Executive Summary

Context. The IMF Executive Board approved, on March 23, 2020, a 39-month Extended Credit Facility (ECF) arrangement in the amount of SDR 35 million (56.3 percent of quota) for The Gambia. The Gambia benefited from a Rapid Credit Facility (RCF) disbursement of SDR 15.55 million (25 percent of quota) approved on April 15, 2020 and is receiving debt service relief under the Catastrophe Containment and Relief Trust (CCRT) expected to total SDR 7.9 million (SDR 4.2 million of which has already been approved), to help meet heightened balance-of-payments and fiscal financing needs due to the impact of the COVID-19 pandemic. While indicators point to a domestic weakening of the pandemic, the authorities are seeking an ECF augmentation of SDR 20 million (32.15 percent of quota) to meet balance-of-payments needs arising from fiscal measures to stimulate the economic recovery in 2021, strengthen public health preparedness, increase social spending to mitigate the effects of the pandemic. They are also requesting a waiver of nonobservance of a continuous performance criterion (a zero ceiling) on new external payment arrears of the central government.

Macroeconomic performance and outlook. Economic growth is estimated to have been about zero in 2020, due to a halt in tourism in the wake of the pandemic and a slowdown in other activities, albeit partially mitigated by an upswing in agriculture and a sustained activity in construction. Inflation has been on a declining path since end-2019 and reached 5.6 percent (y/y) in October 2020. Thanks to a strong budget support from donors and prudent spending, the fiscal position has strengthened marginally relative to 2019 and net domestic borrowing has remained within program limits. The current account deficit widened slightly, with a drop in export receipts from tourism largely offset by an increase in official transfers and remittances, but the overall balance of payments registered a larger surplus on the back of strong inflows of private capital transfers while foreign direct investment dropped. As a result, gross official reserves have increased by 50 percent since end-2019 and reached US$350 million in November. Reflecting these developments, the dalasi has been practically stable relative to the US dollar and appreciated slightly in real terms. The buildup of net foreign assets in the banking system supported broad money growth at about 15 percent since end-2019, while credit to the private sector has been flat. The economic outlook is broadly positive, predicated on the global economic recovery, resumption of tourism, and continued domestic reforms. Growth is projected to reach 6.0 percent in 2021, helped by a strong fiscal stimulus in the 2021 budget. The current account deficit is set to widen, as investment picks up, but official reserves are expected to rise further (to about US$390 million or 4.6 months of prospective imports), in part thanks to projected ECF disbursements. The uncertain intensity and duration of the pandemic globally, stifling tourism, constitutes the biggest downside risk.

Program implementation. Six out of seven quantitative performance criteria (PC) through end-June 2020 were met. The missed PC relates to a continuous zero-ceiling on new external payments arrears of the central government. The authorities subsequently cleared the arrears and put in place corrective measures to prevent their recurrence. The indicative floor for poverty-reducing spending was not met at end-June; subsequently, however, all end-September indicative targets, including the floor for poverty-reducing spending, were met. All structural benchmarks (SB) through end-June 2020, were met. The three structural benchmarks for end-September were not met, as their implementation was thwarted by a surge in the COVID-19 cases. Nevertheless, adequate actions have been taken subsequently to achieve their key objectives.

The 2021 program. The critical elements of the program are reflected in the draft 2021 budget, which is aligned with the medium-term fiscal framework and anchored on ensuring debt sustainability. Strong fiscal performance in 2020, the important reforms that have been initiated (notably, the tightening of the policies on tax exemptions and transfers to the subvented agencies), and the availability of concessional resources (including the requested ECF augmentation) have created fiscal space that is intended to be used to stimulate the post-pandemic recovery, while strengthening the public health system and the social safety net. The broader reform agenda includes legislative reforms to strengthen public financial management, public procurement, and the governance and financial performance of the state-owned enterprises (SOEs).

Challenges remain. Fiscal risks stem principally from a potential resurgence of the pandemic and structural weaknesses in the SOEs reflecting their unclear mandate and the legacy of executive interference. Heightened budgetary pressures in the run-up to the 2021 presidential election will test the authorities’ commitment to macroeconomic discipline, while political tensions related to the promulgation of a new constitution (possibly, ahead of the presidential election) could delay crucial reforms.

Staff supports the authorities’ requests for a waiver of nonobservance of a PC and augmentation of access under the ECF arrangement and recommends completion of the first review of The Gambia’s ECF-supported program and the financing assurances review.

Approved By

Annalisa Fedelino (AFR) and Geremia Palomba (SPR)