at around 6.5–7.5 percent since late (text ends).

*Source: _cr15272 - 1. Economic Governance Reform (PDF chapter), The Gambia — IMF staff report content as provided.*

### 2014. In May, the CBG raised the policy rate by one percentage point to 23 percent. In

### _cr15272 - 2014. In May, the CBG raised the policy rate by one percentage point to 23 percent. In

### Monetary policy, exchange rate, and liquidity management
- In May, the CBG raised the policy rate by one percentage point to 23 percent.
- The CBG has continued efforts to improve liquidity management and forecasting, including by strengthening its collaboration with the fiscal authorities.
- The authorities recognized that the flexible exchange rate regime has served the country well and enhanced competitiveness over the years.
- The CBG was able to build-up reserves to five months of import cover.
- Due to speculative activities in the domestic foreign exchange market, an Executive Directive was issued fixing the exchange rate with the US dollar at a level estimated to be 30 percent higher than the prevailing market rates; this is believed to be a temporary measure.
- Staff stresses the need to rescind the recent exchange rate directive and to return to a flexible exchange rate policy.
- The CBG has continued to maintain a tight monetary policy stance by maintaining high reserve required reserve ratio and has continued to tighten the foreign exchange net open positions of banks to increase the supply of foreign exchange.
- The CBG stands ready to tighten policy further should indications of exchange rate over-shooting emerge upon lifting of the Executive Directive.
- The authorities emphasize the need to proceed with caution, carefully assessing the policy implications of any alternatives, to avoid policy reversals that, in themselves might be destabilizing.
- The authorities cannot act on the staff’s recommendations without securing a consensus among the authorities on the assessment of macroeconomic risks.

### Financial sector policy and banking sector soundness
- The banking sector has continued to be sound and resilient and appears able to cope with increases in NPLs, although credit concentration risks have increased with the fiscal instability.
- Market risks are manageable for both interest and exchange rate risks, although prolonged high interest rates have been damaging to the private sector and SOEs.
- There has been strong asset growth and increased competition in deposit mobilization.
- Solvency remains strong and all banks remain within the capital adequacy ratio prudential limit.

### International Financial Reporting Standards (IFRS) and reporting systems
- Commercial banks have been complying with the Directive issued by the CBG to submit their audited accounts in accordance with International Financial Reporting Standards.
- The IFRS compliance was meant to enhance the quality of financial reporting and followed a series of training programs for both CBG and commercial bank staff.
- An electronic data submission system, the V-RegCoss, designed to further enhance the accuracy and transparency of reporting of commercial banks to the CBG, is functioning smoothly.

### Financial Intelligence Unit (FIU)
- The Financial Intelligence Unit (FIU) started operating as an independent entity with the appointment of a new Director.
- The Unit, which was temporarily housed in the CBG of the Gambia, has now secured a new office with adequate funding and staffing to enable it to effectively carry out its mandate.
- FIU staff participated in a series of training and capacity building programs.
- The national AML/CFT strategy, action and implementation plan has been finalized in a bid to enhance efforts in combating money laundering and terrorist.

### National Crisis Resolution Framework (CMRF)
- The CBG is in the process of establishing a National Crisis Resolution Framework; a taskforce has been set up to conduct research on the design of the framework.
- The taskforce has completed and submitted its findings to the management of the Bank for review.
- The development of the Crisis Management and Resolution Framework was prompted by the decision of the Committee of Governors of the West African Monetary Zone (WAMZ) at its Convergence Meeting held on July 16, 2014.
- The decision provided that the College of Supervisors of the Zone should develop a harmonized framework for financial resolution in the sub-region.
- Each country would provide a draft crisis resolution framework highlighting operational, legal and other challenges and/or impediments, including solutions towards integration into one broad resolution regime; all frameworks would then be merged into a harmonized framework for the sub-region.
- Authorities have intensified efforts on structural reforms to guarantee financial stability, including developing a national crisis resolution framework to be extended cross border in the sub-region.
- Plans are underway to strengthen supervision by migrating from a hybrid (compliance and risk-based) to a fully risk-based supervisory framework, once the architecture to implement risk-based supervision is completed.
- The CBG will continue to conduct top-down stress testing using simple sensitivity-based models to assess the resilience of the banking system to various shocks.

### Inclusive growth, competitiveness, and resilience to drought
- The Gambian authorities’ efforts to promote inclusive growth over the past few years are bearing fruit; child and maternal health indicators have improved, as have those in education, and youth and female literacy.
- Poverty remains a concern and recent economic challenges have constrained the achievement of inclusive growth objectives.
- Authorities recognize the need to step up efforts to improve competitiveness to help boost inclusive growth.
- Projects to scale up investments in energy and transportation include the Trans Gambia River bridge construction and a project to connect the regional hydropower grid.
- Authorities recognize the vulnerability of the agricultural sector to drought and its overall impact on economic activity; the Government has identified measures to mitigate the risks of drought on agriculture.
- The authorities signed a Drought Insurance Policy with the Africa Risk Capacity (ARC) under which resources would be made available immediately in the event of a drought to dampen the impact on economic activity.
- The government has also signed an agreement with the Islamic Development Bank, with the Drought Resilient Project geared toward tackling drought-related shocks.

### Conclusion: policy intentions and commitments
- The Gambian authorities express strong appreciation for the continuing support from the Fund.
- They have expressed strong commitment to sound macroeconomic management and inclusive growth, which they recognize needs to be underpinned by solid public financial management.
- The authorities intend to continue pursuing policy efforts towards narrowing the budget deficit as a key foundation in efforts to reduce the debt burden and related interest payments.
- They are committed to deepening structural reforms to boost competitiveness, promote inclusive growth and accelerate poverty reduction.

*IMF staff report excerpt*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15272.pdf_