The Gambia is a very small country located on the west coast of Africa, surrounded on three sides by Senegal, extending inland at widths varying from 24 to 48 kilometers along the banks of the River Gambia, with a total area of 10,700 square kilometers. With a population of about 890,000, which is rising at a rate of 3.4 percent a year, The Gambia has one of the highest population densities in the world (estimated at 207 inhabitants per square kilometer of agricultural land in 1991). It has also a fairly undeveloped human capital base, with an illiteracy rate of 75 percent and a primary school enrollment rate of 56 percent (in 1987).
The Gambia has an open economy with limited natural resources and is one of the least developed African countries, with a per capita income estimated at present at $325. The traditional mainstay of economic activity has been the production and export of groundnuts, although in recent years significant progress has been made in diversifying production and exports toward tourism and trade services. Most of the population work in agriculture, which accounts for about 20 percent of real GDP; industry contributes 12 percent of value added, with the rest accounted for by services.
The Gambia became independent in 1965 and since then has been governed by a democratic multiparty parliamentary system, with free elections held at regular intervals.1
During the first ten years after independence, broadly stable macroeconomic conditions were maintained with modest rates of economic growth. In the decade to 1985/86, however, external shocks and inappropriate domestic policies caused economic and financial performance to deteriorate markedly. In particular, unfavorable weather, erratic world groundnut prices, and inadequate real producer prices led to a sharp decline in the domestic output of groundnuts. During the same period, the involvement of the public sector in the economy increased sharply, through the creation of several public enterprises, particularly in the industrial and trading sectors, and the size of the Central Government rose markedly, entailing, inter alia, a doubling of the size of the civil service. The resulting large expansion in government current expenditure, coupled with a surge in government development expenditure, contributed to a widening of fiscal imbalances. The expansionary stance of fiscal policy and an increasingly overvalued currency boosted the demand for imports and discouraged the surrender of export proceeds to the official banking system, inducing a growing external indebtedness and a depletion of gross official reserves. As a consequence, the growth of output in the directly productive sectors of the economy (i.e., excluding government services) remained low, inflation accelerated, and major external disequilibria emerged. Although the pressures on the external current account position were alleviated somewhat by large inflows of external assistance and some partial adjustment measures in the early 1980s, the imbalances reached critical proportions by the end of 1985/86. Gross official reserves fell to the equivalent of less than a week of imports, external public debt climbed to 113 percent of GDP, and external payments arrears peaked at SDR 88.2 million (almost one and one half times the 1985/86 export earnings, including net reexports and travel income), of which SDR 10.3 million represented overdue obligations to the Fund.
In response to the rapidly deteriorating situation, the Gambian authorities in June 1985 began to implement a comprehensive adjustment program, the Economic Recovery Program (ERP), aimed at restoring financial equilibrium and laying the foundation for sustainable economic growth. In 1990, the ERP was succeeded by the Program for Sustained Development (PSD), which continued the thrust of ERP policies, while renewing efforts to stimulate private sector development. The Gambia’s adjustment efforts have been supported by successive arrangements from the Fund, comprising two annual arrangements under the structural adjustment facility (SAF) during 1986/87-1987/88 (July/June) and a three-year arrangement under the enhanced structural adjustment facility (ESAF) during 1988/89-1990/91, as well as a stand-by arrangement and a drawing under the compensatory financing facility during 1986/87. The total cumulative use of Fund resources by The Gambia amounted to the equivalent of SDR 38.91 million, or 227.5 percent of quota. Substantial financial and technical assistance has also been provided by the World Bank, including two structural adjustment credits, and by other bilateral and multilateral donors.
With successful implementation of a broad range of financial and structural reforms, The Gambia’s economic and financial performance has improved considerably since 1985/86. The Gambia’s experience is a good example of economic adjustment, even though it is recognized that more remains to be done, as a number of major structural and institutional constraints continue to hamper the economy. Following the expiration of the three-year ESAF arrangement in November 1991, the Gambian authorities requested a continuation of the close policy dialogue with the Fund and monitoring by the Fund of The Gambia’s economic and financial policies for 1992/93, as well as the updating of the policy framework paper to cover the period 1992/93-1994/95.
For an overview of recent political developments, see Sallah (1990).