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The Gambia needs break from stop-go policies

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2005
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Since the mid-1980s, The Gambia’s economy has performed unevenly owing to external shocks, macroeconomic and structural policy slippages, poor governance, and weak institutions, the IMF said in its annual economic review. Undisciplined fiscal policies have increased the government’s recourse to domestic bank financing, which, in turn, has raised real interest rates, increased the domestic debt burden, and crowded out private investment. Weak policy implementation and governance problems also derailed The Gambia’s 2002 three-year program under the IMF’s Poverty Reduction and Growth Facility.

A recent turnaround in macroeconomic policy implementation—particularly through end–2004—helped improve the basic primary fiscal surplus, reduce inflation, stabilize the exchange rate, and rebuild international reserves. The relatively high interest rates necessary to reverse the macroeconomic deterioration have, however, placed a heavy burden on domestic debt service and on credit markets. A weakening in policies during the first quarter of 2005 has led to a substantial increase in net government debt and excessive growth in monetary aggregates. Also, a decision to license a monopoly quasipublic enterprise to market and process groundnuts has had a severe adverse impact on processed groundnut exports on account of delays in raising the finances to purchase what was a bumper harvest.

The Gambia2001200220032004
(percent change)
Real GDP5.8-3.26.95.1
CPI (annual average basis)4.58.617.014.2
(percent of GDP)
Central government budget balance113.9-4.6-4.7-5.7
Stock of domestic debt38.136.625.230.7

Including grants; adjustments have been incorporated for previously unrecorded public spending and borrowing in 2001, financed by the Central Bank of The Gambia.

Data: The Gambian authorities and IMF staff estimates.

Including grants; adjustments have been incorporated for previously unrecorded public spending and borrowing in 2001, financed by the Central Bank of The Gambia.

Data: The Gambian authorities and IMF staff estimates.

The IMF’s Executive Board said that the main medium-term challenge for The Gambia is to make a decisive break from stop-go policies and embark on a comprehensive economic program. This should include steps to accelerate privatization, improve the investment climate, and strengthen public expenditure management, governance, and accountability. To address the recent fiscal slippage, the authorities could implement ceilings on discretionary expenditure, improve cash management, enforce the public enterprises’ repayment of government loans, and phase out petroleum product subsidies, while bearing in mind the social implications. Further, the IMF Board recommended improved tax administration to strengthen revenues and a phase-out of tax exemptions to broaden the tax base.

For more information, please refer to Public Information Notices No. 05/107 (Ghana) and No. 05/121 (The Gambia) on the IMF’s website (www.imf.org).

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