Statement by Peter Gakunu, Alternate Executive Director, and John Steytler, Advisor to the Executive Director, 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.


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

1. The Gambian authorities appreciate the candid exchange of views during the 2005 Article IV Consultation and Ex-Post Assessment (EPA) discussions. They agree with the thrust of the staff assessments, which give a fair account of recent economic developments in The Gambia and the challenges ahead.


2. The Gambia is a small open economy, dominated by agricultural production and is highly vulnerable to external shocks. This notwithstanding, The Gambia was considered one of the best performers in Sub-Saharan Africa during the past 25 years, owing mainly to the pursuit of prudent policies. Real GDP growth has been higher than the average for Sub-Saharan Africa and inflation consistently lower than the Sub-Saharan African average. The Growth Competitiveness Index (GCI) of the 2004 Global Competitiveness Report, ranked The Gambia number 52 out of 102 countries and number 6 in Africa. In the sub index on public institutions, The Gambia was ranked number 39 in the world and 4 in Africa.

3. Notwithstanding this excellent record of accomplishment, the authorities recognize that the country continues to face enormous developmental challenges, including a narrow economic base and one of the highest incidences of poverty on the continent and indeed in the world. Against this backdrop, my authorities’ strategy in going forward rest on three pillars, namely to (i) consolidate recent gains in macroeconomic stability; (ii) to stabilize and reduce the public debt burden; (iii) and to address remaining structural weaknesses in the economy to support private sector driven growth.

4. Recently, in 2002 the authorities’ PRGF arrangement went off track due to misreporting on net international reserves and government expenditure. The authorities reacted quickly to repay the resultant non-complying disbursements, making the last payment ahead of schedule. Moreover, the authorities have implemented a number of remedial measures and reforms to strengthen external controls of the central bank as recommended by the Fund Safe Guard Assessments and the independent audit report, as well as to strengthen the public expenditure management system to prevent similar situations from occurring again. These actions attest to the importance that the authorities attach to their relationship with the Fund.

5. However, the absence of a Fund program has put a tremendous burden on the authorities in terms of domestic debt servicing and their pursuit of reaching the MDGs. They, therefore, request the support of Executive Directors for a staff monitored program leading to a new PRGF program to enable them to reach the HIPC completion point as soon as possible.

6. Notwithstanding lack of external support, The Gambia’s macroeconomic performance has strengthened significantly since 2003. Thanks to improved fiscal operations, coupled with tight monetary policy, the authorities have managed to successfully stabilize the economy, following the slippages of 2002. Real GDP rebounded to an average annual rate of 6 percent in 2003-04 following a contraction of 3.2 percent in 2002. Inflation decelerated to 4.0 percent in April 2005 from a peak of 17 percent in 2003 and net international reserves rose by more than US$22 million or over 30 percent in 2004. The overall fiscal balance deteriorated slightly in the first 5 months of 2005, due to additional expenditure needs related to external shocks, as well as a one off expenditure to clear arrears in membership dues to the Economic Community of West African States. However, it should be noted that the basic primary surplus more than doubled to about 9½ percent of GDP, indicating an improved fiscal performance.

Issues in 2005

7. Looking ahead, real GDP is estimated at a robust 5.0 percent in 2005, and inflation is expected to remain at a low rate.

Fiscal Policy

8. Key to the stabilization of economic conditions in The Gambia, has been tight fiscal policy, as reflected in the primary fiscal surplus as a ratio of GDP, which more than doubled in the current fiscal year. The authorities remain committed to prudent fiscal policies and will contain domestic borrowing for the rest of the year by limiting discretionary expenditure allocations to D 190 million (a compression of roughly 2 percent of GDP compared to the Budget), by the end of the year. The authorities will not entertain any extra-budgetary spending or central bank borrowing during the remainder of the year.

9. Although the authorities are committed to prudent fiscal policies aimed at attaining debt sustainability, they are equally concerned about the importance of restoring the level of poverty related expenditure, which was severely compressed in 2004. In this connection, a key concern of my authorities is the high domestic debt service burden on the budget, which leaves very little fiscal space for pro-poor expenditure. The recent downward trend in interest rates will, provide additional fiscal space for pro-poor expenditure, but this will not be enough. The authorities, therefore, request the assistance of the international community, including the IMF, to provide additional resources to enable them to implement their PRSP agenda. Moreover, additional resources would also be necessary to implement capital projects crucial to put the country on a higher and sustainable growth path.

10. Learning from past mistakes, my authorities have started to implement a number of measures to strengthen public financial management, including the issuance of financial regulations to make their new organic budget operational, the formation of a Cash Management Committee at the DOSFEA, and the 2001 public accounts has been finalized and adopted by the National Assembly. In addition, they have also completed the auditing of the 1991-99 accounts, and have finalized and submitted the 2000 accounts to the Auditor General. At the same time, the authorities have started to update the general ledger for fiscal data for 2002-05, and intend to finalize it by year-end.

