Tuesday, May 29, 2012

Gambia: Heavy debt burden poses risk to economy

"In this world, nothing can be said to be certain except death and taxes" Benjamin Franklin
“The Gambia’s heavy debt burden poses high costs for the government and risks for the economy,” Mr. Naoyuki Shinohara, IMF Board Deputy Managing Director and Acting Chair said on Monday.
Mr. Shinohara remarks followed the International Monetary Fund (IMF) Executive Board’s May 28 approval of a new arrangement for Gambia under the Extended Credit Facility (ECF) an amount equivalent to SDR 18.66 million (about US$28.3 million). 

The IMF said the decision will enable an immediate disbursement equivalent to SDR 9.33million (about US$14.2 million).

“To address this problem, the authorities’ new ECF-supported programme rightly focuses on fiscal adjustment to curb government’s domestic borrowing. Limiting external borrowing to concessional loans is also necessary to reduce the risk of debt distress,” he said.

The authorities’ planned fiscal adjustment will require consistent strong implementation to build confidence and achieve fiscal savings. Rebuilding the government’s revenue base is key to fiscal adjustment, especially the upcoming introduction of a value added tax (VAT) and reductions in fuel subsidies.

The money is aimed at meeting an acute balance of payments need arising from the recent crop failure due to drought, and helping to catalyze support from development partners for The Gambia’s new poverty reduction strategy, the Programme for Accelerated Growth and Employment (PAGE). 

IMF explains that over the medium term, the authorities seek to ease the government’s heavy debt burden through fiscal adjustment, while implementing a strong economic reform agenda in support of the PAGE.

Mr. Shinohara said the Gambian economy has made good progress in achieving strong growth and making a substantial reduction in poverty. However, major crop failure due to the drought has created hardship and calls for effective and timely delivery of assistance for the most vulnerable households. 

“Progress toward eliminating fiscal dominance has enhanced the independence of the Central Bank of The Gambia and its capacity to conduct sound monetary policy. The central bank will continue to build capacity for effective financial sector supervision, particularly for stress testing,” he added.

He said financing the government’s new poverty reduction strategy, the PAGE, under tight budget constraints will be a challenge. In this regard, fiscal savings from lower interest on domestic debt and private sector participation in infrastructure investment could be helpful. 
“To ensure that such investments are productive and to guard against potentially large contingent liabilities for the government, robust institutions and regulatory frameworks are critical. To support growth, reforms are needed in key sectors such as energy and telecommunications,” he warned.

IMF said Gambian economy performed well during the previous ECF arrangement, which expired at the end of March 2011. 

During that period (2007–10), real gross domestic product (GDP) growth was robust and inflation was low-to-moderate, despite the global financial crisis and sharp food and fuel price shocks, it said. Source: The Voice

Written by Modou S. Joof


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