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IMF Country Report No. 22/385

THE GAMBIA

FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR AUGMENTATION OF ACCESS, WAIVER FOR NONOBSERVANCE OF A PERFORMANCE CRITERION, MODIFICATION OF A PERFORMANCE CRITERION, AND FINANCING ASSURANCES REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE GAMBIA

December 2022

In the context of The Gambia – Fifth Review Under the Extended Credit Facility Arrangement, Requests for Augmentation of Access, Waiver for Nonobservance of a Performance Criterion, Modification of a Performance Criterion, and Financing Assurances Review, the following documents have been released and are included in this package:

• A Press Release including a statement by the Chair of the Executive Board.

• The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 14, 2022, following discussions that ended on October 31, 2022, with the officials of the Gambia on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on November 28, 2022.

• A Debt Sustainability Analysis Update prepared by the staff(s) of the IMF and the World Bank.

• A Statement by the Executive Director for the Gambia.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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© 2022 International Monetary Fund

Press Release

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PR22/431

IMF Executive Board Completes the Fifth Review under the Extended Credit Facility Arrangement for The Gambia and Approves US$27.41 Million Disbursement

FOR IMMEDIATE RELEASE

• The IMF Executive Board decision allows for an immediate disbursement of about US$27.41 million to The Gambia to help meet the country’s financing needs, address the repercussions of the war in Ukraine, and support the post-pandemic recovery.

• The Gambian economy is expected to grow by 4.5 percent in 2022 and 6.0 percent in 2023. The repercussions of the war in Ukraine threaten economic and social stability.

• The authorities are taking the necessary measures to address the implications of external shocks. They remain committed to strong policies and reforms.

Washington, DC – December 14, 2022: Today, the Executive Board of the International Monetary Fund (IMF) completed the fifth review under the Extended Credit Facility (ECF) arrangement for The Gambia. The completion of the review enables the immediate disbursement of the equivalent of SDR20.55 million, about US$27.41 million, to help meet the country’s balance-of-payments and fiscal financing needs amid challenges, including the repercussions of the war in Ukraine and the lingering impact of the COVID-19 pandemic. This brings total disbursements under the ECF arrangement to SDR 65.55 million (about US$87.44 million).

The Executive Board also approved an augmentation of access under the ECF arrangement from SDR55 million to SDR70.55 million (or 113.4 percent of The Gambia’s quota in the Fund), which is the second augmentation of access under this ECF arrangement. Further, the Executive Board completed the financing assurances review and granted a waiver of nonobservance of a performance criterion on external arrears.

The ECF arrangement with The Gambia was approved by the IMF’s Executive Board on March 23, 2020, with an initial total access of SDR35 million (or 56.3 percent of quota) that was augmented at the completion of the first ECF review on January 15, 2021 to SDR55 million (88.4 percent of quota). The Gambia has also benefited from an IMF Rapid Credit Facility disbursement of SDR15.55 million and received debt service relief from the IMF under the Catastrophe Containment and Relief Trust, totaling SDR7.9 million.

The Gambian economy is facing multiple exogenous shocks, including the repercussions of the war in Ukraine, the lingering impact of the COVID-19 pandemic, and a major flooding. Growth projections in 2022 have been revised downward from 5.6 percent to 4.5 percent. Inflation reached a record-high level of 13.2 percent (year-on- year) in October 2022. The Central Bank of The Gambia increased further its policy rate to 13 percent in December 2022 to tackle inflationary pressures. The balance of payments is adversely affected by disruptions of timber and cashew exports, weaker-than-expected tourist arrivals, lower remittance inflows, high food and fuel import bills, and elevated freight costs. These shocks are generating foreign exchange shortages and weighing on forex reserves. Budget execution is facing pressures, including civil service salary increase and fuel revenue losses to alleviate the impact of the high global fuel prices on the population.

Executive Board Assessment¹

Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:

The Gambia’s performance under the economic program supported by the Extended Credit Facility (ECF) has been broadly satisfactory despite economic and social challenges stemming from the repercussions of the war in Ukraine, the lingering impacts of the COVID-19 pandemic, and a recent major flooding. Owing to these exogenous shocks, economic recovery and tax collection are weaker than anticipated, while inflationary pressures and foreign exchange shortages are intensifying.

The central bank is tightening the monetary policy stance to tackle inflation. It would be paramount to allow smooth functioning of the foreign exchange market and ensure that the exchange rate reflects market forces, which would help restore equilibrium.

Fiscal policy aims at alleviating the impact of the high global fuel and food prices on the population while safeguarding debt sustainability. To keep public debt on a downward path, it would be important to bolster domestic revenue mobilization, streamline tax exemptions, rationalize subsidies to SOEs, strengthen cash management, and further prioritize public investment projects.

In view of lingering vulnerabilities, including anticipated increases in debt service obligations at the expiry of the debt service rescheduling period, it would be important to maintain sufficient fiscal and external buffers. To this end, it would be advisable to contain domestic borrowing, strictly adhere to the external borrowing plan, and seek grants and highly concessional loans.

The authorities continue implementation of their ambitious structural reform agenda, including on justice reforms, audits of COVID-19-related spending, public procurement legal framework, and an upcoming governance diagnostic. The authorities are encouraged to further strengthen the business environment to promote private sector-led growth and reduce poverty.

