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© 2006 International Monetary Fund
January 2006
IMF Country Report No. 06/8
The Gambia: 2005 Article IV Consultation—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for The Gambia
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2005 Article IV consultation with The Gambia, the following documents have been released and are included in this package:
the staff report for the 2005 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 13, 2005, with the officials of The Gambia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 1, 2005. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of July 18, 2005 updating information on recent developments.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 18, 2005 discussion of the staff report that concluded the Article IV consultation.
a statement by the Executive Director for The Gambia.
The documents listed below have been or will be separately released.
Ex Post Assessment of Longer-Term Program Engagement
Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
THE GAMBIA
Staff Report for the 2005 Article IV Consultation
Prepared by the Staff Representatives for the 2005 Consultation with The Gambia
(In consultation with Finance, Legal, Policy Development and Review and Statistics Department)
Approved by Benedicte Vibe Christensen and Carlo Cottarelli
July 1, 2005
Discussions for the 2005 Article IV consultation were held in Banjul during April 29-May 13, 2005. The mission met with the Honorable Mrs. Margaret Keita, Secretary of State, Department of State for Finance and Economic Affairs (DoSFEA); Mr. Famara Jatta, Governor, Central Bank of The Gambia (CBG); and other senior government officials of The Gambia. The mission also met with representatives of the business community and donors.
Mission members were Mr. McDonald (head), Mrs. Randall, Mr. Sriram (all AFR), and Mr. Wu (PDR).
The program supported by the Poverty Reduction and Growth Facility (PRGF) was approved by the Executive Board on July 18, 2002 in an amount equivalent to SDR 20.22 million (65 percent of quota), and is due to expire on July 17, 2005. It went off track shortly after the initial drawing of SDR 2.89 million. No review under the arrangement was completed.
The political situation is stable. President Jammeh, who assumed power in a coup in 1994, was reelected to a second five-year term in October 2001. Elections are due to be held in 2006. Early in 2005, the president implemented a reshuffling of his cabinet and dismissed several government officials, in response to the poor performance of groundnut exports and to a report on corruption. Subsequent to the Article IV consultation mission, Mrs. Keita has been replaced as Finance Minister by Mr. Ngum, the Secretary General in the Office of the President.
The Gambia has a de facto managed floating exchange rate system with no preannounced path for the exchange rate. The country has been part of the exchange rate mechanism of the West African Monetary Zone since April 2002. Appendix I discusses public and external debt sustainability. Summaries of The Gambia’s relations with the Fund, World Bank Group, and African Development Bank are contained in Appendix II, III, and IV, respectively. Statistical issues are discussed in Appendix V, and Appendix VI contains a Public Information Notice.
Contents
Executive Summary
I. Background
II. Recent Economic Developments
III. Report on Policy Discussions
The Authorities’ Response to the Ex post Assessment
Future Fund Relations
Short-Term Outlook and Immediate Policy Priorities
Medium-Term Macroeconomic and Structural Reform Strategy
IV. Capacity Building and Data Issues
V. Staff Appraisal
Box
1. The Authorities’ Response to Previous Article IV Recommendations
Figures
1. Real Sector Developments, 1998-2004
2. Fiscal Developments
3. Monetary Sector Developments, 1998–2004
4. External Developments, 1998–2004
Tables
1. Selected Economic and Financial Indicators, 2002–10
2. Selected National Account Indicators, 2002–10
3. Central Government Operations, 2002–10 (in millions of dalasis)
4. Central Government Operations, 2002–10 (in percent of GDP)
5. Monetary Survey, Dec. 2002–Dec. 2006
6. Summary Accounts of the Central Bank and Commercial Banks, Dec. 2002–Dec. 2006
7. Balance of Payments, 2002–10
8. Financial and External Vulnerability Indicators, 2000–04
9. Public Sector Debt Sustainability Framework, Baseline Scenario, 2002–10
10. Sensitivity Analysis for Key Indicators of Public Debt, 2005–10
11. External Debt Sustainability Framework, Passive Scenario, 2002–25
12. Passive Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2005–25
13. External Debt Sustainability Framework, Active Scenario, 2002–25
14. Active Scenario Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2005–25
15. Millenium Development Goals, 1990–2003
Appendices
I. Public and External Debt Sustainability
II. Relations with the Fund
III. Relations with the World Bank Group
IV. Relations with the African Development Bank
V. Statistical Issues
Executive Summary
The Gambia’s economic performance since the mid-1980s has been uneven owing to exogenous shocks, macroeconomic and structural policy slippages, poor governance, and weak institutions. The economy’s vulnerability to shocks stems in part from a lack of economic diversification; in addition, economic performance has been constrained by policy distortions and by recurrent weaknesses in fiscal policy. During 2002-03, excessive fiscal deficits, quasi-fiscal spending (including losses on questionable foreign exchange transactions by the central bank), and accommodating monetary policies led to rising inflation and a deteriorating external current account.
Macroeconomic performance has strengthened over the past 18 months, particularly through end-2004, in response to strong financial policies. Real GDP growth rebounded in 2003-04, and inflation, which had peaked at 18 percent at end-2003, declined to about 5 percent by end-March 2005. The basic primary fiscal surplus more than doubled to about 9½ percent of GDP in 2004 and could be maintained at this level in 2005, and international reserves have recovered, reflecting increased official transfers, remittances, and foreign direct investments. The exchange rate has stabilized following a depreciation of over 30 percent vis-à-vis the U.S. dollar in 2003, and domestic interest rates have begun to decline.
Policies, however, weakened in the first quarter of 2005. This principally reflects unbudgeted expenditures and the licensing of a quasi-public monopoly enterprise in the groundnut sector, which has had a near-disastrous effect on the marketing and export of processed groundnut. The government is determined to take corrective actions, and the outlook for 2005 is conditional on the timeliness and effectiveness of these actions.
The main medium-term challenge for The Gambia is to make a decisive break from the “stop-go” policies of the past and to institute policies that will establish the conditions for sustainable growth and rising living standards. This assessment is supported by the ex post assessment of The Gambia’s performance under Fund-supported programs. As part of a medium-term strategy, the authorities should (1) consolidate recent gains in macroeconomic stability; (2) stabilize and reduce the public debt burden, in part by ensuring that external flows are largely concessional or in the form of grants; and (3) address remaining structural weaknesses in the economy to foster private sector activity and improve competitiveness.
In the near and medium term, The Gambia also faces a critical need to strengthen governance and the overall capacity of economic management. The core areas for capacity building will continue to be public expenditure management, domestic debt management, the statistical system, and governance at the CBG and its domestic and foreign exchange operations. As for foreign exchange operations, an urgent task is to accelerate the implementation of the action plan to strengthen internal controls of the central bank, as recommended by the recent audit reports and the Fund’s Safeguard Assessment.
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Public Information Notice (PIN) No. 05/121
FOR IMMEDIATE RELEASE
September 8, 2005
Revised: 9/28/05
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