The Gambia
Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix for The Gambia underlies that the exchange rate is broadly in line with fundamentals, although data weaknesses and uncertainties prevent a definitive assessment. The Gambia’s current account deficit is higher than economic fundamentals would predict, and a depreciation of 11 percent would be needed to restore sustainability. The external sustainability approach suggests that 4–6 percent depreciation is needed for the current account deficit to be consistent with constant net foreign assets as a share of GDP.

Abstract

This Selected Issues paper and Statistical Appendix for The Gambia underlies that the exchange rate is broadly in line with fundamentals, although data weaknesses and uncertainties prevent a definitive assessment. The Gambia’s current account deficit is higher than economic fundamentals would predict, and a depreciation of 11 percent would be needed to restore sustainability. The external sustainability approach suggests that 4–6 percent depreciation is needed for the current account deficit to be consistent with constant net foreign assets as a share of GDP.

I. External Stability and Competitiveness in The Gambia1

Main Findings

The exchange rate is broadly in line with fundamentals, although data weaknesses and uncertainties prevent a definitive assessment. Prudent debt management and structural reforms are central to external stability and competitiveness.

External stability

Balance of payments flows. Historically, except for an abrupt fall in reserves in 2001 due to macroeconomic slippages, the overall balance of payments (BOP) has averaged an annual surplus of 2 percent of GDP since 1997. A widening current account deficit since 2004 reflects foreign direct investment in tourism and telecommunications.

The macroeconomic balance approach finds that The Gambia’s current account deficit is higher than economic fundamentals would predict and a depreciation of 11 percent would be needed to restore sustainability.

The external sustainability approach suggests that a 4-6 percent depreciation is needed for the current account deficit to be consistent with constant net foreign assets as a share of GDP.

The equilibrium real exchange rate (ERER) approach finds evidence of slight overvaluation (2 percent) using single-country estimation, and significant undervaluation (33 percent) using evidence from a panel of countries.

Competitiveness

The Gambia’s real exchange rate has depreciated significantly over the last two decades, consistent with relatively low productivity growth.

Structural indicators of competitiveness rank The Gambia better than many ECOWAS peers but suggest that structural improvements would boost competitiveness.

A. Background

1. The Gambia’s exchange rate regime is a managed float. Though the exchange rate of the dalasi is determined in the interbank foreign exchange market, the Central Bank of The Gambia (CBG) intervenes in the market from time to time to (1) accumulate foreign reserve assets to meet targets or prevent reserves from being depleted, and (2) calm disorderly conditions when the exchange rate is volatile and the market illiquid.

2. There have been strong balance of payments inflows in recent years:

  • Foreign assets. Private banks and nonbanks have accumulated significant foreign assets in recent years (see Figure I.1), owing to strong external performance—in particular, in the tourist sector—and large inflows of foreign direct investment (FDI). During this time, the CBG also accumulated international reserves, increasing reserve cover.

  • External liabilities. After official external debt, the largest component of external liabilities in The Gambia is the estimated stock of FDI of about $200 million—about one-third of GDP. Until recently external liabilities were dominated by official debt. However, at the end of 2007 HIPC and MDRI relief of about US$377 million considerably reduced external indebtedness.

Figure I.1.
Figure I.1.

Foreign Assets, Liabilities, and Net Position

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

Source: BIS, CBG, GIPFZA, DoSFEA, and staff estimates.

3. The recent dalasi appreciation also reflects solid external performance. After a period of trend dalasi depreciation in nominal and real terms since the mid-1980s, solid external performance created pressures that brought about a nominal and real appreciation in 2007. However, the impact of appreciation on the tourism sector is yet to be seen, since prices were largely negotiated with tour operators before the appreciation.

4. Despite improvements, data deficiencies complicate assessment of external developments in The Gambia. Box I.1 revisits the findings of a previous selected issues paper describing data shortcomings. While BOP data are continuously being improved, a rough calculation of possible margins of error suggests the current account balance could be over- or under-estimated by as much as 2 percent of GDP.

