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Press Release: IMF Approves Three-Year ESAF Credit for The Gambia
June 29, 1998
The International Monetary Fund (IMF) today approved a three-year loan for The Gambia under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 20.6 million (about US$27 million) in support of the government’s economic program for 1998-2000. The first annual loan, equivalent to SDR 6.9 million (about US$9 million), is available in two equal semiannual installments, the first of which is available immediately.
Background
Since mid-1993, the economic and financial situation in The Gambia has deteriorated seriously. In addition to a number of adverse external and internal shocks, an unduly expansionary fiscal policy, combined with a tight monetary policy, led to very high interest rates and the crowding out of private sector investment. After the 1994 military coup d’état, the quality of governance deteriorated with extrabudgetary government spending and interference in the operations of the public enterprises contributing to an erosion of confidence. Most of the traditional donors suspended their assistance, the banking system suffered, and energy costs remained excessively high. The tight monetary policy, however, helped to contain inflation, stabilize the exchange rate, and keep gross official reserves at a comfortable level. Following the transition to an elected government in early 1997, the authorities began to take corrective actions in the second half of the year, and the overall budget deficit (excluding grants) was reduced to 7.8 percent of GDP in calendar year 1997 from 11.4 percent in 1996/97 (July-June).
Medium-Term Strategy and the Program for 1998-2000
The proposed ESAF-supported program will provide the authorities with a framework for reestablishing macroeconomic stability, resuming structural reforms, and rebuilding confidence that will enable the country to achieve durable economic growth and a lasting reduction in poverty. The authorities’ medium-term program for 1998-2000 aims at consolidating government finances by further reducing the budget deficit, improving the structure of revenue and expenditure, including a significant reduction of import tariffs, implementing structural reforms to encourage private sector development and economic diversification, strengthening the institutional and administrative infrastructure to improve governance, and implementing a comprehensive social agenda focused on education and health.
The basic economic objectives for 1998-2000 are to achieve real GDP growth of 4.5-5 percent a year, keep annual inflation around 3 percent, reduce the external current account deficit (excluding official transfers) to less than 10 percent of GDP by 2000, and keep grossofficial reserves above the equivalent to five months of imports. To achieve these objectives, the program seeks to raise domestic investment to 20.7 percent of GDP in 2000 from 17.6 percent in 1997, and increase savings to 11.4 percent of GDP by 2000 of GDP from 6.2 percent in 1997. The fiscal program aims at reducing the overall budget deficit (excluding grants) to 4 percent of GDP in 1998 and further to 2 percent by 2000. At the same time, the authorities will embark on a significant external tariff reform by reducing the maximum duty rate to 25 percent in July 1998, and to less than 20 percent in 1999.
Within this medium-term strategy, the program for April 1998-March 1999, supported by the first annual ESAF loan, projects a real GDP growth of 3.8 percent in 1998, and aims at limiting average annual inflation to 3 percent, and reducing the external current account deficit (excluding official transfers) to 10.6 percent of GDP. Gross official reserves are expected to remain at a level equivalent to more than five months of imports. A rigorous fiscal policy will be the cornerstone of the government’s policy to limit the overall budget deficit (excluding grants) to 4 percent of GDP from 7.8 percent in 1997. To achieve the fiscal objectives while compensating for the potential loss of custom revenue, total government revenue is targeted to increase by 8.7 percent in 1998, by increasing the efficiency of the tax and customs administrations and by broadening the tax base, including by dramatically reducing import duty exemptions. As a result, on the expenditure side, the authorities will pursue a very tight policy while adhering to full budgetary transparency and refraining from any extrabudgetary spending. Tight monetary policy will continue in 1998, consistent with keeping the annual rate of inflation at about 3 percent. The monetary authorities will continue to rely exclusively on the use of indirect monetary instruments.
Structural Reforms
To enhance The Gambia’s medium-term growth prospects and rebuild private sector confidence, the government plans to modernize the legal environment for economic activity, including security of contracts, improve the quality of public services, and normalize financial relations between the government and the public enterprise sector. The government will resume its public enterprise divesture program, reform the telecommunications and energy sectors, and rehabilitate the groundnut sector. To increase the efficiency of financial markets and deepen financial intermediation, the government will implement actions to simplify the regulatory framework, improve the functioning of primary and secondary markets, and strengthen the soundness of the banking system.
Addressing Social Needs
The government strategy in the social and environmental sectors aims at developing human resources, alleviating poverty, and improving the management of natural resources. The government continues to implement its national educational policy, which aims at significantly raising enrollment rates in basic education, especially for the poor and for girls, while improvingthe quality of education. The authorities also plan to continue improving the delivery of, and access to, primary and secondary health services throughout the country, particularly for vulnerable groups; promoting the provision of generic drugs; and enlarging the role of the private sector and cost sharing. The government will strengthen land and tree tenure security, enforce actions to control bushfires, develop a coastal resources management program, and seek to reduce the heavy dependence on fuelwood.
The Challenge Ahead
The coming year will be crucial for the government to restore control over the domestic financial situation, enhance the prospects for higher and more durable economic growth, and establish the credibility of its policies. The timely availability of external financial assistance will also be key for ensuring the success of the program. Other possible risks to the program are the possible resurgence of problems related to lack of transparency and accountability, and difficulties in containing government expenditures, as well as the considerable strain on the limited economic management capacity in implementing all aspects of the program.
The Gambia joined the IMF on September 21, 1967. Its quota2 is SDR 22.9 million (about US$30 million). The Gambia’s outstanding use of IMF financing currently totals SDR 5.8 million (about US$7.7 million).
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