The Gambia: Request for Disbursement Under the Rapid Credit Facility, and Proposal for a Staff-Monitored Program—Supplementary Information

Request for Disbursement Under the Rapid Credit Facility, and Proposal for a Staff-Monitored Program


Request for Disbursement Under the Rapid Credit Facility, and Proposal for a Staff-Monitored Program


1. Gambia has an urgent balance of payments need stemming from exogenous shocks. Erratic weather has adversely affected the 2016-2017 agricultural season, halving the important groundnut cash crop harvest. Moreover, the political turmoil after the presidential elections in December 2016 severely reduced tourism during high season, and higher oil and commodity prices further negatively affect the balance of payments. Staff’s preliminary estimate of the combined exogenous shocks amounts to $31 million (3 percent of GDP) in 2017 (Text Table 1). At the same time, gross international reserves have declined to around $60 million (1.6 months of prospective imports), predicated on foreign exchange swaps with commercial banks of about $33 million to shore up the CBG’s foreign exchange holdings.

Text Table 1:

Estimated BOP Impact of External Shocks in 2017

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2. Massive embezzlement by the previous regime depleted state and SOE revenues resulting in sizeable fiscal shocks. The authorities are just beginning to establish the scope of theft of state resources by the previous regime mainly from SOEs, with preliminary findings of the finance ministry suggesting a scale of at least 4 percent of GDP per year since mid-2014 alone. This contributed to the need for unbudgeted bailouts of SOEs and additional SOE borrowing which in turn contributed to the significant increase in total public debt to 120 percent of GDP in 2016.

3. Early parliamentary elections on April 6, 2017, delivered an absolute majority in support of President Barrow which bodes well for reform. The election outcome gave a very strong mandate to President Barrow and reduced the former government party to less than 9 percent of seats.

4. The Gambian authorities are requesting support under the RCF to cope with the urgent balance of payments needs and a staff-monitored program to guide policy implementation. The urgent balance of payments need caused by the exogenous shocks, along with the depletion of state resources, have led to heightened economic fragilities at the starting point of the country’s political transition to democracy. Addressing these economic problems will require substantial support by the international community as well as strong policy adjustment and reform measures. The authorities have requested Fund support through the RCF and a 12-month SMP to help guide policies, catalyze donor support, and establish a track record of good performance.

Recent Developments and Economic Outlook

5. External shocks and economic mismanagement by the previous regime have considerably reduced economic growth in 2016. GDP growth in 2016 is now estimated to have reached 2.2 percent, markedly lower than the 4.3 percent growth in 2015, due to limited availability of foreign exchange, weak agricultural output and the effect of the political impasse on tourism during high season. Headline annual inflation rose to 7.9 percent by end-2016, well above the CBG’s target of 5 percent, driven by high food prices and the depreciation of the dalasi.

6. The negative impact of the shocks on The Gambia’s external accounts is estimated to be sizable in 2017. The impact of the external shocks in 2017 is projected at $31 million or 3 percent of GDP (Text Table 1), reflecting the weak cash crop harvest, the loss of about one third of tourism revenue in the first quarter due to the political turmoil, and higher commodity prices. The impact assessment does not fully capture second round effects, given tourism’s large contribution to The Gambia’s foreign exchange earnings which support imports and trade.

7. The fiscal situation has been worsening in 2016. Domestic revenue collection fell from 17.6 percent of GDP in 2015 to 16.7 percent of GDP in 2016, reflecting import compression due to foreign exchange scarcity and low economic activity in the latter part of the year (in part due to the political turmoil), and arrears by SOEs. Total expenditures remained broadly unchanged at just under 30 percent of GDP in 2016. Net domestic borrowing reached 11.4 percent of GDP in 2016, slightly higher than in the preceding two years. With continued high borrowing, the total public debt stock reached 120 percent of GDP in 2016, rising from 105 percent in 2015, driven by the continued rise in domestic debt to 68 percent of GDP in 2016. The related high debt service on domestic debt absorbed 42 percent of government revenue in 2016.