DATA DEFICIENCIES IN THE GAMBIA’S BALANCE OF PAYMENTS

An earlier Selected Issues Paper (see IMF, 2004) described the “constraints and data deficiencies faced in the compilation, and the implications for the interpretation of balance of payments figures.” While the central bank (CBG) has recently begun to publish quarterly BOP data, significant weaknesses remain. This box summarizes the major data constraints.

  • ➢ Trade balance. It is estimated that 30 percent of all imports are reexported, generating a surplus on the services account. But official export data are patchy and based in part on information on the groundnut trade and an estimate of informal trade with Senegal based on crop size. Uncertainties in these estimates could impact the current account balance by ½ percent of GDP.

  • ➢ Services balance. Services are dominated by tourism, reexport earnings, and an estimate of service imports. Though tourist arrival figures are reliable, expenditure and earnings per hotel bed are IMF staff estimates. Reexport earnings are thus subject to caveat. Moreover, service imports are based on estimated insurance and freight plus a figure for the unknown purchase of services by residents. Together these suggest a 1 percent margin of uncertainty in the estimated current account as a percent of GDP.

  • ➢ Income and current transfers. Recently, the CBG has begun collecting remittance data from the banks, which has led to an upward revision in estimated inflows. Official transfer data are reasonably accurate, and the new Central Project Management and Aid Coordination Department (in the Department of State for Finance and Economic Affairs) should improve the timeliness and frequency of data. Income estimates rely on estimated returns from FDI (see below), generating a margin of uncertainty on the current account balance of about ½ percent of GDP.

  • ➢ Capital and financial account. Changes in the net foreign assets of banks and nonbanks are reliable. Official borrowing figures are adjusted to account for the lag on implementation of projects. FDI data are based on information on inward investment compiled by the investment agency, GIPFZA. These data are not collected explicitly for BOP purposes, capture only official investment, and do not record nonresident investment in vacation homes or reinvested earnings from FDI. These items are estimated by staff.

There is thus considerable uncertainty about the current account balance. While reported figures reflect the best estimates of staff and the authorities, the margin of uncertainty could be as large as 2 percent of GDP

B. External Stability

5. Because different methods of assessing external stability give different results, rather than relying on any single methodology, it is best to take a holistic approach based on a variety of methods. In this chapter The Gambia’s external stability is examined using four approaches: (i) the evolution of the balance of payments; (ii) the macrobalance approach; (iii) the external sustainability approach; and (iv) the equilibrium exchange rate approach.2 Estimates for The Gambia’s real effective exchange rate (REER) range from overvaluation of 11 percent to undervaluation of 33 percent (see Table I.1), but the latter derives from a cross-country regression that does not seem to account well for developments in the Gambia’s external balance. The other approaches suggest a slight-to-modest overvaluation, but the estimates are well within the margins of error for a result of no overvaluation. As a result, we conclude that The Gambia’s real effective exchange rate is in line with what economic fundamentals would suggest.

Table I.1.

Summary of Results—External Stability and the Real Exchange Rate

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Historical evolution of the balance of payments

6. The balance of payments approach inquires into the sustainability of The Gambia’s current account deficit based on the nature and sustainability of capital inflows and the level of its international reserves. From 1997 to 2007, The Gambia’s balance of payments has been roughly in balance. However, a structural shift beginning in 2004 that resulted from higher direct investment led to a corresponding increase in imports (see Figure I.2).

Figure I.2.
Figure I.2.

Developments in the Balance of Payments, 1997–2007

(Percent of GDP)

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

  • From 1997 to 2003 the current account registered an average deficit of only 2½ percent of GDP but for 2004–07 it ballooned to an average deficit of 11 percent.