Monetary and Financial Sector Issues

11. The authorities have implemented a number of measures to strengthen governance of the Central Bank of The Gambia. Most notable measures include completion of the new audits for the 2001 and 2002 accounts, as well as the special audit of foreign transactions; establishment of an audit committee to oversee the external audit process; preparation of formal guidelines for foreign exchange operations; and development of a timetable to initiate and complete the process of adopting international accounting standards. Moreover, the authorities will soon submit to the National Assembly, the revised CBG bill, which will significantly strengthen the operational independence of the central bank. In addition, at its latest meeting on July 13, 2005, the Board of the Bank of The Gambia adopted a comprehensive action plan to implement the external auditors’ recommendation to further strengthen internal controls. The Board also approved operating guidelines for the currency office, the internal audit department and foreign currency operations, and adopted the audited financial statements for 2003.

12. The Central Bank of The Gambia has successfully managed to reduce inflation to single digit level and to stabilize the exchange rate, while at the same time enhancing the transparency of their operations through an effective communications strategy. The authorities believe that the current money-based monetary framework has served them well, given the close relationship between money and inflation in The Gambia. To further enhance and strengthen the monetary framework, they are taking steps to introduce a new 14-day instrument that will separate monetary operations from the financing of the budget. The authorities are also considering the introduction of an overnight instrument to manage liquidity on a day-to-day basis, a secured credit facility aimed at encouraging banks to engage in interbank transactions, and the phasing out of the rediscount facility.

13. The authorities broadly agree with the staff’s overall assessment of The Gambia’s financial system. According to the latest Monetary Policy Statement of July 07, 2005, the fundamentals of the banking system remain solid. The industry average risk weighted capital adequacy ratio was 82.8 percent at end March 2005, and all banks observed the minimum capital requirement of 8.0 percent. In addition, the quality of banks’ assets improved. Non-performing loans fell from about 25 percent in 1998 to about 10 percent in early 2005, and were adequately provisioned for.

14. The low level of financial intermediation remains an issue of concern for the authorities. To deepen financial intermediation, the authorities will continue to pursue sound macroeconomic policies to further bring down and ensure lasting low interest rates, as well as design medium-term structural reforms to strengthen creditor rights, which have been identified as a key constraint for the development of the financial system. Recently the CBG lowered its lead interest rate by 4.0 percent, which should assist in attainment of this objective.

Structural Issues

15. The Gambian authorities agree with staff that structural reforms are critical to promoting private sector development, reducing the costs and risks of doing business, generating employment and putting the economy on a higher and sustainable growth path. In this regard, they will carefully study the World Bank’s recent Diagnostic Assessment of The Gambia’s Investment Climate, with a view to coming up with an appropriate action plan.

16. Progress on the trade liberalization front has been significant and The Gambia has one of the most open and liberal trade regimes in sub-Saharan Africa, with a simple average tariff of only 12.7 percent compared to the sub-Saharan average of 20 percent, and low non-tariff barriers. The authorities are committed to further trade liberalization, and there are ongoing initiatives to further identify bottlenecks to the country’s competitiveness. For instance, The Gambia has been selected as one of the countries under the interagency initiative, the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries.

Ex-Post Assessment

17. The Authorities concur broadly with the findings of the Ex-Post Assessment. They, however, feel that such an assessment could have been more valuable if it was done at an earlier stage. They also concur with the importance of improving accountability and transparency of public expenditures and strengthening of the central bank’s internal controls. They want to stress, however, that some of the accounting problems dated back to the 1980s and would like to emphasize that there are ongoing efforts to audit all of the government’s outstanding fiscal accounts.

18. The authorities recognize that slow progress was made in implementing structural reforms and diversifying the economy. Their intention is to create an environment conducive for private sector activities, which at this stage is mainly concentrated on trading activities. In addition, the authorities are of the view that over ambitious targets may have contributed to failures to meet quantitative criteria and benchmarks under Fund arrangements.

Other Issues

19. The authorities realize the importance of timely, accurate and reliable macroeconomic statistics for policy formulation and are committed to strengthening the statistical system. Attesting to this is the fact that the authorities have voluntarily subscribed to the Fund’s General Data Dissemination Standard (GDDS), and have already posted its meta data, which describes the current data practices, weaknesses, as well as improvement plans on the Fund Data Dissemination Bulletin Board. In addition, the authorities have in all earnest, started to implement the recommendations of the Fund’s recent data ROSC mission, including preparation of a comprehensive statistics reform package that they intend to present to donors for funding. They hope that they can continue to count on Fund TA in its core areas of expertise to strengthen the statistical system.

20. In conclusion, we believe that the continued dialogue between the authorities and the staff has been fruitful. We want to reiterate the strong commitment of the authorities on the reforms and in addressing the economic challenges ahead. We believe that the authorities have done enough to demonstrate their commitment towards sound policies, and shown their eagerness to engage with the Fund again under a PRGF-supported program. This will enable the authorities to reach the HIPC completion point, which is essential to alleviate the high debt overhang, and to benefit from the much needed donor support to enable The Gambia to reach the MDGs by 2015. This is critical because as evidenced by the experience of The Gambia’s economic performance without access to resources is clearly not sufficient to effectively combat poverty.

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