Statement by the IMF Staff Representative on The Gambia

This 2005 Article IV Consultation highlights that The Gambia’s economic performance since the mid-1980s has been uneven owing to exogenous shocks, macroeconomic and structural policy slippage, poor governance, and weak institutions. The economic performance has been constrained by policy distortions and by recurrent weaknesses in fiscal policy. Expansionary policies have increased the government’s recourse to domestic bank financing, which, in turn, has raised real interest. Macroeconomic performance has strengthened over the past 18 months particularly through end-2004, in response to strong financial policies.

Abstract

This 2005 Article IV Consultation highlights that The Gambia’s economic performance since the mid-1980s has been uneven owing to exogenous shocks, macroeconomic and structural policy slippage, poor governance, and weak institutions. The economic performance has been constrained by policy distortions and by recurrent weaknesses in fiscal policy. Expansionary policies have increased the government’s recourse to domestic bank financing, which, in turn, has raised real interest. Macroeconomic performance has strengthened over the past 18 months particularly through end-2004, in response to strong financial policies.

July 18, 2005

This statement provides additional information on developments since the issuance of the staff report for the 2005 Article IV Consultation for The Gambia. This information does not materially change the staff appraisal.

Recent Macroeconomic Developments

1. Macroeconomic conditions continued to improve in the second quarter of 2005. Inflation continued to trend downwards, with the 12-month increase in consumer prices registering just 4 percent at end-April compared with 15.8 percent in April 2004. The growth in broad money abated slightly and rose by 22 percent on a 12-month basis at end-May 2005 compared to 24.3 percent at end-April 2005 and 30.3 percent at end-May 2004. The preliminary fiscal outturn through May suggests a significant compression in nondiscretionary spending vis-à-vis the 2005 budget, in line with the quarterly ceilings of D 190 million that were recently established. The overall budget deficit on a commitment basis through May was 50 percent lower than that which underlies the projection in the staff report.

2. At its last meeting held on July 7, 2005, the Monetary Policy Committee of the Central Bank decided to reduce the Rediscount Rate (its policy rate), by 4 percentage points to 25 percent. Staff believes that this interest rate reduction is appropriate given the continued decline in inflation, the strength of the dalasi in the foreign exchange market, and improvements in fiscal performance.

Action Plan for Strengthening Internal Controls at the Central Bank

3. The Central Bank has adopted an Action Plan to strengthen internal controls drawing on the report of the new external auditors and the Fund’s Safeguard Assessment recommendations. The Action Plan establishes a timetable and identifies the additional resource requirements necessary for helping the Central Bank to develop international best practices in accounting and auditing. In particular, the plan seeks to address weaknesses with respect to the following Central Bank functions: (1) custodian of foreign reserves; (2) banking services to the government; (3) public debt management and open market operations; (4) custodian of banks’ cash reserves; and (5) issuance of banknotes and coins.

4. The Action Plan contains provisions for the establishment of an Audit Committee, in charge of overseeing internal and external audit arrangements, and for the implementation of foreign exchange reserve management guidelines designed to address procedural responsibilities and ensure a proper separation of duties in foreign reserve operations. In staff’s view, the Action Plan is comprehensive. Additional work is needed to spell out more clearly the reform priorities (in particular to address the findings of the reaudits of the 2001-02 accounts and the special audit on foreign reserves), the timeline for certain actions, and the specific technical assistance needs.

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
Author: International Monetary Fund