Introduction

1. Our Gambian authorities appreciate the candid engagement with staff during the recent reviews, including the fifth review under the Extended Credit Facility (ECF) arrangement. They broadly share staff’s assessment and appreciate the Fund’s support at a time when uncertainties to the global outlook remain exceptionally high.

2. The economy of The Gambia is rebounding at a slower pace than expected, owing to multiple shocks characterized by the ongoing war in Ukraine, uncertain path of the pandemic, and global financial tightening. Despite challenges arising from multiple shocks, including the spillovers from the war in Ukraine and the lingering effects of the pandemic, the authorities continue to make meaningful progress since the last review, as exemplified by the satisfactory program performance with notable strides made in the implementation of structural reforms. In this regard, the authorities seek Executive Directors’ support in completing the fifth review under the ECF arrangement and the financing assurances review, and requests for modification of a performance criterion and indicative targets, as well as associated waivers.

Program Performance

3. All quantitative performance criteria (QPCs) at end-June 2022 were met. However, performance at end-September 2022 was mixed. The continuous QPC on external arrears was temporarily breached as settlement of the national utility company debt service obligations was delayed due to challenges, including from elevated fuel prices and forex supply constraints. The floor on net international reserves was also missed due to the central bank interventions to support the import of fuel and essential commodities. To avoid delayed payments in future, the authorities have constituted a committee that closely monitors the financial situation of the national utility company to design corrective measures. Further, the authorities are taking prudent measures to prevent fiscal slippages going forward, including by strengthening cash management, and continuously aligning the rolling out of quarterly spending plans with the treasury and borrowing plans with the NDB target. The new Public Finance Bill will also include a provision requiring that any additional spending be matched with additional revenue or spending reallocations in a supplementary budget.

4. Three out of four end-June 2022 indicative targets (IT) were met, but the floor on domestic tax revenue was missed due to lower collection of taxes on petroleum products owing to the limit in the pass through of surging international oil prices to domestic pump prices.

5. All three structural benchmarks (SBs) for end-June 2022 and three out of five end-September 2022 SBs targets were met. That said, the publication of the phase 2 audit report of COVID- 19 spending was not completed, although it was submitted to the National Assembly as a prior action. Further, the signing of performance contracts between the Ministry of Finance and three additional key SOEs (GPA, GNPC and SSHFC) has been delayed as negotiations with SOEs on KPI targets are currently ongoing but expected to conclude by end-February 2023.

Recent Economic Developments

6. Real GDP is projected to firm from 4.3 percent in 2021 to 4.5 percent and 6.0 percent in 2022 and 2023 respectively. Growth continues to be driven by positive performance in agriculture and private construction. Nonetheless, the growth forecasts have been downgraded in the fourth review, largely due to low tourist arrivals compared to the pre-pandemic period, suspension of exports of timber and cashew owing to security concerns as well as declining remittances. In the medium term, growth is expected to average 5 percent. The outlook is however, subjected to downside risks, including from the protracted war in Ukraine, continuous effects of the COVID-19 pandemic, the tightening global financial conditions and climate vulnerabilities.

7. Inflation increased from 7.3 percent to 13.2 percent in-October 2022, which is higher compared to previous years; with food inflation registering an average to 15.3 percent. Inflation is driven by both domestic and external factors, including supply chain disruptions and increases in global food and fuel prices due to the war in Ukraine. Inflation is expected to remain high in 2022 and 2023 before stabilizing to 5 percent in the medium term.

8. The current account deficit in 2022 is expected to worsen by one percent of GDP, on the back of large declines in forex earning relative to demand. Meanwhile, importers of essential commodities found it difficult to source forex to pay for their imports which impacted food and fuel inventories. Consequently, the Central Bank of the Gambia (CBG) ran down reserves to meet the forex requirements of importers of essential commodities. Consequently, reserves declined from 7 months of import cover in 2021 to 4.6 months in 2022.

