Introduction

1. Our Gambian authorities appreciate the candid engagement with staff during the recent virtual 2021 Article IV Consultations and third review of the Extended Credit Facility (ECF). They especially appreciate the pertinent analysis provided in selected issues papers. The authorities also thank Fund Management and the Executive Board for earlier emergency financing, debt relief and the SDR allocation, that bolstered their ongoing fight against the COVID-19 pandemic.

2. Following the political transition in 2016/17, growth in The Gambia increased, debt vulnerabilities declined, external stability strengthened, structural and legislative reforms progressed, and social indicators improved. The COVID-19 pandemic, however, disrupted this hard-won pre-pandemic momentum and undermined gains with a real decline in GDP per capita of over 3 percent and an increase in poverty rates. The authorities implemented strong mitigating measures early in 2020 to contain the pandemic and its negative effects on lives and livelihoods. This was followed by a mass vaccination campaign from March 2021, supported by the COVAX initiative, a World Bank COVID-19 grant, as well as bilateral partners. As a result, the vaccination rate has now reached around 12 percent of the adult population compared to less than 1 percent of the population at the time of the last review in May. Although the vaccination rate is still low, progress in recent weeks has helped to reduce new COVID-19 cases drastically.

3. The vaccination and sensitization campaign continues as the authorities work towards full resumption of economic activity, including in important contact-intensive sectors like tourism. Growth is estimated to have recovered in part in 2021 while inflation is projected to decline to the authorities’ 5 percent target in the medium-term. While the macroeconomic outlook is promising, uncertainty surrounding the pandemic continues to present downside risks.

4. Notwithstanding the challenges occasioned by the pandemic, the authorities were able to contain fiscal balances, and they remain determined to achieve the objectives of the ECF-supported program, including reducing debt vulnerabilities, and intensifying structural reforms to support durable and inclusive growth. They especially appreciate the August 2021 SDR allocation which helped to bolster reserves and create fiscal space to support pandemic-related spending. They have stayed the course, implementing appropriate fiscal and monetary policies to keep the ECF program on track while pursuing development objectives articulated in the National Development Plan. They therefore seek the Executive Board’s support in completing the Article IV consultation and third review under the ECF-supported program. Completion of the third review and the associated disbursement will support the vaccination campaign, vaccine roll out and investment spending, while helping to meet balance of payment needs.

Recent Economic Developments

5. Following a sharp decline in previously strong growth performance leading to some contraction in economic activity in 2020, the economy shows signs of a fragile recovery in 2021, constrained somewhat by a severe third wave of the pandemic fueled by the delta variant mid-year, which dampened economic performance. Growth is expected to recover in part to 4.9 percent in 2021 before converging in the medium-term to the pre-pandemic average of 6 percent. Recovery continues to be supported by strong remittance inflows which boost activity in the construction sector. Meanwhile, the main inflation risks emanate from elevated global oil and non-fuel commodity prices, higher freight charges, depreciation of the dalasi, supply bottlenecks, and increased domestic demand as the crisis subsides. Though inflation declined to 6.9 percent, year-on-year, in August 2021 from 8.1 percent in June, global trends may continue to exert pressure.

6. The current account in 2020 improved due to strong current transfers. The deficit is, however, projected to widen in 2021 with the delayed resumption of tourism activity and increased COVID related imports, as well as large infrastructure spending. Given the fragility of the outlook, timely donor support remains crucial to help offset the deterioration in the current account deficit and safeguard reserve coverage. Delays in the resumption of project grants and budget support from development partners have placed the authorities under immense pressure.

Program Performance

7. Program performance remains satisfactory, notwithstanding the challenges imposed by the pandemic. All quantitative performance criteria (QPC) through the end-June test date were met. These include the ceiling on the central government’s net domestic borrowing (NDB), floor on the stock of net international reserves (NIR), and the zero-ceiling on non-concessional external debt contracted and guaranteed by the government, and on the outstanding stock of external public debt.

8. Three out of four indicative targets (IT) were met for end-June 2021 including the floor on poverty-reducing spending, ceiling on stock of net domestic assets of the central bank, and monthly ceiling on central bank credit to the central government at non-market terms. The floor on total domestic tax revenue was however missed by 0.3 percent of GDP given adverse COVID-19 impacts on economic activity, including international trade and tourism and related receipts.

Of the three structural benchmarks (SBs) for end-June 2021, one was met while the other two are close to completion. The target dates for the missed SBs have been moved to end-December 2021. The authorities have made significant strides towards these SBs. They are fast-tracking the procurement Act, with coordination ongoing among stakeholders to align the draft to the overall objective to enhance private sector development and rationalize tax exemptions. The authorities have also prepared the draft stress testing framework, and are awaiting technical inputs from Fund technical assistance to be able to complete the framework.

Fiscal Policy and Debt Sustainability

9. The authorities are carefully navigating the current uncertainty, balancing tradeoffs between supporting the recovery and ensuring fiscal and debt sustainability. Given spending pressures amidst the pandemic, the FY2021 budget was augmented via supplementary appropriation with a revenue windfall, without altering program parameters. Budget execution, including that related to COVID-19 mitigation, is underpinned by the fiscal framework under the ECF program, ensuring adherence to PFM rules. The FY2022 budget includes fiscal consolidation measures to reduce debt vulnerabilities while continuing to allocate resources to priority expenditures including pandemic mitigation, social spending, and accelerating the post-pandemic recovery.