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The Gambia: Selected Economic Indicators, 2020–2027

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The Gambia: Selected Economic Indicators, 2020–2027

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The Gambia: Selected Economic Indicators, 2020–2027

Title page

THE GAMBIA

FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR AUGMENTATION OF ACCESS, WAIVER FOR NONOBSERVANCE OF A PERFORMANCE CRITERION, MODIFICATION OF A PERFORMANCE CRITERION, AND FINANCING ASSURANCES REVIEW

November 28, 2022

EXECUTIVE SUMMARY

Context. The repercussions of the war in Ukraine are threatening economic and social stability. Following a slight uptick in July-August, new COVID-19 cases have declined to almost nil recently while the vaccination rate remains low at around 22 percent of the population. The Gambia is also suffering from more frequent climatic shocks, including a recent major flooding. The country continues to advance social and justice reforms. Following a parliamentary election, President Barrow reshuffled the Cabinet in May 2022, without any expected change in the overall direction of economic policies.

Macroeconomic developments and outlook. The economic recovery is weaker than anticipated owing primarily to the repercussions of the war in Ukraine. Inflation reached a several decades record high of 13.3 percent (y-o-y) at end-September 2022. The balance of payments is facing multiple shocks, including disruptions of timber and cashew exports, weaker-than-expected tourist arrivals, lower remittance inflows, high food and fuel import bills, and elevated freight costs. These shocks are generating forex shortages and weighing on forex reserves. Budget execution has been adversely impacted by fuel revenue losses, delays in the collection of non-tax revenue, and a 30-percent increase in civil servants’ basic salaries. The outlook is clouded by significant downside risks, including uncertainties about the war in Ukraine and the COVID-19 pandemic.

Program performance. Performance under the ECF-supported program was broadly satisfactory. At end-June 2022, all quantitative performance criteria (QPCs), three out of four indicative targets (ITs) and all three structural benchmarks (SBs) were met. However, the continuous QPC on external arrears was temporary breached. At end-September 2022, six out of nine indicative quantitative targets and three out of five SBs were met. The prior action on the submission to the National Assembly of the second phase audit report on Covid-19-related spending has been completed.

Program objectives. The program aims at addressing the immediate pressures from multiple exogenous shocks while improving macroeconomic sustainability:

• To address the foreign exchange shortages, the CBG will allow smooth functioning of the forex market and ensure that the exchange rate reflects market forces. The authorities are requesting augmentation of access under the ECF arrangement to help address the widening external financing gap.

• To address persistent inflationary pressures, the CBG intends to tighten further the monetary policy stance, including through additional policy rate hikes and absorption of excess liquidity.

• To address the fiscal pressures, the authorities are taking revenue and spending measures while the targets will be slightly loosened relative to previous plans to mitigate the impact of the shocks on the population. The fiscal framework will broadly keep public debt on the previously programmed downward path.

• To support the fiscal efforts and the business environment, structural reforms will continue to be centered on revenue administration, public financial management, and governance, including digitalization, public procurement, prioritization of public investment, state-owned enterprises, and the fight against corruption.

Staff’s views. Considering the broadly satisfactory program performance and the authorities’ strong policy commitments going forward, staff recommends completion of the fifth ECF review and the financing assurances review. Staff also supports the authorities’ requests for a modification of a performance criterion and indicative targets, a waiver for non-observance of a performance criterion, and the augmentation of access of SDR 15.55 million (25 percent of quota) under the ECF arrangement to address urgent balance of payments financing needs stemming from lower exports and remittances, and higher global food and fuel prices.

Approved By

Montfort Mlachila (AFR) and Geremia Palomba (SPR)

Contents

• ACRONYMS

• CONTEXT

• RECENT ECONOMIC DEVELOPMENTS

• PROGRAM PERFORMANCE

• ECONOMIC OUTLOOK AND RISKS

• POLICY DISCUSSIONS

• A. Exchange Rate and Monetary Policies

• B. Fiscal Policy and Debt Sustainability

• C. Public Financial Management, Governance, Structural Reforms

• CAPACITY DEVELOPMENT

• PROGRAM MODALITIES

• STAFF APPRAISAL

• FIGURES

• 1. Recent Economic Developments, 2014–22

• 2. Fiscal Sector Developments, 2014–22

• 3. Monetary Developments, 2016–22

• 4. Medium-Term Outlook, 2019–27

• TABLES

• 1. Selected Economic Indicators, 2020–27

• 2a. Statement of Central Government Operations, 2020–27 (Millions of local currency)

• 2b. Statement of Central Government Operations, 2020–27 (Percent of GDP)

• 3. Statement of Central Government Operations, 2022–23

• 4a. Monetary Accounts, 2020–27 (Millions of local currency, unless otherwise indicated)

• 4b. Monetary Accounts, 2020–27 (Percent changes, unless otherwise indicated)

• 5. Monetary Accounts, 2020–22

• 6a. Balance of Payments, 2020–27 (Millions of U.S. dollars, unless otherwise indicated)

• 6b. Balance of Payments, 2020–27 (Percent of GDP)

• 7. External Financing Needs, 2020–23

• 8. Decomposition of Public Debt and Debt Service by Creditor, 2021–2023

• 9. Financial Soundness Indicators for the Banking Sector, 2015–22

• 10. Indicators of Capacity to Repay the Fund, 2021–32

• 11. Proposed Augmented Disbursements Under the ECF Arrangement, 2020–23

• ANNEXES

• I. Foreign Exchange Shortages

• 11. Civil Service Wages

• III. Risk Assessment Matrix

• IV. Enhanced Safeguards

• V. Capacity Development Strategy, 2021–22

• APPENDIX

• I. Letter of Intent

  • Attachment I. Memorandum of Economic and Financial Policies

  • Attachment II. Technical Memorandum of Understanding

Acronyms