Front Matter Page
© 2010 International Monetary Fund
September 2010
IMF Country Report No. 10/274
The Gambia—2010 Article IV Consultation: Staff Report, Statement by the IMF Staff Representative, 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 2010 Article IV consultation with The Gambia, the following documents have been released and are included in this package:
The staff report for the 2010 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 28, 2010, 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 9, 2010. 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 August 19, 2010 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August 25, 2010 discussion of the staff report that concluded the Article IV consultation.
A statement by the Executive Director for The Gambia.
Copies of this report are available to the public from
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Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
THE GAMBIA
Staff Report for the 2010 Article IV Consultation
Prepared by the Staff Representatives for the 2010 Consultation with The Gambia (In consultation with other departments)
Approved by Roger Nord and Jan Kees Martijn
July 9, 2010
Discussions were held in Banjul May 7 to 20, 2010, for the 2010 Article IV consultation. The mission team comprised Mr. Dunn (head), Mr. Reinke, Mr. Vermeulen (all AFR), Mr. Obiora (SPR), Mr. Tereanu (FIN), and Mr. Tjirongo (resident representative). The team met with Minister of Finance Momodou Foon, Central Bank Governor Momodou Bamba Saho, other senior officials, and representatives of commercial banks, the business community, nongovernmental organizations, and The Gambia’s development partners.
The Gambia’s exchange rate regime is a managed float. It accepted the obligations under Article VIII, sections 2(a), 3, and 4, of the Fund’s Articles of Agreement on January 21, 1993. In 2008, the authorities notified the Fund that for security reasons, and in line with UN Security Council resolutions, they imposed some restrictions on the making of payments and transfers for current international transactions. These restrictions still remain in effect.
The Executive Board approved a three-year arrangement for The Gambia under the Extended Credit Facility (ECF) on February 21, 2007 in the amount of SDR 14 million (45 percent of quota). The Executive Board approved an augmentation of SDR 6.215 million on February 18, 2009 and, at the time of the completion of the sixth review on February 19, 2010, a one-year extension of the ECF arrangement and an additional augmentation of SDR 4.67 million to a total amount of SDR 24.88 million (80 percent of quota).
The Gambia reached the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in December 2007, seven years after reaching the decision point. In addition to debt relief under the HIPC Initiative, The Gambia was approved for the Multilateral Debt Relief Initiative (MDRI).
The previous Article IV consultation was concluded on September 8, 2008. The staff report and PIN are available at www.imf.org/external/pubs/cat/longres.cfm?sk=22399.0
Contents
Executive Summary
I. Background: Achieving Macroeconomic Stability, while Dealing with a Heavy Debt Burden
II. Recent Economic Developments and Outlook: Weakening Fiscal Discipline Has Complicated Macroeconomic Policies
Outlook and Risks
III. Policy Discussions: Strengthening Foundations for Sustainable Economic Growth and Poverty Reduction
A. Macroeconomic Policies
Fiscal Policy: Restoring Fiscal Discipline
PFM reform
Monetary policy and liquidity management
B. Financial Sector Policies
C. Exchange Rate Assessment and International Competitiveness
D. Accelerating Growth
IV. Economic Statistics
V. Staff Appraisal
Tables
1. Selected Economic Indicators
2. Fiscal Operations of the Central Government (in millions of local currency)
3. Fiscal Operations of the Central Government (in percent of GDP)
4. Monetary Accounts (in millions of local currency; unless otherwise indicated)
5. Monetary Accounts
6. Balance of Payments (in millions of U.S. dollars; unless otherwise indicated)
7. Balance of Payments (in percent of GDP)
8. Millenium Development Goals
Figures
1. Recent Economic Developments, 2006-09
2. Recent Economic Developments, 2006-09
3. Cross-Country Comparison
Boxes
1. Implementing Recommendations from the 2008 Article IV Consultation
2. Fund Staffs Proposals on Tax Reform
Appendices
1. Reserve Adequacy in The Gambia
2. Banking Supervision in a Rapidly Expanding Banking Sector
3. Is the Dalasi Aligned with The Economy’s Fundamentals?
4. Draft Public Information Notice
Executive Summary
The Gambian economy has held up well through the global economic crisis, despite sharp drops in tourism and remittances. However, a deterioration in fiscal discipline and high levels of costly short-term government domestic debt create risks to macroeconomic stability.
Macroeconomic stability through the global crisis: Real GDP growth averaged 6 percent a year during 2007-09, while inflation remained in single digits. During the global economic crisis, growth remained high (5.6 percent) in 2009, as a further rebound in agriculture cushioned the impact of sharp drops in tourism and remittances. External current account deficits have widened, financed mostly by foreign direct investment and official loans and grants. Official international reserves are at a comfortable level, aided by the SDR allocation.
Deteriorating fiscal discipline: As a result of large spending overruns, the deficit in the basic fiscal balance increased to nearly 2 percent of GDP in 2009, against a budget target of a small surplus. In early 2010, revenue shortfalls led to additional fiscal slippages. The deficits have been largely financed by a build-up of costly domestic debt, almost all of which has been short-term T-bills.
Opportunities and risks from rapid expansion in banking sector: Between 2007 and early 2010, the number of banks doubled. Financial intermediation has grown substantially, but intense competition among banks and weaker earnings from crisis-hit tourism and construction eroded banks’ earnings, credit quality, and capital adequacy. To preserve solvency, the authorities are phasing in a large increase in the minimum capital requirement.
Exchange rate assessment: The exchange rate remained stable against the U.S. dollar throughout 2009 and early 2010, with the central bank mostly refraining from market interventions. Notwithstanding, staff analysis suggests the dalasi was slightly overvalued in 2009. In real effective terms, the dalasi depreciated by about 10 percent by end-year.
Positive outlook, provided that fiscal discipline is restored: As the sectors affected by the global slowdown are expected to recover only gradually, real GDP growth is projected to slow down slightly this year, while inflation is projected to remain low. Over the medium-term, GDP growth is projected to pick up to about 5½percent a year, as key sectors recover (tourism, construction), while others (wholesale and retail trade and agriculture) maintain solid growth. Restoring fiscal discipline, especially in light of high rollover risks of domestic debt, will be important for achieving this positive outlook.
Performance under the Extended Credit Facility: Through the sixth review, performance was broadly satisfactory, but recent fiscal slippages led to the postponement of the seventh review. Performance relative to other end-March 2010 quantitative targets and structural benchmarks was satisfactory.
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INTERNATIONAL MONETARY FUND
THE GAMBIA
Prepared by the African Department
July 6, 2010
Relations with the Fund. Describes financial and technical assistance from the Fund and provides information on the safeguards assessment and exchange rate system. Outstanding purchases and loans amounted to SDR 18.22 million (58.59 percent of quota) at end-December 2009.
Joint Bank-Fund Work Program. Lists the work program of the Bank and the Fund on The Gambia from July 2010 to July 2011.
Relations with the African Development Bank. Describes the African Development Bank Group program and portfolio.
Statistical Issues. Assesses the quality of statistical data. The authorities have made progress in improving the compilation of economic and financial statistics. However, weaknesses in a broad range of economic statistics are hampering the analyses of economic developments in the country.
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Public Information Notice (PIN) No. 10/118
FOR IMMEDIATE RELEASE
August, 27, 2010
International Monetary Fund
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Washington, D. C. 20431 USA
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