8. Monetary policy continued to be undermined by the financing of the fiscal deficit. Although the CBG kept its policy rate at 23 percent throughout 2016, which is high in nominal and real terms, its signaling function has been significantly weakened by fiscal dominance which is increasingly crowding out private sector credit (Figure 1). While the exchange rate regime continues to be a float, new foreign exchange directives came into effect on November 1, 2016, introducing a compulsory requirement for commercial banks to sell 15 percent of their foreign exchange purchases to the CBG and establishing a reference rate to guide foreign exchange transactions. Since then, the dalasi has stabilized within a range of 43–48 dalasi per dollar and foreign exchange turnover has recently started to recover. In May 2017, the 15 percent surrender requirement was rescinded and the reference rate was put under review.

Figure 1.
Figure 1.

The Gambia: Recent Economic Developments, 2010–17

Citation: IMF Staff Country Reports 2017, 179; 10.5089/9781484305997.002.A001

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

9. Growth for 2017 is expected to pick up marginally to 3 percent. The recovery is mainly predicated on the assumption of a normal agricultural season, following the bad 2016/17 harvest, and a gradual recovery in trade. Tourism is also forecast to recover, but unlikely to make up for the losses in early 2017 related to the political turmoil.

10. Over the medium to longer term, Gambia’s growth is expected to move to a higher growth trajectory. While the Gambia has experienced growth episodes of 6-7 percent over the past 20 years, growth has been volatile due to weather related shocks, economic mismanagement and corruption of the previous regime, with average growth of 3.6 percent over that period. With the return to a government committed to the rule of law and restoration of macroeconomic stability, investment into tourism, agriculture and trade is expected to rebound, including from the large Gambian diaspora and foreigners previously deterred by seizures of foreign capital investments in the Gambia by the previous regime. A focus on commercial agriculture, irrigation and more drought resistant crops is expected to reduce the susceptibility of the economy to weather related shocks. Greatly improved relations with Senegal will help avoid border closures of the past and support trade and re-export trade with the subregion and, more generally, further regional integration. Greater and cheaper supply of electricity will support all economic activities, including light manufacturing, with significant enhancements expected over the next few years.1 Finally, there may be scope to expand activity in sand and heavy metal mining and prospects for oil production, areas that had been entirely under the control of former President Jammeh.

11. The Gambia’s political transition from a deeply corrupt regime is likely to be growth enhancing in the near and medium term. As recent work by the Fund has shown, corruption can undermine the state’s ability to deliver inclusive economic growth. When government functions are impaired, it can adversely affect many important determinants of economic performance, including macro financial stability, fiscal prudence and debt accumulation, investment, human capital accumulation, and total factor productivity (Box 1). The move to a more open and inclusive society and strengthening of governance and institutions should help The Gambia to sustain higher levels of growth. The boost to growth could be substantial, with studies suggesting that a one point increase in the corruption index could raise real GDP by 0.5 percentage points. Assuming a 5-point increase over 2017-22, this could add up to around 2.5 percent by 2023. 2 The growth dividend would be even greater if corruption were lowered to levels of Senegal or to those of SSAs top performers Botswana and Cabo Verde.

12. Macroeconomic projections have not fully factored in the positive outlook that the Gambia’s structural break from the past would suggest. The structural break only just happened and there is still uncertainty about medium term plans of the authorities and development partners, and the private sector response. There is considerable upside potential for growth and FDI. External financial support is also likely to be substantially higher than reflected under current donor commitments.

13. An updated Debt Sustainability Analysis (DSA) indicates that The Gambia is in external debt distress, and that total public debt is not sustainable (Annex I). The new government inherited an elevated public debt burden. Furthermore, the decline in institutional capacity during the previous regime lowered the 2013-15 average CPIA rating so that The Gambia is now classified as weak compared to medium in the last DSA, leading to substantial reductions in the debt threshold levels of the DSA. Driven largely by these factors, all five external debt burden indicators breach their respective indicative thresholds under the baseline and stress test scenarios of the DSA. The stock of public debt in the baseline as well as SOE contingent liabilities (not included in the baseline) also remain above its indicative benchmark for the entire projection horizon. While debt in the baseline is assessed to be unsustainable, the authorities have committed to taking measures to make the debt sustainable in the medium-term (¶31–32).

