Friday, January 20, 2012

IMF Executive Board Concludes 2011 Article IV Consultation with The Gambia

BANJUL, Gambia, January 20, 2012/African Press Organization (APO)/ — On January 18, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Gambia.1


The Gambian economy has performed well in recent years, despite challenging global conditions. Real GDP growth averaged around 6½ percent a year during 2008-2010, driven mainly by a strong expansion in agriculture. Tourism and remittances, however, were hit hard by the global economic crisis. 

In 2011, although there were signs that tourism was recovering, real GDP growth is estimated to have fallen slightly to 5½ percent, because of poor weather conditions adversely affecting agriculture in some areas of the country. Inflation ranged between 2½ and 7 percent (year-on-year) in recent years, as the Central Bank of The Gambia (CBG) generally maintained a restrained monetary stance. At times, this required extensive mopping up of liquidity generated by central bank financing of fiscal deficits. In recent months, inflation has fallen below 5 percent, aided by an improved fiscal performance.

The government’s fiscal deficit widened substantially during 2007–2010, resulting in a sharp increase in domestic debt. The deterioration of the fiscal balance was caused by a steady decline in government revenues and episodes of large spending overruns. Extra-budgetary expenditures, including realized contingent liabilities, were major factors behind the surge in government spending, particularly in 2009 and 2010.

The Gambia continues to face a heavy debt burden. As of the end of 2010, domestic debt had risen to almost 30 percent of GDP. Correspondingly, interest on domestic debt has consumed an increasing share of government revenues (18 percent in 2011). Moreover, most domestic debt consists of short-term Treasury bills, which poses substantial rollover risks. Despite a large reduction in external debt under the Highly Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) in December 2007, external debt indicators suggest that The Gambia is still at high risk of debt distress.

Domestic debt stabilized in 2011, as the fiscal deficit narrowed substantially. Although government revenues continued to fall (to about 14 percent of GDP)—mainly due to lost revenues from fuel taxes—the government applied a strict cash-budgeting framework to control spending. This has contributed to a reduction in T-bill yields in recent months, which could generate fiscal savings going forward.

The banking system in The Gambia has expanded at a rapid pace since 2007, with the number of banks nearly doubling (to 13). This contributed to a rapid expansion of much needed financial services. It also strained the CBG’s resources for banking supervision. While banks are generally well capitalized and liquid, competition in a relatively small market has increased risks. Credit quality and profitability weakened in 2009-2010, and high loan concentration is a concern. Similarly, several banks are vulnerable to liquidity risks from exposure to large depositors. In 2011, financial indicators have strengthened under the CBG’s intensive supervision.

The Gambia’s external current account deficit has widened in recent years, due to weak tourism receipts and remittances and high global commodity prices. In 2011, strong exports of groundnuts early in the year combined with an upswing in tourism in the fourth quarter to narrow the deficit, despite a surge in the cost of fuel imports. Official international reserves have remained at a comfortable level at over 5 months of imports.

The Gambia has made significant progress in implementing structural reforms, particularly in the areas of public financial management, debt management, and financial sector development. Good progress has also been achieved toward meeting several of the Millennium Development Goals, most notably in health and education. However, poverty is still widespread.

Executive Board Assessment

Executive Directors commended the authorities for making progress in poverty reduction and achieving strong growth and low inflation despite a difficult global environment. Looking ahead, Directors observed that although the outlook for the economy is generally positive, there are a number of risks, particularly the high cost and rollover risks of domestic debt.

Directors welcomed the improved fiscal performance and supported the government’s plans for additional fiscal consolidation in the period ahead. They agreed that further fiscal adjustment aimed at curbing domestic borrowing is appropriate. Directors considered that comprehensive tax reforms, including an early introduction of the VAT and additional steps to increase tax compliance, are essential to rebuild government revenues. In particular, strengthening revenue administration and phasing out fuel subsidies would bolster the credibility of the authorities’ fiscal plans for the medium term. Simplicity, broad coverage, and low tax rates would also help to improve the business environment.

Directors agreed that monetary policymaking should remain focused on safeguarding price stability. To this end, they encouraged the central bank to develop liquidity management instruments that would enhance the efficiency of the money market and reduce intermediation costs. Directors also encouraged the authorities to maintain exchange rate flexibility, as well as the import coverage of international reserves.

Directors observed that the banking system is well capitalized and liquid. Noting however a still elevated non-performing loans ratio and other vulnerabilities in the banking sector, they welcomed the authorities’ intention to reinforce their oversight of the financial sector.

Directors welcomed the authorities’ new poverty reduction strategy, the Programme for Accelerated Growth and Employment (PAGE). They emphasized, however, that the financing strategy should safeguard debt sustainability. Directors agreed that greater private sector participation in infrastructure projects could help achieve PAGE objectives, but success hinges on effective policy frameworks and institutions.

The Gambia: Selected Economic Indicators

                             2007    2008    2009    2010    2011

                             Act.    Act.    Act.    Act.    Proj.

National income and prices (percentage change)


GDP at constant prices

              4.1    6.5    6.7    6.3    5.5

Inflation (period average)

              5.4    4.5    4.6    5.0    5.4

External sector


Current account balance including budget support


(percent of GDP)

-10.9    -14.3    -14.0    -16.8    -14.4

Exports, f.o.b. (percent change in US$ value)

    8.8    -4.4    8.5    3.6    12.6

Imports, f.o.b. (percent change in US$ value)

    18.4    17.4    -3.7    5.3    4.3

Real effective exchange rate (percent change)1

    18.8    -7.0    -5.5    0.3    -4.0

Gross official reserves (US$ millions)

    141.6    115.6    186.0    163.3    174.7

Months of imports of goods and services         5.1    3.6    5.9    4.8    5.0

Money and credit (in percent change of beginning of the year broad money)


Broad money

                   6.7    18.4    19.4    13.7    13.3

Credit to the private sector

              4.8    6.8    5.4    4.7    4.3

Average treasury bill rate (in percent)2

    11.9    11.8    12.2    11.3    9.3

Central government budget (percent of GDP)


Domestic revenues

              17.4    16.3    16.0    14.8    14.0


                   1.0    1.1    4.2    4.0    4.5

Total expenditure and net lending

         18.3    19.2    23.4    24.8    22.1

Overall balance

                   0.1    -1.8    -3.2    -6.0    -3.6

Net foreign financing

              0.8    0.1    1.5    1.4    0.9

Net domestic financing

              -2.7    1.7    1.6    4.2    2.7

Nominal stock of public debt (% of GDP)



                   22.9    21.2    21.0    29.3    29.2


                   38.0    45.3    40.7    39.9    39.2

Source: Gambian authorities and Fund staff estimates and projections.

1 Percentage change between December of the previous year and December of the current year (September for 2011).

2 Average for the month of December (October for 2011).

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:


International Monetary Fund (IMF)

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