  • -- The deficit on trade in goods and nonfactor services grew from an average of 11 percent of GDP for 1997–2003 to an average of 27 percent for 2004–2007 as imports of goods jumped.

  • -- The jump in imports was partially offset by an increase of about 3 percent of GDP in the surplus on the services account.

  • Developments with the capital and financial account were dominated by the increase in direct investment from an average of 3½ percent of GDP for 1997–2003 to 13¼ percent for 2004–07.

  • -- The increase in direct investment mainly went to telecommunications and tourism projects.

  • -- Other investment averaged less than 2 percent of GDP for both periods.

  • -- Similarly, portfolio investment was negative, reflecting portfolio outflows, but constituted less than 1½ percent of GDP.

  • Developments in The Gambia’s international reserves are dominated by the severe deterioration of the BOP in 2001 that resulted in a 10 percent of GDP decline in international reserves. Except for this episode, international reserves grew on average by ½ percent of GDP annually in 1997–2003 and by 4 percent annually for 2004–07.

  • The real depreciation of The Gambia’s currency by more than 50 percent between 2000 and 2003 does not seem to have had much impact on the trade balance.

  • -- Contrary to expectations, despite the depreciation, exports declined from 28 percent of GDP in 2000 to 22 percent in 2004. Imports declined from 36 percent of GDP to 29 percent from 2000 to 2001, but in the following years they rose to 33 percent by 2003 and increased investment in 2004 stimulated a large jump to 47 percent.

  • In conclusion, The Gambia’s balance of payments seems sustainable on a flow basis. The deficit on the trade balance has been financed by direct investment and an improvement in the services balance. While the surge in direct investment may not be maintained, imports would likely drop in line with any fall off in investment.

  • -- Although the flows in the balance of payments seem sustainable, the current account deficit could lead to an unsustainable stock of net foreign liabilities. Indeed, because of large debt stocks, The Gambia received HIPC/MDRI relief in 2007. The Gambia’s net foreign assets are assessed below in the section on the external sustainability approach.

The macroeconomic balance approach

7. The macroeconomic balance approach compares The Gambia’s underlying current account balance with an appropriate savings-investment norm. The approach proceeds in three steps:

  • The actual current account deficit is stripped of temporary factors to arrive at an estimate of the underlying current account deficit.

  • A savings-investment norm is estimated based on cross country data.

  • Trade elasticities are used to estimate the change in the exchange rate that would be required to bring the underlying current account to the level implied by the savings-investment norm.

8. For 2007 the actual current account deficit was 12.5 percent of GDP and the underlying deficit is estimated at 11.7 percent. This estimate is derived as the average of four different techniques to remove temporary factors (see Table I.2). The first technique subtracts factors that may have caused the current account deficit to deviate from its underlying value. In 2007, the main factor is the decline in the groundnut sector due to poor rains and bad marketing. The second technique uses the World Economic Outlook forecast for 2013, which is generated assuming that temporary factors unwind over the medium term. Finally, the last two techniques rely on data filters, specifically a three-year moving average and a Hodrick-Prescott filter. The average of the four techniques is taken as the best estimate of The Gambia’s underlying current account balance.

Table I.2.

Estimate of Underlying Current Account Balance

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9. Based on coefficients derived from cross-country regressions, the appropriate savings-investment norm for The Gambia is estimated to be 3.8 percent of GDP (see Table I.3). There are three main contributors to the current account norm: (i) high population growth relative to major trading partners implies a structural deficit of about 2 percent of GDP; (ii) the negative NFA position implies a deficit norm of about 1 percent of GDP because debt service payments are higher; and (iii) the average fiscal deficit of 5 percent of GDP over the last three years implies higher imports. Taking the average of the pooled and fixed effects estimation from the macroeconomic balance approach implies a 3.8 percent current account deficit norm.

Table I.3.

