IMF Executive Board Discusses Updated Ex-Post Assessment of Longer-Term Program Engagement in The GambiaPublic Information Notice (PIN) No. 11/5
January 13, 2011
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On January 7, 2011, the Executive Board of the International Monetary Fund (IMF) discussed the updated Ex Post Assessment (EPA) of Longer-Term Program Engagement in The Gambia.
The Gambia has been engaged with the IMF since the mid-1980s through a series of Fund-supported programs. A full EPA was conducted in 2005. The update focuses on the period 2006–10 and aims to identify The Gambia’s policy challenges over the medium term and to distill lessons for future Fund involvement.
The report concludes that Fund engagement in the past five years helped maintain macroeconomic stability in the face of external shocks. Despite a deterioration in performance under the Extended Credit Facility arrangement since 2008, Fund engagement helped in anchoring the macroeconomic policy framework and signaling the donor community. A largely appropriate macroeconomic policy mix in turn helped the Gambian economy weather the food and fuel price shock in 2007–08 and the recent global financial crisis. Economic growth averaged close to 6 percent per year in 2005–09, and still recorded 5.6 percent in 2009 despite headwinds. Monetary policy has been effective in controlling inflation, which has come down to single-digit levels. Fiscal performance was initially on track to bring about the needed fiscal adjustment to lower real interest rates and create fiscal space, a key program objective, but worsened in the second half of the ECF arrangement.
The report further concludes that continued close Fund engagement will be critical to: (i) put fiscal policy on a sound footing; (ii) further advance the structural reform agenda; and (iii) catalyze donor assistance. It recommends that a new program should aim to sustain fiscal consolidation, supported by: (i) reforms to improve public financial management; (ii) the implementation of key measures to mobilize more revenues and address revenue volatility; and (iii) enhanced program ownership at all levels of government.
Executive Board Assessment
Executive Directors noted The Gambia’s continued favorable economic performance in 2010. They welcomed the authorities’ efforts to address the fiscal slippages incurred in the first half of last year and to adjust to a reduced overall resource envelope. Directors encouraged the authorities to maintain fiscal discipline and limit government’s domestic borrowing. Stronger fiscal performance would be important to generate the necessary savings to help finance future infrastructure investment under the government’s envisioned Programme for Accelerated Growth and Employment.
Directors welcomed the 2011 budget, focusing on revenue enhancement and limiting costly domestic borrowing, while making further progress toward poverty reduction. They underscored the importance of timely implementation of the new formula for regular fuel price adjustments, allowing greater pass-through of import prices, and the introduction of a VAT in the medium term. Directors welcomed the authorities’ commitment to strengthen public financial management which will enhance fiscal discipline and better control government expenditures.
Directors welcomed the emphasis of monetary policy on maintaining low inflation. They highlighted the need for stronger coordination and information sharing between the Ministry of Finance and the Central Bank to improve liquidity management which would minimize uncertainty in the domestic money market and reduce the risk premium in interest rates. Directors also encouraged the authorities to make efforts to ensure central bank independence, by strictly observing statutory limits on credit to government. They noted that the flexible exchange rate policy has served the economy well, and a higher level of foreign exchange reserves would provide a cushion against external shocks.
Directors welcomed efforts to strengthen the soundness of the banking system. They also welcomed the authorities’ enforcement of compliance with the new minimum capital requirements for commercial banks and endorsed the Central Bank’s plans to build up its supervisory capacity.
Directors noted the conclusions and recommendations of the Ex Post Assessment update and generally agreed that Fund engagement with The Gambia has had a positive impact. A few Directors pointed to fiscal slippages from 2008 up to mid-2010, which curtailed the progress previously made in reducing the country’s heavy debt burden, leaving the government with high interest payment obligations, especially on domestic debt. In general, Directors agreed that continued close Fund engagement, along with stronger program ownership and resolve by the authorities, would be critical for meeting the authorities’ growth and poverty objectives.