Corruption Economic Growth and Macro Fiscal Implications

The Gambia ranked 145 out of 176 countries on the Transparency International Corruption Perception Index (CPI) in 2016. This poor performance reflected 22 years of the Jammeh regime, supported by a security apparatus that incited fear through extra-judicial detentions and killings, with massive theft depleting state coffers and hollowing out SOEs. Defining corruption is difficult as corrupt behavior varies across countries and time and is concealed from public view. Among the most widely accepted definitions is “the abuse of public office for private gain.” It is a definition that fits the Jammeh regime - who through the Office of the President created a state within a state not subject to normal budgetary, legal, parliamentary and judicial constraints.


Corruption Perception Index

Citation: IMF Staff Country Reports 2017, 179; 10.5089/9781484305997.002.A001

Most studies using perception-based measures of corruption have concluded that it hurts growth through a variety of channels (see chart). Corruption breeds public distrust in government and weakens the state’s capacity to perform its core functions. The more corruption interferes with these functions, the more it distorts policies and their implementation. Depending on its pervasiveness, corruption affects some or all drivers of potential and inclusive growth, such as macro-financial stability, public and private investment, human capital accumulation, and total factor productivity. Low rates of inclusive growth can also lead to increased incidence of corruption, creating a negative feedback loop that can become self-enforcing and long lasting.

Empirical evidence confirms that corruption has significant negative effects on key channels that affect growth. The Gambia’s political transition to a government committed to the rule of law and political and economic reform is thus likely to boost economic growth and tax revenue. Assuming a 5-point increase in the CPI (lower corruption) over 2017-22, the impact on growth (or per capita GDP growth) could be large, with lower corruption adding up to 2.5 percentage points to annual growth by 2022.

Sources:- Corruption Costs and Mitigating Strategies, IMF Staff Discussion Note, May 2016, SDN/16/05 Corruption and Economic Growth, OECD G20 Issues Paper, September 2013 (also references cited therein) (

Policy Discussions

14. The authorities are committed to returning to fiscal sustainability and recognize that this will require strong fiscal action to bring expenditures in line with resource availability while securing donor assistance to drastically reduce domestic borrowing and interest cost. They plan to anchor policies at an NDB target of 1 percent of GDP to limit monetary expansion and support the rebuilding of reserves, lower T-bill rates to reduce the interest burden, and gradually reduce the ratio of domestic debt to GDP by keeping the growth of new debt well below that of nominal GDP. There are strong indications of donor support that could total more than 7 percent of GDP, but to achieve the NDB target the authorities will need to implement measures in 2017 and beyond.

15. Resolving the difficulties of the SOEs will be key to avoiding fiscal shocks on the NDB. As a first step, the authorities plan to conduct special audits of all SOEs to uncover all fraud and embezzlement of funds in the past, and stop the substantial leakages of 4 percent of GDP annually over the past 2½ years which should go a long way in improving their financial situation. With support from the World Bank, audits of the first five SOEs most affected by the previous regime’s embezzlement will start soon, and audits of the CBG and of other SOEs will follow. The audits will also provide a solid basis for a resolution of cross arrears between government and the SOEs. The authorities are also in discussions on a restructuring of the National Water and Electricity Company’s (NAWEC) domestic debt. The authorities are also planning to strengthen SOE oversight going forward.

Fiscal Policies

16. The authorities are determined to abide by the NDB target of 1 percent of GDP from 2017, but face a large financing gap this year. The 2017 budget which was approved before the change in government foresaw broadly unchanged spending. However, compared to the budget, the authorities have revised their tax revenue projection for 2017 down by 2.8 percent of GDP in light of the hit on tourism and lower economic activity. Total financing needs now amount to 15 percent of GDP, of which 1 percent of GDP could be financed domestically, in line with the NDB objective. Donor support would contribute the lion share of 7.2 percent of GDP, and onlending of the RCF an additional 1.5 percent of GDP.

17. To close the remaining financing gap of 5.3 percent of GDP, the authorities have already taken some action and are committed to implementing a range of further measures in 2017 (Text Table 2).

Text Table 2.

The Gambia: Measures to fill the Financing Gap in 2017

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Sources: Gambian authorities; and IMF Staff
  • All outstanding CBG lending to the budget through various facilities was consolidated into a 30-year bond at an interest rate of 5 percent at end-2016, with projected interest savings of 0.7 percent of GDP per annum.

