The Gambia
First Review Under the Extended Credit Facility, Request for Nonobservance of Performance Criterion, and Request for Rephasing of Reviews

The Gambian economy is still recovering from the severe drought and crop failure. Depreciation pressure on the Dalasi has largely been driven by weaknesses in the balance of payments and uncertainty about exchange rate policy. Executive Directors have urged the government to curb domestic borrowing and to sustain the fiscal adjustment needed to reduce the high cost and risks of domestic debt. They have also commended the progress achieved toward eliminating fiscal dominance and encourage implementing a restrained monetary policy.

Abstract

The Gambian economy is still recovering from the severe drought and crop failure. Depreciation pressure on the Dalasi has largely been driven by weaknesses in the balance of payments and uncertainty about exchange rate policy. Executive Directors have urged the government to curb domestic borrowing and to sustain the fiscal adjustment needed to reduce the high cost and risks of domestic debt. They have also commended the progress achieved toward eliminating fiscal dominance and encourage implementing a restrained monetary policy.

Recent Economic Developments

1. The Gambian economy is still recovering from the severe drought of 2011 (Tables 1-7 and Figure 1). After a sharp contraction in 2011—due to a 60 percent drop in crop production—real GDP growth is estimated to have grown by 4 percent in 2012,1 driven by a strong performance in the tourism sector and a partial rebound in agriculture. Emergency assistance—which also helped to mitigate the impact of the drought on vulnerable families—played a pivotal role in this turnaround by delivering inputs to farmers in time for the planting season.2 Inflation, however, has picked up since late 2012, reflecting a depreciation of the Gambian dalasi, as well as side-effects from the introduction of a value-added tax (VAT) on January 1, 2013, as many firms opportunistically increased prices. As of March, inflation stood at 5.4 percent (year-on-year). [MEFP ¶2-3]

Table 1.

The Gambia: Selected Economic Indicators

article image
Sources: Gambian authorities and Fund staff estimates and projections.

Percentage change between December of the previous year and December of the current year.

Average for the month of December.

Table 2.

The Gambia: Statement of Central Government Operations

(In millions of local currency)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

After 2013, about 22.5 percent of the sum of project grants and external project loans is allocated to this item.

Equals the sum of project grants, external project loans, and changes in project accounts up to 2012. After 2013, about 22.5 percent of the sum of those is allocated to use of goods and services.

In 2012, target under the ECF was adjusted downwrad to GMD 667 million reflecting donor-provided drought relief.

The difference between financing and the overall balance of revenue and expenditures.

Overall balance, excluding statistical discrepancy, less expenditures financed by project grants and external borrowing.

Basic balance, excluding interest payments.

Table 3.

The Gambia: Statement of Central Government Operations

(In percent of GDP)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

After 2013, about 22.5 percent of the sum of project grants and external project loans is allocated to this item.

Equals the sum of project grants, external project loans, and changes in project accounts up to 2012. After 2013, about 22.5 percent of the sum of those is allocated to use of goods and services.

In 2012, target under the ECF was adjusted downwrad to GMD 667 million reflecting donor-provided drought relief.

The difference between financing and the overall balance of revenue and expenditures.

Overall balance, excluding statistical discrepancy, less expenditures financed by project grants and external borrowing.

Basic balance, excluding interest payments.

Table 4.

The Gambia: Monetary Accounts1

(In millions of local currency, unless otherwise indicated)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

End of period.

Includes public enterprises and the local government.

Including valuation.

Table 5.

The Gambia: Monetary Accounts1

(Percent change, unless otherwise indicated)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

End of period.

In 2012, target under the ECF was adjusted upward by US$ 14.1 million reflecting donor-provided drought relief. After this adjustment, NUIR targets under the original ECF, measured at the market exchange rate, would be US$ 142.6 million at end-2012 and US$ 151.5 million at end-2013.

Average for the month of December.

Table 6.

The Gambia: Balance of Payments

(In millions of U.S. dollars, unless otherwise indicated)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

Domestic goods consist of (in decreasing order of importance): groundnuts, fruits and vegetables, zircon, fish, and cotton.

The figure for 2012 includes US$ 14.3 million in donor assistance for drought relief, which was not included in the 2012 prog. column.

Project grants explain the entire amount of capital account.

Table 7.

The Gambia: Balance of Payments

(In percent of GDP)

article image
Sources: Gambian authorities and Fund staff estimates and projections.

Domestic goods consist of (in decreasing order of importance): groundnuts, fruits and vegetables, zircon, fish, and cotton.

The figure for 2012 includes US$ 14.3 million in donor assistance for drought relief, which was not included in the 2012 prog. column.

Project grants explain the entire amount of capital account.

Figure 1.
Figure 1.
Figure 1.

The Gambia: Recent Economic Developments, 2007–13

Citation: IMF Staff Country Reports 2013, 139; 10.5089/9781484327494.002.A001

Sources: Gambian authorities; and Fund staff estimates and projections.

2. Partly reflecting government expenditures on drought relief, there was little-to-no fiscal adjustment in 2012. The overall fiscal deficit remained at about 4½ percent of GDP, of which about 3½ percent of GDP was financed by domestic borrowing. Government revenues increased by ½ percentage point of GDP in 2012 (to just over 16½ percent of GDP), as a highly visible presidential commission against tax evasion led to greater compliance. On the spending side, in addition to drought relief expenditures, external debt service exceeded budget projections by over ½ percentage point of GDP and spending included in a supplementary budget approved by the National Assembly late in the year proved to be underfunded. Although the government had exercised a cash-budgeting approach to limit expenditures to available resources for much of the year, the higher-than-expected spending toward the end of the year was too great to be sufficiently offset. [MEFP ¶4]

3. Higher domestic borrowing added to the government’s heavy debt burden. Domestic debt relative to GDP increased slightly to 34 percent of GDP as of end-2012, much of which was in the form of short-term Treasury bills. Interest on debt continued to consume a large share of government revenues (22½ percent) in 2012, of which nearly 18½ percentage points was paid on domestic debt, while rollover risks continued to grow. [MEFP ¶5]

uA01fig01

Domestic Public Debt

(% of GDP)

Citation: IMF Staff Country Reports 2013, 139; 10.5089/9781484327494.002.A001

4. Growth in financial intermediation dampened during 2012. While crowding out by government borrowing appears to have been a factor, demand for credit also weakened early in the year as commerce and related economic activity suffered in the immediate aftermath of the crop failure.3 To stimulate the economy, the Central Bank of The Gambia (CBG) loosened monetary policy around mid-year, which led to a moderate pickup in broad money and private sector credit growth, but may have added to depreciation and inflation pressures. At the end of 2012, the second and final stage of an increase in the minimum capital requirement (MCR) for banks took effect, as planned. All banks complied, except one which instead has wound down its operations. As of end-2012, the banking system as a whole was well capitalized, but nonperforming loans were still high at 11.6 percent of total loans (Table 8). [MEFP ¶6]

Table 8.

The Gambia: Financial Soundness Indicators

(In percent, unless otherwise indicated)

article image
Sources: Gambian authorities, and Fund staff estimates.

Tier-1 capital is larger than regulatory capital due to the supervision deduction from premises revaluation.