Calculation of the Current Account Norm

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Coefficients taken from page 5 of IMF Occassional Paper 261

10. However, there are reasons for caution in using cross-country regressions to derive a current account norm for The Gambia:

  • First, the country has had relatively high FDI inflows in the last few years—over 13 percent of GDP—starting in 2004 and stimulating a sharp increase in imports. FDI is not a factor considered in the cross-country regressions used to derive the saving-investment norms.

  • Second, low-income countries like The Gambia often receive large foreign aid inflows. To the extent these are official grants and are included in the current account, they may reduce the underlying current account balance. However, to the extent that aid inflows take the form of loans, they may provide financing for a significant increase in the current account deficit. For 2004–2007, official grants to The Gambia averaged 4½ percent of GDP and official loans averaged 7½ percent. Foreign aid inflows are also not a factor in the cross-country regressions used to derive the savings-investment norms. Other econometric studies (for example, Isard and others, 2001) suggest that about half of foreign aid inflows are translated into an increase in the current account deficit.

11. The exchange rate depreciation required to close the 8 percent of GDP gap between the underlying current account and its equilibrium value is estimated to be 11 percent. Trade elasticities (the percentage change in the value of exports and/or imports with respect to a percentage change in the real exchange rate) were calculated using standard CGER elasticities augmented somewhat for the lagged impact of the real exchange rate on tourist arrivals, suggested by experience since 2001 (see Table I.4). This implies a 1.4 percent depreciation is necessary to improve the current account by 1 percent of GDP. A 10.9 percent real depreciation would be needed to close the 7.9 percent of GDP gap between the underlying and norm current accounts (see Table I.5).

Table I.4.

Trade Elasticities

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Table I.5.

Calculation of Over/Under Valuation via the Macroeconomic Balance Approach

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12. However, the large FDI and aid inflows suggest that the norm for The Gambia’s underlying current account deficit should be higher than the results of the cross-country regressions suggest. As a result, the macrobalance approach may be biased toward suggesting a larger overvaluation than is actually the case.

The external sustainability approach

13. The external sustainability approach estimates the current account balance consistent with an appropriate level of external indebtedness. Like the macrobalance approach, it involves three steps: (i) calculating the level of the current account that stabilizes the net foreign asset position (NFA) at a given level; (ii) comparing the underlying current account balance with that benchmark; and (iii) computing the adjustment in the REER needed to align the underlying current account balance with the NFA-stabilizing level.

14. It can be shown that the current account balance consistent with an unchanged NFA-to-GDP ratio is3:

(1 )cas=g+π(1 +g) (1+π)bs

where: cas = stabilizing level of the current account balance to GDP

  • g = estimated growth rate of real GDP

  • π = estimated GDP inflation

  • bs = stable NFA-to-GDP ratio

For The Gambia the following assumptions are made:

  • cas = -11.7 % (underlying current account deficit in 2007)

  • g = 5¼ % (projected growth rate of real GDP)

  • π = 4¼ % (projected growth in the GDP deflator)

  • bs = -70 % (NFA-to-GDP ratio at the end of 2007)

Implications of current levels of the current account and NFA

15. The main problem in implementing the external sustainability approach is the choice of NFA target. Before selecting a target it is useful to consider two benchmark cases: (1) the long-run NFA position that would result from maintaining the present underlying current account balance; and (2) the current account balance required to stabilize the NFA position at its current level.

16. The 2007 underlying current account deficit is not sustainable. In the section on the macroeconomic balance approach, the underlying current account deficit including grants was estimated at 11.7 percent of GDP for 2007. The Gambia’s real growth rate is estimated at 5¼ percent and inflation at 4¼ percent based on the projections for these variables over the long term (2008–2028). According to equation (1), a current account balance of –11.7 percent of GDP would result in a long-run NFA position equal to –132 percent of GDP. Thus, the 2007 underlying current account deficit is clearly unsustainable over the long run.

