|Also, IMF Board claims The Gambia made significant progress in the fight against poverty prior to the drought, however, it admitted that poverty is still widespread (Photo credit: Wikipedia)|
Directors at the International Monetary Fund, IMF, have said The Gambia needs further tax reforms over the medium term to strengthen revenues and address costly tax expenditures, while improving international competitiveness.
On Friday, the Fund commended the “successful implementation” of the country’s new tax regime, the value added tax (VAT) and the progress made in phasing out fuel subsidies.
Implementation of the VAT, which replaces the sales tax, began in January 2013 but ordinary Gambians are still struggling to understand how it works - and from a layperson viewpoint – it is largely responsible for the hike in prices of basic commodities, but the Gambia Revenue Authority has denied such claims.
At the conclusion of its 2013 Article IV Consultation with The Gambia on September 11, the IMF Executive Board encouraged the authorities in Banjul to enhance the budget process, strengthen expenditure control, and to control extra-budgetary expenditure.
They also welcomed recent progress in managing The Gambia Government’s external debt burden, and agreed that the authorities should continue to rely on grants or highly concessional financing to minimize exposure to external debt risks.
On September 13, the IMF observed that the banking sector remains adequately capitalized, following a two-step increase in the minimum capital requirement implemented at end-2010 and end-2012.
However, it noted that non-performing loans have remained high, thus the Britton woods institution calls for a consistent implementation of monetary policy.
IMF Directors encouraged using market-based monetary policy tools rather than reserve requirements on deposits. A gradual return to lower reserve requirements would help lower the high cost of financial intermediation, they noted.
“Directors considered that the banking system is well capitalized and liquid, and welcomed progress in areas of supervision, capacity building, and cross-border monitoring,” the USA-based IMF said in a statement.
“However, still-high non-performing loans require vigilance, including through intensive supervision for individual banks as needed,” it reiterated.
Generally, the Fund’s directors agreed that The Gambian economy has performed well over the past several years, although it is still recovering from the 2011 drought.
That drought culminated in a total crop production failure and a food and hunger crisis which has slowly dropped, but IMF observations revealed the drought also resulted in a sharp contraction in the 2011 real Gross Domestic Production, GDP, (the total value of goods and services that a country produces in a year).
Although growth has been picking up, IMF noted that “weaknesses in the balance of payments have persisted, leading to depreciation pressures on the Gambian dalasi. Most recently, inconsistent economic policies have intensified these pressures”.
The local currency, the Dalasi, massively depreciated against major foreign currencies in recent months. “As recent as May 2013, it depreciated against the British Pound by 12.62 per cent, the US Dollar by 11.87 per cent and the Euro by 12 per cent,” according to the economic think tank, IMF.
IMF Board claims The Gambia made significant progress in the fight against poverty prior to the drought, however, it admitted that poverty is still widespread.
As remedy, the institution said the execution of the Programme for Accelerated Growth and Employment (PAGE), (if) supported by commitments from development partners, would help to further reduce poverty especially in rural areas (where there is) a strong focus on agriculture.
IMF Directors also raise concerns over poor economic data which remains an impediment to economic policymaking.
They welcomed ongoing initiatives done together with development partners to strengthen economic statistics notably for the balance of payments, which the Fund said will require adequate funding and staffing.
Under Article IV of the IMF's Articles of Agreement, the Fund 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.
Written by Modou S. Joof
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