  • The authorities have already made efforts in recent months to curtail spending. This has further supported the decline in T-bill rates, with average rates reaching 11.5 percent in early April 2017 compared to an average of 17 percent in 2016. This is expected to reduce domestic interest payments in 2017 by about 0.8 percent of GDP.

  • Expenditure cuts of 1 percent of GDP mainly in goods and services, including from the large budget of the President’s Office, have been identified for inclusion in the ongoing revision of the 2017 budget.

  • Staff audits of the civil service and, for the first time, of the uniformed services (which have expanded strongly over recent years) have been launched recently and are expected to be completed in mid-2017. Elimination of ghostworkers from the payroll could deliver savings. The staff audits could also lay the basis for a more comprehensive civil service reform in the future.

  • Policies governing the bloated state vehicle fleet and its cost will be reformed, with expected savings in spending on goods and services of 2 percent of GDP over three years.

  • Asset sales are expected to yield 1 percent of GDP in 2017. These include the presidential plane and two others, and land, including in prime tourist areas which could generate investment.

  • Recapturing of previously diverted non-tax revenue from the international voice gateway, sand and heavy metal mining concessions, and other fees, are expected to yield 1.2 percent of GDP.

  • Finally, the authorities plan to vigorously pursue recovery of stolen assets that are still held in The Gambia, but timeframe and possible values are still unclear. To the extent possible, the authorities plan to use recovered assets to retire domestic debt.

In total, concrete measures amount to 5 percent of GDP. The authorities aim to close the remaining financing gap of 0.3 percent of GDP through savings from the elimination of ghostworkers and recovery of stolen assets.

18. The authorities are also exploring options to further lengthen the maturity profile of domestic debt which could generate additional savings and would reduce rollover risk. The consolidation of government borrowing from the CBG into a 30-year bond has already reduced rollover risk considerably, and the drastic reduction of NDB to 1 percent of GDP from levels around 10 percent of GDP in the past suggests that rollover of existing T-bills by commercial banks should not be problematic, as evidenced by the recent decline in interest rates. The authorities are currently exploring the introduction of longer-term securities to further reduce rollover risks and possibly generate interest savings by retiring more expensive T-Bills. This would also meet the needs of banks and nonbanks to better maturity match longer term liabilities and reduce their liquidity risks, and could help to develop a benchmark yield curve. The authorities have requested technical assistance from the Fund and the World Bank to support them in exploring options for a maturity lengthening.

19. For the medium term, the authorities have identified additional measures, building and expanding on the 2017 measures (Text Table 3). These include the full impact of the vehicle fleet reform and the elimination of ghost-workers from the payroll. The authorities are also contemplating a broader streamlining of the civil service, including of embassies and their personnel, and reviewing memberships in non-financial international organizations.

Text Table 3.

The Gambia: Measures to fill the Financing Gap, 2018-19

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Sources: Gambian authorities; and IMF Staff

State-Owned Enterprise Reforms

20. The success of the planned fiscal consolidation is particularly dependent on implementing comprehensive SOE reforms. In 2016, unbudgeted fiscal spending on behalf of NAWEC and GAMTEL/GAMCEL weighed heavily on fiscal performance. Taking steps to protect the budget from such problems in 2017 and beyond will be critical. The authorities have agreed with the World Bank on a broad SOE reform program for 2017–19. [MEFP ¶¶19-23].

21. Addressing the corruption, cost of service delivery, and debt servicing problems of NAWEC will go a long way in containing the SOE problem. Over many years NAWEC suffered from presidential directives that set electricity tariffs below cost recovery and imposed economically unviable projects in rural areas, while fuel supply cost was inflated from rent-seeking by a monopoly supplier associated with the former president. The authorities have committed to addressing these issues for NAWEC to better manage its cost of production. Fuel importation for NAWEC has been switched to competitive international tender which has reduced cost by 15 percent (based on first tender). NAWEC will also pursue more vigorously nonpayment of bills, including by municipalities. Generating capacity will also be increased by 50 MW (with funding from World Bank, IsDB and BADEA). World Bank support includes the purchase of refurbished generators and investment in upgraded transmission needed for the streaming of regional hydroelectric power from 2020 that will greatly improve electricity supply by another 80 MW while cutting generation cost by about 90 percent.