17. Sustaining the 2007 net foreign asset position would require a depreciation. The Gambia’s end-2007 NFA position is estimated at –67 percent of GDP. A current account deficit of 5.9 percent of GDP is required to keep NFA at this level, close to the norm of 4.0 percent estimated from the macroeconomic balance approach. Using the coefficients in Table I.4, a real depreciation of 7.6 percent would result in a stable NFA to GDP ratio.

Choosing an NFA target

18. While the current value of NFA serves as a benchmark, the appropriate target may be a different level. Here we construct a target NFA position assuming that the current values for The Gambia’s gross foreign assets remain unchanged and setting an upper limit on gross foreign liabilities. The results are shown in Table I.7. In 2007 The Gambia’s NFA measured 67 percent of GDP. Net foreign exchange reserves measured 20 percent of GDP, net bank claims on foreigners 6 percent of GDP, net nonbank claims on foreigners 9 percent of GDP, and public external debt 47 percent of GDP.

Table I.6.

Implications of Maintaining 2007 Levels of the Current Account and Net Foreign Assets

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Table I.7.

Current and Target Net Foreign Assets

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19. In 2007 the bank and nonbank sectors both had net creditor positions. In choosing an NFA target, it is assumed that these sectors could sustain an increase in gross foreign liabilities up to the level of gross foreign assets—they do not become net debtors. The debt sustainability analysis for The Gambia sets the maximum level of the NPV of debt at 30 percent of GDP. This corresponds to a nominal face value of approximately 60 percent of GDP, compared to the actual 50 percent after debt relief at the end of 2007. Finally, it is assumed that The Gambia can sustain an increase of 10 percent of GDP in FDI. However, if FDI does not increase as expected, the NFA and current account targets would need to be reduced. A second scenario sets a lower NFA target on the assumption that FDI falls by 10 percent of GDP instead of increasing.

20. It is therefore estimated that The Gambia’s sustainable net foreign liability position could increase by 33 percent of GDP in the high FDI scenario but only 13 percent in the low scenario. Equation (1) then produces a current account target of 8.9 percent of GDP in the high scenario and 7.1 percent in the low. To close the gap with the underlying current account deficit of 11.7 percent of GDP would require a real depreciation of 3.7 percent of GDP in the high scenario and 6.1 percent in the low (see Figure I.3).

Figure I.3.
Figure I.3.

NFA Target and Required Depreciation

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

Equilibrium real exchange rate (ERER) approach

21. The equilibrium real exchange rate (ERER) approach attempts to determine whether the real exchange rate is in line with economic fundamentals by regressing the REER on key macroeconomic variables. Both single-country and panel results were used to assess The Gambia’s REER (Figure I.4).

Figure I.4.
Figure I.4.

EREER Estimations

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

  • The single-country model suggests the dalasi was overvalued by 2 percent in 2007. In the model, the fundamentals—in particular terms of trade, openness, productivity growth, and government consumption—predict a trend dalasi real depreciation against trading partners since the mid-1980s. In these terms, the depreciation around 2002 was consistent with the trend in fundamentals. Moreover, the recent dalasi appreciation is a return to fundamentals after a previous over-depreciation. The dalasi REER is now slightly overvalued.

  • Using coefficients from a panel of 28 oil-importing sub-Saharan African countries (Chudik and Mongardini, 2007), the dalasi was instead undervalued by 33 percent in 2007. However, the panel data do not show any response in the model to exchange rate depreciation in about 2001–03, which suggests the findings may not be robust.

C. Competitiveness

Evolution of the real effective exchange rate

22. Figure I.5 shows the evolution of The Gambia’s REER, nominal effective exchange rate (NEER), and inflation differential versus partner countries from 1980 through 2007. The REER went through several stages during this period:

  • From independence in 1965 until 1986, when the dalasi was pegged to the British pound, the REER was relatively stable, staying within 4 percent of its index average (141) throughout.

  • In 1986, the dalasi was allowed to float. This resulted in a 50 percent drop in the NEER and a 28 percent drop in the REER.