Fiscal Policy and Debt Sustainability

9. The authorities remain committed to persevere with fiscal consolidation efforts within the context of the Medium-Term Fiscal Framework. Despite the challenges owing to revenue shortfalls and wage pressures, they remain determined to sustain prudent fiscal management to preserve fiscal sustainability and place debt on a firm downward trajectory. To this end, while the 2023 fiscal framework is anchored on an overall fiscal deficit of 2.7 percent that allows for additional support to vulnerable households, the authorities are on course to achieve a consolidation of 2.2 percentage points relative to 2022.

10. The authorities pressing ahead with domestic revenue mobilization efforts to bolster revenue collections to finance the fiscal pressure, including increases in the public sector salaries. To this end, they are broadening the tax base to include potential revenue generating sectors such as hospitality, cable television, and real estate. They are enhancing tax collection from expiring Special Investment Certificates (SIC) exemption holders, PIT from the increase in salaries of civil service, airport concession fees, dividends from SOEs, and revenues buffer generated from passthrough from global to domestic fuel prices in the event of a decline in global fuel prices. Furthermore, the authorities have completed a mid-term performance review under the 2020–24 Corporate Strategic Plan (CSP); completed a Taxpayer Charter and Ledger Reconstruction and Maintenance (LRM) with large taxpayers and have updated the GamTaxNet to enhance revenue.

11. Meanwhile, the authorities have completed the Tax audit for five exempt entities holding SICs and plan to extend the exercise to other entities while revisiting the granting of SIC to minimize revenue loses. The authorities are expanding the tax ledgers cleaning to other categories of taxpayers; accelerating digital transformation of the tax system through ASYCUDA World and ITAS; implementing stronger management of tax arrears to strengthen revenue administration. They are also taking measures to increase compliance of SOEs to enhance collection on pay-as-you earn income taxes and VAT; and plan to establish an Internal Affairs Unit to enhance assurance and integrity mechanism. Concurrently, the authorities established a Revenue and Tax Policy Directorate at the Ministry of Finance to provide a strategic focus on tax policy formulation while strengthening revenue collection.

12. To strengthen expenditure controls, the authorities have eliminated non-payroll-related allowances of civil servants; reduced subsidies to SOEs; eliminated non-essential travels and trainings abroad; reduced per-diems; streamlined mobile phones and fuel allowance to eligible officials; and reduced other allocations on goods and services. In parallel, they continue to strengthen Public Financial Management and have established a well-functioning monitoring committee to foster spending and investment efficiency. To this end, they rolled out the Integrated Financial Management Information System (IFMIS) to all Local Government Authorities and to seven subvented agencies. They also plan to extend it to additional ten self-accounting projects.

13. The authorities are committed to implementing measures to place public debt on a downward path and reduce the present value of total public debt below 55 percent of GDP by 2025. While debt is sustainable, it remains elevated and at a high risk of distress. In their effort to reduce debt vulnerabilities, the authorities adopted cautious borrowing plans and rely mainly on grants and highly concessional loans to bridge the infrastructure gap while utilizing their medium-term fiscal framework to reduce debt. Further, they are strengthening the public private partnership (PPP) legal framework to mitigate fiscal risks emanating from PPP projects. Presently, the authorities are reconciling, external debt data, and recording of domestic debt in the Meridian system while communicating with their creditors.

Monetary and Financial Sector Policies

14. The Central Bank of The Gambia (CBG) has been mopping up liquidity to curtail monetary growth and rein in inflation. That said, the war in Ukraine coupled with the lean period that typify crop harvests and the depreciation of the dalasi have, however, exerted inflationary pressures. While the CBG increased the policy rate in May 2022 and September 2022 from 10 percent to 12 percent to curb inflation, it remains vigilant to price developments and stands ready to recalibrate the monetary stance to further contain inflation. In the same vein, the CBG is implementing a clear and transparent communication strategy to help anchor inflation expectations.

