Press Release: Statement by an IMF Mission to The Gambia
November 1, 2011Press Release No. 11/387
November 1, 2011
An IMF mission led by Mr. David Dunn visited The Gambia during October 18-November 1, 2011, to conduct discussions for the 2011 Article IV consultation. The mission met with Minister of Finance and Economic Affairs Mambury Njie, Governor of the Central Bank of The Gambia (CBG) Amadou Colley and other senior officials of the government and the CBG. It also met representatives of the National Assembly, political parties, the business community, civil society, labor unions, students, and The Gambia's development partners. Under Article IV the International Monetary Fund (IMF) conducts surveillance over economic, financial, and exchange rate policies of its member countries.
At the conclusion of the visit, Mr. Dunn, mission chief for The Gambia, made the following statement in Banjul:
“Over the past few years, The Gambian economy has achieved robust growth, despite the prolonged global economic crisis. The Gambia’s Gross domestic product (GDP) grew by around 6½ percent a year during 2008-2010, driven mainly by agriculture. Tourism and remittances, however, were hit hard by the global crisis. This year, although tourism has begun to show signs of recovery, GDP growth is projected to slow down slightly (to about 5½ percent), as poor weather conditions in some areas of the country have harmed crop production. The 12-month inflation rate has dipped to about 4 percent in recent months and is projected to remain below 5 percent for 2011 as a whole. Gross international reserves remain at a comfortable level at just under 5 months of imports.
“The Gambia, however, continues to face a number of challenges, notably a heavy debt burden. In particular, large fiscal deficits in recent years led to a surge in domestic debt, most of which consists of short-term T-bills that must be regularly re-financed. Interest on domestic debt is on the rise and now consumes 18½ percent of government revenues. Including obligations on external debt, interest consumes 22½ percent of government revenues. To address the high cost and risks of this debt, the government has taken bold actions to curb new domestic borrowing. Indeed, the mission commends the government for exercising strong fiscal discipline so far this year—an election year—despite further revenue shortfalls. By strictly controlling spending, new domestic borrowing is on track to be just over 2½ percent of GDP this year, down from about 4½ percent of GDP in 2010. This improved performance has contributed to lower inflation and a drop in T-bill yields (by about 3 percentage points since late last year). The government aims to continue making progress on easing its debt burden, by gradually reducing new domestic borrowing to about ½ percent of GDP by 2014. The government will also restrict external borrowing to concessional loans with soft terms.
“The mission commends the government for observing strict limits on borrowing from the CBG, including the elimination of its overdrafts. This has allowed the CBG to implement a more consistent and proactive monetary policy. At last week’s meeting of the Monetary Policy Committee, the CBG lowered its policy interest rate for the first time in 2011, by 1 percentage point, to 14 percent. If inflation remains subdued, there may be scope for further cuts in the policy rate going forward.
“Falling tax revenues is a major concern. Tax revenues (relative to GDP) have fallen steadily since 2007, and are down to less than 12½ percent of GDP in 2011 (3½ percentage points of GDP below their peak in 2007). At the same time, the tax base has eroded substantially, while the remaining taxpayers face high tax rates. To improve this situation and restore revenues, the IMF mission strongly encourages the government to consider a comprehensive tax reform over the next few years, building upon the planned introduction of a value-added tax (VAT). Simplification would facilitate tax compliance, and major improvements in tax administration by the Gambia Revenue Authority (GRA) would be essential.
“The mission recommends that government immediately implement fully its fuel pricing formula, including a specific excise tax, and rigorously adhere to the monthly price adjustments going forward. Implicit fuel subsidies led to substantial tax revenue losses, which could have been used for other priority programs that more directly benefit the poor.
“The IMF mission observes that The Gambia’s banking system as a whole is well capitalized and liquid. Still, the CBG must remain vigilant with its supervision of the system. Banks’ nonperforming loans have begun to fall, but they are still high, and some banks continue to incur losses. We welcome the CBG’s ongoing efforts to build capacity to conduct stress testing for the banking system. The IMF will continue to support this effort with technical assistance. The IMF mission also commends the CBG for taking immediate steps to improve the performance of the Credit Reference Bureau (CRB), which started operating last year. To benefit from lower interest rates, it is important that borrowers establish good credit histories. The CRB plays a central role in informing banks about creditworthy clients.
“The Gambia is making important progress in its fight against poverty, particularly in the areas of education and some health indicators. Progress on reducing income poverty is also anticipated from the inclusiveness of the strong growth of agriculture in recent years. The government plans to build on this progress with the launching in the coming months of the Programme for Accelerated Growth and Employment (PAGE) 2012-15. The mission commends the authorities for the serious effort in the preparation of the PAGE. However, given the government’s heavy debt burden and falling tax revenues, financing the PAGE faces some major challenges. To ensure that scarce resources are used effectively, the mission encourages the government to continue its ongoing progress on public financial management and transparency, especially in the budget process. Although there is some scope for additional borrowing on concessional terms, greater assistance from donor grants would be most welcomed. Private sector participation is also an important option—particularly in the energy sector—but it is critical that proper institutional arrangements are in place. In the energy sector, despite some steps underway, NAWEC lacks financial stability and regulatory issues, such as cost recovery and automatic cost-of-fuel adjustments in electricity tariffs, need to be resolved. In this regard, the mission urges the government to work together with the World Bank to put in place an effective energy strategy as soon as possible.
“The mission commends the authorities for preparing a budget policy paper for the 2012 budget and the submission of the audited 2007 government accounts to the National Assembly on October 31, 2011. To reduce the current backlog, it is expected that the audited accounts for subsequent years will be prepared and submitted to the National Assembly at an accelerated pace. In 2012, the priority areas of public financial management include improving transparency in the budget process, strengthening budget execution, and building capacity in internal and external audit functions.
“The mission wishes to express its gratitude to the Gambian authorities for their hospitality and the candid and 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 2012.”