Press Release No. 08/279

Press Release: Statement by an IMF Mission to The Gambia

November 11, 2008

An International Monetary Fund (IMF) mission led by Mr. Tsidi Tsikata visited The Gambia during October 23 to November 6, 2008, to conduct the fourth review under the Poverty Reduction and Growth Facility (PRGF) arrangement. The mission met with His Excellency President Yahya Jammeh, Secretary of State for Finance and Economic Affairs Mousa Gibril Bala-Gaye, Governor of the Central Bank of The Gambia (CBG) Momodou Bamba Saho, Chairman of the National Planning Commission Alieu Ngum, other senior officials of the government and the CBG, and representatives of the business community, civil society, and The Gambia's development partners.

At the conclusion of the visit, the mission made the following statement:

"So far, the financial system in The Gambia has not been affected directly by the global financial crisis. However, adverse impacts from recessions in Europe and the USA are likely to slow down real GDP growth from about 6 percent in 2008 to less than 5 percent in 2009. Inflation has been rising in recent months—reaching an annual rate of 6.3 percent in September—but is expected to remain in single-digits, as pressures from abroad ease with falling commodity prices.

"In light of weaker-than-expected revenue performance and an uncertain outlook for 2009, the mission advised the government to restrain its expenditures. The mission estimates that government revenues will fall short of budget estimates by over Dalasi 400 million (about 2 percent of GDP) in 2008, due mainly to implicit subsidization of petroleum product prices and lower revenues from non-oil imports (including re-exports). With the recent decline in world oil prices, the government should recoup some of the revenue loss associated with a less-than-full pass through of rising world prices to consumers earlier this year. The mission advised government to restrain discretionary expenditures in the fourth quarter of 2008 in order to limit domestic borrowing and avoid a marked increase in interest rates.

"The mission noted that a reduction in re-export activity may represent a permanent erosion of an important part of the tax base, and cautioned against over-optimistic revenue projections and an overly expansionary budget for 2009. While supportive of civil service reform, the mission noted that another large increase in the wage bill (following a 40 percent increase in 2008) would constrain the room provided by debt relief to increase poverty reducing expenditures.

"The mission endorsed the CBG's commitment to containing inflation using all instruments at its disposal. In order to enhance the effectiveness of monetary operations, the mission called for greater collaboration between the CBG and the Department of State for Finance and Economic Affairs in forecasting government revenues and expenditures. Following the entry of two new banks this year, there are now 11 banks operating in The Gambia, with five more awaiting licenses. The mission expressed concern that the growing number of banks was stretching the CBG's supervision capacity to the limit and risked diverting resources from meeting other pressing needs.

"The mission welcomed a review of the scope of activities eligible for incentives under the Investment Promotion Act which is currently underway. It advised that applications for investment incentives be carefully scrutinized, but that once approved the incentives should be provided in a predictable way.

"The government requested assistance from the IMF to review tax policy, especially in the areas of rationalizing central and local government taxation and broadening the tax base.

"With regard to the PRGF-supported program, the mission found that—except for the fiscal basic balance target which was missed—overall performance against the end-September 2008 targets was good. The mission noted that the terms of external loans recently ratified by the National Assembly were in line with the minimum degree of concessionality agreed under the program. The mission urged the government to meet the target date of February 2009 for completing work on a national debt strategy, with a view to placing government borrowing decisions in an appropriate medium-term context.

"The mission wishes to express its gratitude to the authorities for their hospitality and the constructive spirit in which the discussions were held. The Executive Board of the IMF is expected to discuss the report of the mission in January 2009."