  • After the switch to a floating exchange rate, the REER stayed within 10 percent of its period average from 1986 to 2000. A moderate nominal appreciation of the dalasi was offset by a negative inflation differential with partner countries. Interestingly, the 1994 depreciation of the CFA franc seems to have had relatively little impact on The Gambia’s REER.

  • From 2000 until 2003, The Gambia experienced an economic crisis due to fiscal slippages and accommodating monetary policy. The fiscal balance fell to a deficit of 14 percent of GDP in 2001 while credit to the government jumped 25 percent and NFA in the banking system dropped by a third. By 2003 The Gambia’s inflation differential versus its partners had increased to 14 percent. The REER declined 50 percent over the period.

  • In late 2003 the authorities began to tighten fiscal and monetary policies, which lowered inflation and stabilized the exchange rate. From 2003 to 2006, the REER remained within a 3 percent band around its average.

  • In 2007, the authorities reduced the fiscal deficit substantially and further tightened monetary policy. As a result, by the first quarter of 2008 the REER had appreciated by 24 percent compared to the 2003–06 average, but it was still 40 percent below its 1986–2000 average.

Figure I.5.
Figure I.5.

Effective Exchange Rates and Inflation, 1980–2008 Q1

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

23. Figure I.6 compares the evolution of The Gambia’s REER with three other countries. Senegal is The Gambia’s most important trading partner and is similar in climate and thus has the potential to produce similar agricultural goods. Cape Verde is a significant tourist destination for European travelers. Like The Gambia, which is a major re-exporter of goods to Senegal and Guinea-Bissau, Benin serves as a major re-exporter of goods to Nigeria and Togo. Other possible comparators, Guinea-Bissau and Sierra Leone, were rejected due to the impact of recent conflicts.

Figure I.6.
Figure I.6.

REER Developments in Comparator Countries, 1980–2007

(Average of 2000 = 100)

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

24. Though it is difficult to know whether The Gambia was competitive in absolute terms in 2007 without knowing if its REER was significantly overvalued in 1980, in relative terms it is clear (see Figure I.6) that its REER has fallen significantly against these countries over the last 27 years.

25. Productivity. According to the Balassa-Samuelson theorem, a country’s real exchange rate may appreciate compared with trading partners if (1) productivity increases faster in the traded than in the nontraded goods sector, or (2) productivity is uniform across sectors but the traded goods sector is relatively capital-intensive. Thus, the fall in The Gambia’s REER may reflect a decline in relative productivity rather than an improvement in competitiveness. Unfortunately, good data on productivity in both sectors are not readily available for many developing countries. Here, real GDP per capita is used as a rough proxy for total factor productivity.

26. Figure I.7 shows growth in real GDP per capita in The Gambia compared with the three comparator countries. Growth of real GDP per capita in The Gambia has lagged growth in Cape Verde and Senegal. Using changes in real GDP per capita to adjust for productivity changes in the REER leads to the productivity-adjusted REER shown in the third panel. The fact that change in this measure for The Gambia is comparable in magnitude to the changes in Cape Verde and Senegal suggests that changes in The Gambia’s REER may be driven largely by productivity changes. It also suggests that The Gambia has not lost competitiveness.

Figure I.7.
Figure I.7.

Productivity Adjusted REER, 1991–2003

(Percent Change)

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

Survey-based indicators

27. While survey indicators do not necessarily reflect developments in the real exchange rate, they point to possible structural weaknesses that could eventually undermine external stability. Survey-based indices of the quality of the business climate suggest that The Gambia compares well with other ECOWAS member countries despite its poor overall competitiveness ranking. The indices used in this section are the Doing Business Survey from the World Bank and the Global Competitiveness Index from the World Economic Forum.