22. GAMTEL/GAMCEL will likely require restructuring to better prepare it for the dynamism of the telecom market and enable it to compete in the wireless segment. Since 2013, a significant share of its revenue was siphoned off by presidential directive. Oversight over GAMTEL/GAMCEL will be moved from the President’s Office to the Ministry of Communications which will take charge of the reform agenda for the two companies, with support from the World Bank. The World Bank is also supporting an asset valuation as the basis for evaluating options for a restructuring and possible divestiture.

23. Ending embezzlement will improve prospects for dividend payments from other SOEs, and the authorities plan to step up oversight over all SOEs. This will improve the finances of the financially more stable SOEs and help them contribute dividend payments to MoFEA. MOFEA will also step up oversight and monitoring of SOEs’ operations, financial position and contingent liabilities and fiscal risks emanating from them. Staff is also planning to help the authorities incorporate additional Fiscal Stress Tests to help identify early and manage SOE related financial risks.

24. Much of the unbudgeted support provided in recent years by MoFEA to SOEs has been related to on-lending and credit guarantees provided by MoFEA as well as stepping in when SOEs were unable to service their public and external debt. In the future, to limit the build-up of contingent liabilities to SOEs:

  • MoFEA will not contract any credit/loan on behalf of SOEs and will not approve any more guarantees to beneficiary agencies, including SOEs, unless the preconditions established under the 2014 Public Finance Act (PFA) are fully met. 3

  • MoFEA, through its Directorate of Loans and Debt Management and its Directorate of Public Private Partnership, will create and regularly update a database of all government guarantees, and regularly make details of all guarantees public on the MoFEA website in line with PFA 2014;

  • MoFEA has also committed to publish the audit reports of SOEs on its website. Ideally these would be published six months after the fiscal year end.

25. Ring-fencing of SOE debt is underway. Discussions with commercial banks on a restructuring of NAWEC’s domestic debt are ongoing. This would also provide breathing room for NAWEC to repay tax arrears and pursue urgently needed investment. The authorities will assess the impact of any potential restructuring on the solvency and liquidity of banks including full agreement of banks and nonbanks on the chosen option for restructuring [MEFP 117].

Monetary and Exchange Rate Policies and Financial Sector Stability

26. The authorities are committed to monetary policies aimed at price stability, and a flexible exchange rate policy. CBG officials look forward to the exit from fiscal dominance which will finally render monetary policy effective in terms of controlling liquidity. In tandem, they plan to reduce the policy rate—which is now at an elevated level of 20 percent—to provide a floor for market interest rates which are already well below the policy rate, pending inflation declining toward the CBG’s objective of 5 percent or less. While the authorities see a potential need for limited new central bank financing until budget support is received, they agreed that this should be completely phased out by October 2017. The authorities agree that exchange rate flexibility is necessary to absorb external shocks and help rebuild international reserves [MEFP ¶24].

27. Continued efforts are needed to improve monetary analysis and operations. To further strengthen the operational implementation of monetary policy the CBG plans to strengthen its liquidity forecasting capacity, introduce new liquidity absorption tools such as repos, and establish overnight facilities to limit interest rate volatility around the policy rate.

28. The authorities intend to revise the CBG Act to strengthen the bank’s autonomy, and reconstitute the Board of Directors to full membership. The authorities intend to submit amendments to the CBG act to the national assembly for approval by end-2017, and fully constitute the Board of Directors and the Audit Committee, in line with recommendations from a recent safeguards update mission. Central bank independence is expected to enhance monetary policy implementation and financial stability through strengthened financial supervision and regulation free from political influence.

29. Measures to safeguard financial stability will be stepped up. The financial sector continues to be stable and profitable, in large part due to the high asset share of government securities, at the detriment of intermediation for the private sector. However, profitability is predicated on large public interest payments, and financial stability indicators mask large vulnerabilities due to the high exposure to the public sector. Assets directly related to government and parastatals account for 49 percent of total assets of the banking sector and are about 3.5 times as much as paid-up capital. In the short run, the financial difficulties of SOEs significantly weaken the soundness of commercial banks with exposures. The CBG will closely monitor the health of the banking sector with a focus on the impact of declining interest rates and lower government borrowing, NPLs and exposure to SOEs. It also plans to develop its crisis management capacity and upgrade the bank resolution framework, including strategies to handle possible bank crisis [MEFP ¶26].