15. Our Gambian authorities operate under a free float exchange rate regime which has served them well. However, given the persistent imbalance in the forex market, the CBG has been taking steps since early October 2022 to address the wedge between its published exchange rate and the parallel market rate. Specifically, the CBG clarified to banks and forex bureaus that they can transact officially at a market-based exchange rate while adjusting the basis of its published exchange rate, which acts as an important signal to market participants about CBG’s policy. Further, the CBG rescinded a ban on forex account withdrawals and is committed to allow smooth functioning of the forex market. Consequently, the exchange rate premium narrowed to 5–11 percent at end-October 2022 from 15–20 percent in mid- September 2022.

16. The financial sector remains sound with ample liquidity. While the banking system has remained resilient, with strong private sector credit growth, the CBG continues to strengthen banking supervision, enhance financial deepening and inclusion and are implementing safeguards recommendations. They developed an in-house stress testing framework and are strengthening the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) frameworks to enhance corresponding banking relationships and restore stability in the banking system.

Structural Reforms

17. The authorities made significant progress in the preparation of the Green Recovery-Focused National Development Plan (RF-NDP) and the Long-Term Development Vision (LTDV) 2050. They completed key stakeholder consultations across all 120 Wards in the country and MDAs, and civil society, including women, persons with disability, private sector, and development partners at the national level. Further, they completed the first draft of RF-NDP in October 2022; and plan to complete the drafting of the LTDV by end-December 2022.

18. The authorities recognized the need to develop the private sector to sustain the recovery, enhance growth and reduce poverty. In this context, they are implementing reforms to improve the business environment to promote private sector development, increase competitiveness, foster economic growth, and job creation. They have deployed the business registration single window and are integrating the implementation of the electronic single window for business registration with the government’s digitization process to ease registration. They completed the expansion of the Social Registry which includes socio- economic information to help identify the most vulnerable population to effectively provide well-targeted social support.

19. The authorities are strengthening governance, the fight against corruption, and trafficking in Persons. They have, through the National Assembly, approved the public procurement Act to improve the use of public resources. Meanwhile, they are revising the PPP bill, screening Ministries Departments, and Agencies’ (MDAs) new projects and training pilot MDAs on monthly cash forecasting. They are extending the performance contracts to three additional key SOEs to strengthen their financial positions. While the authorities resubmitted the draft of the anti-corruption bill to the IMF for review, they look forward to the upcoming IMF governance diagnostic mission. Meanwhile, they made significant improvement to combatting human trafficking by strengthening the National Agency Against Trafficking in Persons and have improved to Tier 2 in the 2022 U.S. Trafficking in Persons Report.

20. The authorities continue to strengthen policies to mitigate climate change-related risks given the country’s vulnerability to climate shocks. To this effect, they developed policy actions which are in line with the goals of 1.5°C Paris climate agreement with supported target which meets the requirements of the Climate Action Tracker latest update. While the authorities approved its Long-Term Climate-Neutral Development Strategy in September 2022, which could enable The Gambia to attain the net zero target in 2050, they are making efforts to strengthen climate mitigation and adaptation and looking forward to international financing to address the high frequency of droughts, floods, rising sea level, and coastal erosion.

21. Our Gambian authorities continue to adhere to transparency and accountability commitments made on COVID-19 related spending. In this regard, they report COVID-19 spending in the monthly budget execution report. Further, in October 2022, the National Audit Office (NAO) completed and submitted to the National Assembly the report of the second phase of an ex-post audit of the COVID-19-related spending, including cash payment to tourist workers, frontline workers, overseas students, media houses, and audit of quarantine centers.

Conclusion

22. The Gambian authorities remain committed to reforms agreed under the ECF program, notwithstanding the challenging circumstances. Fund support has played a critical role in helping them stabilize the economy while also contributing to the development of capacity and effective implementation of policies needed to sustain the recovery. The authorities consider Fund support as key in complementing their reform agenda to realize their national economic objectives as outlined in the National Development Plan. They look forward to continued technical support and policy advice.