The IMF mission and the Gambian authorities reached agreement on a number of
key policy issues, which would form the basis of a program that could be
supported by a new three-year credit arrangement under the IMF’s Extended
Credit Facility for low-income countries. The program would address the high
cost and risks of government’s domestic debt, while also seeking to generate
resources to help finance the Programme for Accelerated Growth and
Employment (PAGE), which was launched in December 2011. The mission also
discussed avenues in which the IMF could help the government manage the cost of
providing immediate assistance to vulnerable groups, who have been hit hard by
the severe crop failure that has struck the region. The mission is reassured
that The Gambia has ample foreign exchange reserves that would help ensure
stability.
The crop report for the 2011-12 season points to sharp drops (50-80 percent)
in the rice, groundnut, and millet harvests, compared with the previous year.
As a result, despite a remarkable jump in tourism and strength in several
non-agricultural components of the economy, growth in real gross domestic
product (GDP) is estimated to have slipped to about 3 percent in 2011,
down from an earlier projection of about 5½ percent. For 2012, real GDP
growth is projected to be slightly negative, reflecting the main impact of the
crop failure in the first half and a potentially softer tourism market later in
the year. Inflation was held in check at 4.4 percent in 2011, even though
fuel prices were raised several times during the year, driven by high import
prices. Thus far in 2012, the price of fuel at the pump has failed to keep pace
with further increases in import prices, resulting in costly subsidies paid for
by government.
Government’s economic policies have strengthened considerably over the past
year. Using strict cash budgeting to limit spending to available resources, government’s
net domestic borrowing was reduced to just under 3 percent of GDP in 2011,
down from over 4½ percent the previous year. Over the medium term, the
government aims to gradually reduce net domestic borrowing to ½ percent of
GDP a year by 2014. This would greatly ease pressure on interest rates and
reduce government’s crowding out of the private sector in the domestic credit
market. It is expected that together with stronger government revenues, fiscal
savings from lower interest on government’s debt could be directed toward PAGE
priorities. Tax reform, including replacement of the general sales tax with a
value-added tax (VAT), will be important for rebuilding government revenues.
The government is also exploring options for the income tax, with a view toward
broadening the base and lowering tax rates.
The Gambia is making progress in the fight against poverty. The 2010
household survey indicates that inclusive growth, which featured strong
performances in agriculture, contributed to a marked reduction in headcount
poverty (by nearly 10 percentage points since 2003, to 48½ percent of
the population in 2010). The Gambia also scores well on various education and
health indicators. The mission encourages the government to work closely with development
partners and aid agencies to mobilize assistance to mitigate the adverse
effects of the crop failure on the country’s most vulnerable groups. Engaging
development partners is also important to help finance PAGE investments. In
addition, strengthening the regulatory and institutional framework to ensure
productive public-private partnerships could open up opportunities for
substantial private investment.
The mission will return to IMF Headquarters, but will remain in close
contact with the Gambian authorities to finalize discussions as soon as
possible. The mission thanks the authorities for candid and constructive
discussions and expresses its appreciation for the kind hospitality provided
during our visit.
David Dunn
Leader Of IMF Mission To Gambia