30. The CBG continues to move ahead with its forward-looking risk analysis to strengthen bank supervision and crisis management. The CBG is developing its forward-looking risk-based supervisory analysis as it moves away from a compliance approach. This change in strategy is helping the CBG develop its on-site and off-site banking supervision work and to further develop its crisis management recovery and resolution framework. Furthermore, the CBG is exploring options to introduce deposit insurance which would reinforce its crisis preparedness.

Debt Sustainability

31. The authorities are committed to taking measures to make debt sustainable. They are already working, with Bank and Fund support, on a strategy for lengthening the maturity of domestic debt, including SOE debt. They have also approached their official creditors—regional development institutions, major non-Paris Club creditors, and the Paris Club—for financial support (on highly concessional terms) sufficient to cover debt service due to them over the next four years. Should assurances on such support be received by the Board date, staff will have confidence that debt sustainability will be restored via a lowering of gross financing needs, attenuation of heightened external debt vulnerabilities, and reduction in the present value of total public debt. In addition, these assurances would also serve to meet the authorities’ financing needs over the medium term; indeed, in the absence of significant official sector support, a substantial financing gap would likely emerge, assuming full payment of external debt service obligations.

32. It is important to note that while such a strategy could deliver a sustainable debt position, it will do so with little margin to spare. Accordingly, it will be important for the authorities to secure substantial additional concessional resources at the donor conference to be held later this year, both for the country’s general development as well as to lower the debt burden. Assuming these resources are used in part for retiring expensive domestic debt as well as for public investment, each additional US$50 million in donor financing would help further reduce gross financing needs and the PV of public debt by about 2-3 percent of GDP in the medium term while supporting growth enhancing and poverty reducing investment.

Progress on Poverty Reduction and Key Strategic Directions

33. The Government reform agenda continues to be based on the country’s national blueprints, the Vision 2020 long-term development plan and the medium-term Program for Accelerated Growth and Employment (PAGE). The PAGE, approved in 2012 through a participative process involving all national stakeholders, aims to accelerate and sustain economic growth and development while creating employment opportunities for Gambians to improve their socio-economic conditions. The authorities are intent on securing macroeconomic stability that is a precondition for sustainable growth, and policies under the Staff Monitored Program (SMP) seek to reduce NDB. This is expected to generate fiscal savings from lower interest costs which could eventually be redirected to spending on PAGE priorities, and to ease crowding out of the private sector.

34. A new National Development Plan, the PAGE II covering 2017–21, is close to finalization. The authorities are currently incorporating the findings of the Integrated Households Living Conditions Survey (IHS) and subsequent analytical studies and expect to finalize the PAGE II by mid-2017. Good implementation of the PAGE is key for inclusive growth and poverty reduction in The Gambia. Since 2012, almost 50 percent of total locally-financed expenditure has been dedicated to poverty reducing activities identified in the PAGE. Infrastructure supporting trade and re-exports such as the Trans-Gambia River Bridge and work to support agriculture in terms of rural road construction and water management will support inclusive growth and help reduce rural poverty. Progress on PAGE and PAGE II remain critical especially as fragility in the Gambia has grown and needs have become greater as it emerges from 22-years of Jammeh’s regime (Box 2).

The Gambia: Strategy for Addressing Fragility

The Gambia is marked by five aspects of fragility. First, the country is exiting from 22 years of Jammeh rule and embarking upon a historic transition to democracy. A newly-elected government took power in January 2017, after a tumultuous election and political impasse, and early parliamentary elections were held in April 2017. Second, decades of Jammeh rule have impeded economic institutions and institutional capacity, both of which hamper effective macroeconomic management. Third, The Gambia is also economically fragile, stemming from high susceptibility to weather related shocks, past fiscal slippages and theft of funds by the previous regime. Fourth, limited recent progress on improving socio-economic indicators may accentuate frailties in The Gambia’s social fabric, such as inter-tribal rivalries. Fifth, provision of vital infrastructure and services, such as reliable electricity, is weak.

