I. Introduction

On behalf of our Gambian authorities, we thank management and staff for their timely response to the request for disbursement under the Rapid Credit Facility (RCF) and Modification of Performance Criteria Under the Extended Credit Facility (ECF) Arrangement.

Over the last two years, The Gambia has made solid strides in stabilizing macroeconomic conditions, posting strong economic growth, notable improvements in public finances and a reduction in inflation. To further anchor macroeconomic stability, the authorities requested a 39-month ECF program, which was approved on March 23, 2020. However, the COVID-19 pandemic is threatening the macroeconomic gains achieved thus far, posing significant downside risks. The authorities have responded by initiating a range of measures to contain the spread of the virus, protect lives, and support the economy. Nonetheless, the pandemic has exerted substantial pressures on public finances and balance of payments.

Against this backdrop, the authorities request Fund financial support under the RCF in the amount of $21 million dollars (25 percent of quota) to address urgent balance of payment (BOP) needs and request that the RCF disbursement be deployed to supplement budget resources. Further, the authorities request a modification of performance criteria under the ECF arrangement to accommodate the deterioration in the BOP outlook through (i) an increase in the Net Domestic Assets (NDAs) ceilings; and (ii) a reduction in the quarterly floor of the Net Useable International Reserves (NUIR).

II. Program Performance

Strong commitment to reform and policy implementation continues to underpin satisfactory program performance under the ECF. At end March 2020, almost all the ECF’s indicative targets were met, some with comfortable margins. Compared to program targets, net domestic borrowing declined, and net useable international reserves improved. Tax revenue also performed well. The structural benchmark on preparation of a cash flow plan was also met.

III.Impact of the COVID-19 pandemic

Since the first COVID-19 case was reported March 17, 2020, infection rates have increased, and one fatality has been recorded. Given the fragility of the country’s health system and weak social safety nets, the numbers could rise rapidly. Current assessments of the impact of the COVID-19 pandemic suggest that economic growth in 2020 would decline to 2.5 percent, from the initial projection of 6.3 percent, owing largely to a reduction in trade, remittances, construction, investment, and hospitality businesses. Tourism, a key source of foreign exchange, has already seen marked declines, following the measures taken on March 30 including the declaration of a state of emergency and closure of air space and land border. In addition, financial conditions continue to tighten, as domestic interest rates increase. Immediate emergency BOP and related budgetary needs are estimated to exceed 2 percent of GDP. In 2020, overall BOP is expected to weaken by nearly 2.4 percent of GDP. At the same time, public investment spending will be postponed, further undermining the country’s growth outcomes.

Our authorities remain cautiously optimistic that recovery would begin in the second half of 2020, on the assumption that the current situation is temporary. They are aware that risks remain elevated as the pandemic could stretch for a protracted period at the global and regional levels and keep tourism, the mainstay of the economy, subdued.

IV.Policy Responses to the Pandemic

The authorities have taken measures to mitigate the impact on human life, manage the social and economic fallouts, and preserve the economic gains achieved over the past two years. In particular, they have declared a state of emergency and closed all air and land borders, schools, and non-essential public and private services. They are also enforcing social distancing measures and enacting temporary prohibition of exports to ensure availability of critical supplies in the local market and imposing a temporary freeze on prices of essential goods, including food and fuel.

On the fiscal front, several measures have been introduced to unlock critical resources needed to accommodate higher health spending and support businesses and the vulnerable households. Following the application of stricter expenditure control and prioritization, the government is reallocating spending of approximately 1 percent of GDP towards the COVID-19 emergency plan. Spending on goods and services and subsidies to SOEs have been reduced and travel has been suspended. The authorities stand ready to take further actions to accommodate new priorities during the current fiscal year and prevent spending pressures extending into FY2021. The authorities are also working with development partners to re-align sector-level project objectives with immediate needs occasioned by the pandemic. To provide relief to local businesses, the Gambia Revenue Authority (GRA) has extended by two months the filing of the 2019 annual tax returns and the payment of final 2019 taxes.

Under the current significant uncertainties, the Central Bank of The Gambia (CBG) will continue to implement a data- dependant monetary policy. In response to the tightening domestic financial conditions, the CBG reduced its policy rate. Further, the CBG is enhancing coordination between exchange rate, monetary, and macroprudential policies to mitigate financial stability risks. At the same time, the Bank will continue to maintain a flexible exchange rate regime to absorb balance-of-payments shocks. Going forward, the CBG will continue to closely monitor banking sector developments to respond with additional measures, including lowering reserve requirements and providing liquidity support, as necessary.

V. Request for Financing under the Rapid Credit Facility (RCF)

Our authorities request Directors’ support for an emergency disbursement under the exogenous shock window of the RCF to help cover the residual emergency financing gap caused by the pandemic. In the event that the crisis lasts longer than envisaged, the authorities expect further erosion of the fiscal and external positions. Under this scenario, they will seek additional support in-kind or through grants or highly concessional loans from development partners, including international financial institutions. Further, the authorities request modification of performance criteria under the ECF arrangement.

VI.Conclusion

The authorities are confident that their policies and measures taken in response to the COVID-19 pandemic will enable effective use of the disbursements under the RCF. They remain committed to pursuing sound policies articulated under the ECF arrangement, to strengthen macroeconomic stability and fiscal sustainability, strengthen governance and accountability and attain inclusive growth supported by private sector development. In addition, they intend to gradually unwind temporary measures, once the pandemic recedes and economic activity normalizes.