IMF Completes Second Review of Staff Monitored Program with The Gambia

IMF News, June 28, 2018

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Published: June 28, 2018

Overview

On June 18, 2018, the Managing Director completed the second review of the Staff Monitored Program (SMP) with The Gambia.
The SMP commenced in April 2017 and was extended through September 2018 in the context of the first review in March 2018.
The extension aimed to establish a track record for a possible Extended Credit Facility (ECF) arrangement and to incorporate the outcome of the International Conference for The Gambia held in Brussels during May 22–23, 2018.
Development partners pledged over US$1.5 billion at the Brussels conference in support of The Gambia’s 2018–21 National Development Plan (NDP).

Economic outlook and macroeconomic developments

Economic recovery is well underway with growth estimated at 3.5 percent in 2017 (up from 2.2 percent in 2016).
Drivers of the 2017 pickup included:
- recovery of agriculture following improved weather conditions,
- a rebound in tourism,
- increased trade over improved relations with neighboring Senegal,
- renewed foreign direct investment.
Inflation and external position:
- Consumer price inflation declined from 8.8 percent (year-on-year) at end-January 2017 to 6.6 percent at end-April 2018.
- Gross international reserves increased from 1.4 months of next year’s projected imports at end-2016 to about 2.8 months at end-2017.
Financial sector signals:
- With the government’s reduced domestic borrowing, private sector credit grew by 13.8 percent (year on year) at end-April 2018.
- Continued strengthening of risk-based supervision and a greater willingness to act on early signs of asset quality problems by the central bank will help further underpin financial stability.

Program implementation and debt sustainability

Implementation of the SMP remains broadly satisfactory.
- All-but-one indicative quantitative targets through end-March 2018 were met.
- Most structural benchmarks were implemented.
- The continuous target on nonconcessional borrowing was breached at end-2017 by a substantial margin; corrective measures are now in place.
Debt dynamics and projections:
- The Gambia’s debt-to-GDP ratio reached nearly 130 percent of GDP by end‑2017.
- Total debt service-to-revenue (excluding grants) is now projected to average 53 percent over 2018–20.
- An updated debt sustainability analysis shows public debt is now unsustainable, with high external and domestic debt plus a large pipeline of already-contracted loans that pose risks to solvency.

Policy measures and reform strategy

The authorities adopted a multi-pronged strategy to restore and maintain debt sustainability:

1. measures to boost domestic revenue mobilization; 2. re-prioritizing the existing projects pipeline and seeking improvements in the terms of the already-contracted loans to raise their concessionality; 3. request for debt relief and restructuring from external creditors; 4. an NDP financing strategy that emphasizes grant financing and private investment.

Additional policy and institutional actions:
- Strengthening investment appraisal and selection processes to boost investment efficiency and productivity.
- Developing and implementing a medium-term economic and fiscal framework (MTEFF) to anchor fiscal policy and facilitate policy-driven budget allocations.
- Implementing a medium-term debt strategy (MTDS) that foresees a lengthening of the maturity of domestic debt to reduce rollover risk; both the MTEFF and MTDS will be regularly reviewed.
- Amending the legal framework of the central bank to strengthen its operational autonomy and to support healthy financial intermediation and inclusion.

Risks and mitigating actions

Principal risks to the outlook:
- legacy issues, including a possible resurgence of political instability;
- rising public debt and debt service ratios;
- lack of control over external debt accumulation, including by state-owned enterprises (SOEs).
Mitigating measures emphasized:
- implementation of the MTEFF and the MTDS;
- critical SOE reforms to strengthen governance and enhance operational efficiency and transparency.
- completion of prior action enabling special audits of key SOEs was noted as a critical milestone.

IMF support

The IMF staff stands ready to continue supporting the Government and the people of The Gambia with implementation of the country’s economic reform agenda through policy advice and delivery of well-tailored technical assistance as The Gambia aspires to transition to a possible ECF arrangement.

Source: Press Release No. 18/265, IMF, June 28, 2018.