10. Various measures are underway to enhance revenue mobilization and administration. They include steps to rationalize tax exemptions, digitalization of tax administration, upgrading the taxpayer registry, and regularizing tax audits and data matching activities of the commercial real estate sector. It is also expected that fiscal revenues will be boosted by the Senegambia Bridge toll receipts and a one-off receipt of US$30 million from the petroleum sector.

11. The authorities also plan to pursue strict cash management practices to align spending with available resources. In addition, they will contain state-owned enterprise (SOE) subsidies to reduce pressure of the fiscal purse. US$20 million from the US$85 IMF SDR allocation will also help create fiscal space in the 2022 budget for pandemic-related spending. On spending efficiency, public financial management (PFM) reforms continue. IFMIS has been rolled out to more spending entities and projects, while salary payments are now executed electronically, effective February 2021. Similarly, the Treasury Single Account (TSA) is being operationalized as part of efforts to strengthen cash management.

12. To support debt and fiscal sustainability, the authorities will only borrow on highly concessional terms while pursuing grants to the extent possible to help finance infrastructure development. They have updated the debt strategy, publish a quarterly debt bulletin, and have revised and published annual borrowing plans and monthly bond issuance plans. They continue to reconcile and validate external debt data and record domestic debt in the Meridian system, to enhance debt management and transparency. The authorities are also strengthening the governance, transparency, and accountability of SOEs to minimize contingent liabilities. On discussions with creditors, they are re-engaging with the Libyan authorities to resolve outstanding arrears and will engage with the Venezuelan authorities once the sanctions are lifted.

Monetary and Financial Sector Policies

13. The Central Bank of The Gambia (CBG) has maintained an accommodative monetary policy stance to support the recovery. That said, the CBG stands ready to recalibrate monetary policy if inflationary pressures resume. Meanwhile, the monetary policy committee (MPC) has maintained the policy rate unchanged at 10 percent in its March and September 2021 meetings. As a result of the policy stance, reserve money, liquidity, and credit to the private sector have grown steadily. The CBG also remains committed to maintaining a flexible exchange rate regime and will limit foreign exchange intentions to smoothening of disorderly market conditions.

14. The financial sector remains resilient. Banks and micro-finance companies (MFCs) remain liquid, profitable, and well capitalized, with capital adequacy ratios well above statutory levels. Non-performing loans (NPLs) of commercial banks narrowed to 5.6 percent in June 2021, though the ratio is still high in a few small banks and non-bank financial institutions (NBFIs) exposed to sectors affected by the pandemic. The authorities are addressing pockets of vulnerabilities, strengthening risk-based supervision of these banks and NBFIs, and crisis preparedness and management, by implementing the recommendations from IMF’s 2019 Financial Sector Stability Review (FSSR). The CBG is using Regulatory, Compliance and Supervision System (RegCoSS) software to access real-time information to enhance banking supervision. They are also developing capacity in stress testing to identify early signs of distress in banks; and are setting up a Financial Stability Unit that will be assigned a macroprudential policy mandate. The CBG is also reviewing its Business Continuity Plan and addressing recommendations from the IMF’s 2020 safeguards assessment. On the digital front, the expansion of mobile banking operations has helped to boost financial inclusion and financial services, and monitoring of MFCs will help contain any risks.

Infrastructure and Structural Reforms

15. We thank staff for the selected issues papers with helpful analysis on Financing the Infrastructure Gap and Reaping Benefits from Large Infrastructure Projects. We note the finding that while part of the infrastructure gap will be covered by government through domestic revenue mobilization and enhance spending efficiency, support from development partners remains critical to help cover the remaining financing gap of at least 1.8 percent of GDP per year. Infrastructure investments will have a significant impact on the economy including by boosting tourism. Projects envisaged by the Government include construction and repairing of traffic road networks, power and water utilities, transport facilities, and hotels.

16. The authorities are intensifying their structural reform effort to complete remaining reforms, including the procurement Act, SOE bill, and the anti-corruption and the Public Finance bills. They have also drafted a pensions bill and designed a new pay and grading system as part of civil service pay reforms. Measures are underway to strengthen the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework and with the authorities working closely with GIABA on steps required for completion of the second round of the Mutual Evaluation Exercise in 2021. The government is also implementing a business reform program to improve the business environment with a view to enhancing competitiveness and enabling job creation and sustainable inclusive growth. In addition, policies to build climate resilience are being strengthened given the country’s vulnerability to climate change.

17. The authorities also continue to fully adhere to Fund transparency and accountability commitments in use of COVID-19 related funds. To this effect, they published the list of all COVID-19-related procurement contracts and their beneficiary owners up to end-June 2021 on the website of the Gambia Public Procurement Agency (GPPA). In addition, the National Audit Office (NAO) completed the first phase of an ex-post audit of COVID-19 spending and transmitted the report to the National Assembly. The NAO is currently conducting the second phase of the audit with a view to transmitting the reports to the National Assembly by end-December 2021. The authorities will publish the two audit reports by end-March 2022.

18. The Gambian authorities remain committed to combatting human trafficking. While the Gambia remained at Tier 2 in the last Watchlist of the US Department of State Human Trafficking Report, the authorities are working closely with the US State Department to ensure they do not regress to Tier 3. The current cooperation with the US government is helping to restore good governance, respect for human rights, the rule of law, and empower citizens.

Conclusion

19. The Gambian authorities remain committed to undertaking reforms agreed under the ECF program, notwithstanding challenges occasioned by the ongoing COVID-19 pandemic. They value Fund support that is contributing to the development of capacity and effective implementation of policies to support the recovery. Fund support remains an important complement to their efforts to realize national economic aspirations and objectives articulated in the NDP.