The strategy for engagement with The Gambia entails capacity building efforts aimed at rebuilding resilience going forward. Actions such as ensuring that all previously-diverted revenue streams and public expenditures are brought on-budget, SOE reform and improving fiscal oversight of SOEs to put them on a sound financial footing, aim to increase fiscal transparency and improve basic infrastructure provision. At the same time, reducing net domestic borrowing and improving the effectiveness of monetary policy will strengthen macroeconomic management. Furthermore, technical assistance aimed at alleviating capacity limitations will focus on buttressing fiscal institutions; strengthening monetary policy tools and financial sector supervision; and enhancing statistical capacity.

Request for Fund Support

35. The authorities have requested financial assistance under the RCF’s shocks window in an amount of SDR 11,662,500 (18.75 percent of quota), combined with a 12-month SMP. The country faces an urgent BOP need, which is predominantly caused by external shocks related to adverse climate’s impact on agriculture, political turmoil that adversely impacted the tourism sector, and higher commodity prices. The net BOP impact of these shocks is estimated at $31 million (3 percent of GDP) in 2017. If not immediately addressed these shocks could result in a very costly and disruptive forced adjustment. The new government will need time to address the long-standing legacy issues around corruption, embezzlement and theft which have depleted buffers. A 12-month SMP (April 2017 to March 2018) with end-June and end December 2017 test dates will help guide policies and establish a track record of good performance.

36. The RCF disbursement would complement the authorities’ own adjustment efforts to address the urgent BOP need and help catalyze additional donor financing. It would also provide the authorities the time needed to establish a firm picture of state finances considering the massive embezzlement of the previous regime that is being uncovered, firm up their medium-term consolidation strategy and ensure political consensus. The authorities’ combined measures in 2017 amounting to 5 percent of GDP are expected to close more than one third of the fiscal gap in 2017 and help mitigate external pressures resulting from the shock. The approval of an RCF disbursement would be instrumental in facilitating external budget support disbursements amounting to about $75 million for 2017 (7.2 percent of GDP), including from the World Bank ($41 million), the EU ($27 million) and the AfDB ($7 million). In light of the large fiscal financing needs, staff proposes that the RCF disbursement of 18.75 percent of The Gambia’s quota, the dalasi equivalent of about $15.6 million covering about 11 percent of the fiscal financing gap, be on-lent from the CBG to the government on the same financial terms as the Fund’s RCF disbursement to The Gambia.4 This would help to close the financing gap in 2017. The RCF disbursement together with solid implementation of the associated SMP would help the authorities to obtain the support required to close the remaining gaps in the outer years, ideally in the form of grants given the country’s elevated debt vulnerabilities. The RCF disbursement would help to restore gross international reserves to about $85 million, adding 0.4 months to reach 2.0 months of prospective imports in 2017.

37. The Gambia’s capacity to repay the Fund is weak (Table 8) but expected to strengthen once measures to make debt sustainable are fully implemented, with risks to the outlook. Failure to implement measures to make the debt sustainable are an important risk. The country remains susceptible to weather related shocks. If donor support were to fail to materialize, the authorities would likely not be able to contain spending pressures. Finally, there are also political risks as the country’s political transition is ongoing, but not yet firmly entrenched.

Table 1.

The Gambia: Selected Economic Indicators

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Sources: Gambian authorities; and Fund staff estimates and projection
Table 2.

The Gambia: Statement of Central Government Operations

(Millions of local currency)

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

Equals the sum of project grants, external project loans, and changes in project accounts.

The difference between financing and the overall balance of revenue and expenditures. In 2017 and beyond, is the remaining financing gap.

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

(Percent of GDP)

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

Equals the sum of project grants, external project loans, and changes in project accounts.

The difference between financing and the overall balance of revenue and expenditures. In 2017 and beyond, is the remaining financing gap.

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

(Millions of local currency, unless otherwise indicated)

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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)

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

End of period.

Table 6.

The Gambia: Balance of Payments

(Millions of U.S. dollars, unless otherwise indicated)

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