28. The World Bank’s Doing Business Survey ranks The Gambia 131 out of 178 countries in 2008, third among ECOWAS member countries behind Ghana and Nigeria. Ease of trade is identified as a major strength for The Gambia. Weaknesses, on the other hand, cover a wide range of areas, such as time to register property (371 days), strength of investor protection (index 2.7 out of 10), total tax rate (287 percent of profit), and time to pay taxes (376 hours per year).

29. The World Economic Forum’s Global Competitiveness Index reports that inadequate access to financing, poor infrastructure, an uneducated workforce, and high tax rates are major obstacles to doing business in The Gambia.

Figure I.8.
Figure I.8.

Ease of Doing Business Compared to Peers

Citation: IMF Staff Country Reports 2008, 325; 10.5089/9781451815634.002.A001

Source: Doing Business 2008
Table I.8.

Survey-Based Measures of Competitiveness

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30. Because tourism is one of The Gambia’s major industries, staff examined indicators in this area. According to the Travel and Tourism Competitiveness Index for 2007, The Gambia fares well on safety and security. It also does well on affinity for travel and tourism, which includes tourism openness and the attitude of the population toward foreign visitors. The recent appreciation of the dalasi has weakened price competitiveness, which was strong in 2006–07. The Gambia’s tourism industry also lags behind on information and communication technology and transportation infrastructure.

31. To assess competitiveness in 76 low-income countries Di Bella, Lewis, and Martin (2007) used as indicators relative price measures, external sector outcomes, production costs, and measures of institutional quality4 Each indicator is presented as a decile ranking. For our purposes, we looked only at ECOWAS member countries as a suitable peer group for The Gambia.5

  • Measures of RER misalignment. These includes changes in the terms of trade (ITT) and purchasing power parity (CPI) -based RER over the last five years, and a measure of the deviation of the equilibrium RER from the actual RER derived from the panel estimates of Chudik and Mongardini (2007).

  • External sector outcomes. These include changes in export volumes and in the export share of a country in world exports in the last five years. Both volume and market shares refer to non-oil exports. However, the Gambia’s export of goods constitutes only 20–30 percent of total exports of goods and services.

  • Production costs. To make the list comparable across a wide range of exports, these include a proxy for energy prices (diesel) and telecoms. Owing to data limitations, transportation costs and wage are omitted.

  • Institutional indicators. Survey-based indices of the quality of the business climate drawn from the Doing Business Survey from the World Bank, and the Corruption Perception Index from the Transparency International assess institutions, bureaucratic effectiveness, governance, and security. These indicators were particularly useful for low-income countries because they point directly to specific impediments that impair competitiveness.

32. A score was constructed as the simple average of the individual indicators (deciles) within each of the four categories; the standard deviation of all the indicators for each country was computed to measure dispersion of the indicators. Both composite scores and standard deviations were then ranked in deciles.

Table I.9.

Competitiveness Rankings6 of ECOWAS Members in 2006

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Source: Di Bella, Lewis, and Martin (2007).

33. The Gambia ranked in the middle among ECOWAS members in 2006, as it had in 2005. Nigeria and Ghana were among the best performers in the group. The weakest areas for the Gambia lies in its small and concentrated export sector and high energy prices. There are some problems with bilateral comparisons, however. For example, it is difficult to form a judgment on the relative competitiveness of The Gambia and Senegal because The Gambia outperformed Senegal on some indicators, and Senegal outperformed The Gambia on others.

D. Conclusion

34. The external stability assessment concludes that The Gambia’s REER is in line with economic fundamentals. The point estimates range from an undervaluation of 33 percent to an overvaluation of 2 percent, but most measures suggest a slight to moderate overvaluation. However, the estimates are within the margins of error for a finding of no overvaluation, given the quality of the data and the limitations of the methodologies used.

