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INTERNATIONAL MONETARY FUND
IMF Country Report No. 12/17
THE GAMBIA
2011 ARTICLE IV CONSULTATION
January 2012
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 2011 Article IV consultation with The Gambia, the following documents have been released and are included in this package:
Staff Report for the 2011 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on November 1, 2011, 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 December 22, 2012. 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.
Informational Annex prepared bt the IMF.
Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
Staff Statement of January 18, 2012 updating information on recent developments
Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its January 18, 2012 discussion of the staff report that concluded the Article IV consultation.
Statement by the Executive Director for The Gambia.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
THE GAMBIA
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION
December 22, 2011
KEY ISSUES
Context: The Gambian economy has performed well in recent years, despite a difficult global environment. But large fiscal deficits have led to a sharp increase in domestic debt. Tax revenues (relative to GDP) have fallen steadily since 2007, and there have been episodes of severe overspending. In 2011, however, fiscal discipline has improved. Discussions focused on the following issues:
Risks to macroeconomic stability: The high cost and rollover needs of domestic debt is a risk to macroeconomic stability. Large fiscal deficits can also complicate monetary policy (fiscal dominance) and often crowd out credit to the private sector.
Fiscal adjustment: A gradual fiscal adjustment over the medium term would curb domestic borrowing and reduce interest costs. Tax reform could bolster government revenues, while improving the business environment and international competitiveness. New budget procedures would increase value-for-money of government spending.
Price stability and exchange rate flexibility: Eliminating fiscal dominance allows monetary policy to focus better on price stability. Maintaining a flexible exchange rate and a healthy stock of international reserves helps to guard against external shocks.
Financial sector stability: The banking system is well capitalized and liquid, but supervision must remain vigilant to address possible weaknesses in individual banks.
Poverty reduction: The authorities’ forthcoming Programme for Accelerated Growth and Employment (PAGE) seeks to boost growth and reduce poverty. But financing the PAGE will be a challenge.
Debt sustainability: The Gambia continues to face a heavy debt burden. Based on external debt indicators, there is still a high risk of debt distress.
Approved By
Roger Nord (AFR) and Jan Kees Martijn (SPR)
Discussions took place in Banjul during October 19–November 1; Mission comprised of Messrs Dunn (chief), Egoumé, Oliveira, and Slavov (all AFR), Kim (SPR), Tjirongo (Resident Representative), and Cham (Resident Representative’s office). The mission was assisted by Ms. Snyder, Ms. Touray, Ms. Njie, and Mr. Jabang.
CONTENTS
BACKGROUND: ACHIEVING ROBUST GROWTH IN A DIFFICULT GLOBAL ENVIRONMENT
ECONOMIC DEVELOPMENTS IN 2011: MAINTAINING GROWTH, WHILE RESTORING FISCAL DISCIPLINE
ECONOMIC OUTLOOK: POSITIVE, BUT WITH RISKS
POLICY DISCUSSIONS: SUSTAINING ROBUST GROWTH AND ACCELERATING POVERTY REDUCTION
A. Fiscal Adjustment: Near-Term Discipline and Medium-Term Reforms
B. Medium-Term Fiscal Adjustment to Support Long-Term Growth
C. Monetary Policy and Financial Sector Stability
D. Exchange Rate Policy
E. Poverty Reduction and Other Structural Reforms
F. Debt Sustainability
G. Other Surveillance Items
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators
2. Statement of Central Government operations - In Millions
3. Statement of Central Government Operations - In Percent
4. Monetary Accounts - In Millions
5. Monetary Accounts
6. Balance of Payments - In Millions
7. Balance of payments - In Percent
8. Financial Soundness Indicators
9. Progress toward the Millennium Development Goals, 1990-2009
FIGURES
1. Strong Performance Despite the Global Crisis
2. Unsustainable Fiscal Policy
3. Cross Country Comparison
BOXES
1. Implementing Recommendations from the 2010 Article IV Consultation
2. Comprehensive Tax Reform in The Gambia
3. Financial Sector Assessment
APPENDIXES
1. Comprehensive Tax Reform in The Gambia
2 Competitiveness of The Gambia
3. Is the Dalasi Aligned with the Economy’s Fundamentals?
4. Financial Sector Surveillance
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INTERNATIONAL MONETARY FUND
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THE GAMBIA
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
December 22, 2011
Prepared By
The African Department
(in consultation with other departments)
CONTENTS
RELATIONS WITH THE FUND
JOINT BANK-FUND WORK PROGRAM
THE GAMBIA: STATISTICAL ISSUES
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INTERNATIONAL MONETARY FUND
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THE GAMBIA
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
December 22, 2011
Approved By
Roger Nord and Jan Kees Martijn (IMF); Marcelo Giugale and Jeffrey Lewis (IDA).
Prepared by the Staffs of the International Monetary Fund and the International Development Association
External debt indicators suggest that The Gambia remains at high risk of debt distress. In particular, the ratio of the present value of external debt to exports breaches its threshold over a protracted period, while other indicators are vulnerable to adverse shocks. Still, based on current projections, The Gambia’s external debt is on a sustainable path. Moreover, there is scope for moderate amounts of additional external borrowing on concessional terms for productive investments. Domestic debt, which has grown substantially in recent years, is costly and poses high rollover risks. Interest on domestic debt consumes nearly one-fifth of government revenues and far exceeds the cost of interest on external debt. The staffs recommend that the authorities restrict external financing to grants and highly concessional loans with a grant element of at least 35 percent and reduce new domestic borrowing.
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Public Information Notice (PIN) No. 12/3
FOR IMMEDIATE RELEASE
January 20, 2012
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