35. The assessment of competitiveness concluded that The Gambia is competitive against other ECOWAS members, although it could use some improvements in structural areas. The REER has fallen relative to trading partners even accounting for productivity changes. Survey-based indices of the quality of the business climate suggest that The Gambia compares well to other ECOWAS member countries despite a poor overall competitiveness ranking. Priority structural areas for improvement are registering property, investor protection, and tax rates. However, The Gambia scores well on ease of employment and enforcing contracts.

References

  • Chudik, Alexander, and Joannes Mongardini, 2007, “In Search of Equilibrium: Estimating Equilibrium Real Exchange Rates in Sub-Saharan African Countries,” IMF Working Paper No. WP/07/90 (Washington: International Monetary Fund).

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  • Di Bella, Gabriel, Mark Lewis, and Aurélie Martin, 2007, “Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries,” IMF Working Paper No. WP/07/201 (Washington: International Monetary Fund).

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  • International Monetary Fund, 2004, “The Gambia: Selected Issues and Statistical Appendix,” IMF Country Report No. 04/142 (Washington: International Monetary Fund).

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  • Isard, Peter, Hamid Faruqee, Russell Kincaid, and Martin Fetherston, 2001, Methodology for Current Account and Exchange Rate Assessments,” IMF Occasional Paper No. 209 (Washington: International Monetary Fund).

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  • Lee, Jaewoo, Gian Maria Milesi-Ferretti, Jonathan Ostry, Alessandro Prati, and Luca Antonio Ricci, 2008, “Exchange Rate Assessments: CGER Methodologies,” IMF Occasional Paper No. 261 (Washington: International Monetary Fund)

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  • World Bank (2008) “Doing Business”. Available via the Internet: http://doingbuisness.org/

  • World Economic Forum (2007), “The Global Competitiveness Report, 2007–2008”. Available via the Internet: http://www.weforum.org.

  • World Economic Forum (2008), “Travel and Tourism Competitiveness Report”.

1

Prepared by Sutapa Amornvivat, Lawrence Dwight, and Chris Marsh.

2

The basics of each approach are explained below. More detail on the methodologies can be found in Lee et al., 2008.

3

See Lee and others (2008) for additional detail on the external sustainability approach.

4

Strengths and limitations of these indicators are discussed extensively in Di Bella, Lewis, and Martin (2007).

5

Even though the decile ranking is for the original 76 low-income countries, comparison within the ECOWAS subset is mathematically valid.

6

Information corresponding to each indicator is presented in the form of a decile ranking for 76 low-income countries instead of the direct value of the indicator. The first decile represents the most competitive countries, the tenth the least competitive.

The Gambia: Basic Data

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Sources: Gambian authorities; IMF staff estimates; and World Bank, World Development Indicators.

Data for 2001 include US$28.5 million capital expenditure financed by a retroactive loan by the Central Bank of The Gambia (CBG) which the authorities indicated in October 2003 had not been recorded in official accounts.

In percent of broad money at the beginning of the period.

Includes the central bank’s foreign currency advance to the government in 2001.

Includes claims on the private sector and public enterprises, and central bank credit to foreign exchange bureaus.

Table 1.

The Gambia: GDP by Sector at Constant Prices, 2000–07

(Millions of dalasis, at constant 1976/77 prices, unless otherwise indicated)

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Sources: Gambian authorities; and IMF staff estimates.
Table 2.

The Gambia: GDP by Sector at Current Market Prices, 2000–07

(Millions of dalasis, unless otherwise indicated)

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Sources: Gambian authorities; and IMF staff estimates.
Table 3.

The Gambia: GDP Growth by Sector at Constant Prices, 2000–07

(Percent)

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Sources: Gambian authorities; and IMF staff estimates.
Table 4.

The Gambia: Implicit GDP Deflators, 2000–07

(Base year, 1976/77=100)

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Sources: Gambian authorities; and IMF staff estimates.
Table 5.

The Gambia: Supply and Use of Resources, 2000–07

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Sources: Gambian authorities; and IMF staff estimates.

Defined as GDP minus consumption.