Introduction

1. Our Gambian authorities appreciate IMF staff for the fruitful engagement. They broadly concur with staff’s assessment and policy priorities.

2. The Gambian economy continues on a strong recovery path with robust growth despite challenges from multiple shocks, including the lagged effects of the pandemic and conflict spillovers. Notwithstanding the domestic and external challenges, the authorities are making significant progress in implementing reforms while consolidating the gains made under the 2020-2023 Extended Credit Facility (ECF) arrangement. At the same time, they have kept the current ECF arrangement broadly on track by focusing on reform efforts towards restoring macroeconomic stability. To this end, they are supporting the growth recovery process, tackling inflationary pressures, stabilizing the foreign exchange market operations, reducing debt vulnerabilities, and advancing structural reforms to ensure a sustained and inclusive growth. Consequently, the authorities view the Fund support under the ECF arrangement as instrumental in enhancing resilience to exogenous shocks and achieving the objectives of the Recovery Focused National Development Plan (RF-NDP).

Program Performance

3. Program performance was broadly satisfactory. Six out of the seven Quantitative Performance Criteria (QPCs) for end-June 2024 were met including floor of net usable international reserves (NIR); domestic primary balance; net domestic assets (NDA); ceiling on new external payment arrears of the central government; ceiling on new nonconcessional external debt contracted or guaranteed by central government; ceiling on outstanding stock of external public debt with original maturity of one year or less; and ceiling on new concessional external debt contracted or guaranteed by central government. However, the QPC on net domestic borrowing (NDB) of the central government was missed by 0.2 percent of GDP due to spending costs in hosting the Organization of Islamic Cooperation (OIC) Summit in May 2024, accelerated spending on road construction, emergency support to the National Water and Electricity Company (NAWEC), and the non-realization of receipts from arbitrations. Similarly, all the indicative targets (ITs) for end-June 2024 were met.

4. On the structural benchmarks (SBs) for test dates between end-August 2024 and endOctober 2024, two of six were met, including comprehensive audits of large taxpayers, such as the telecom sector and submission of yearly cash plans through the Integrated Financial Management Information System (IFMIS) modules by Ministries, Departments, and Agencies (MDAs). However, there were delays in implementing some SBs, including the publication of the governance diagnostics report, the adoption of the revised Gambia Investment and Export Promotion Agency (GIEPA) Act, the adoption of the Domestic Revenue Mobilization Strategy (DRMS), and the adoption of the revised National Audit Office (NAO) Act by the Cabinet. On the missed SBs, the authorities requested postponement of the DRMS to end-June 2025 due to technical assistance needs and additional time needed to address comments from development partners. Similarly, they requested deferral on the adoption of the NAO Act and the revised GIEPA Act to end-December 2025 due to unanticipated longer negotiation time between stakeholders.

5. Cognizant of the missed NDB target for end-June 2024, the authorities remain optimistic in meeting the NDB target for end-December 2024. To this end, they are taking corrective actions, including strengthening revenue collection, tightening expenditure control such as freezing non-essential expenditures, budget formulation and reporting, and arrears monitoring and prevention. Given the satisfactory program performance and strong commitment, the authorities seek Executive Directors’ support in completing the second review under the ECF arrangement and the requests for a waiver of Nonobservance of Performance Criterion, Modifications of Performance Criteria and Indicative Targets, and Financing Assurances Review.

Recent Economic Developments and Outlook

6. Economic activity recovery has strengthened, and growth is projected at 5.8 percent and 5.9 percent for 2024 and 2025, respectively. Growth is supported by rebound in tourism, agriculture, services, telecom, and construction sectors. In the medium term, growth is projected to stabilize around 5 percent. That said, the outlook is subjected to downside risk, including the spread of the conflict in the Middle East, the war in Ukraine, regional conflicts, global commodity price volatility, possible global slowdown, and exchange rate, and fiscal pressures. Meanwhile, the authorities expect to benefit from a Compact with the Millennium Challenge Corporation as early as late 2025. Inflation rate, peaked at 18.5 percent in September 2023 (y-o-y), has since declined to 10 percent in October 2024 (y-o-y) due to the impact of the moderated global commodity prices and prudent monetary policy. Inflation is expected to decline further to the target rate of 5 percent by 2026.

7. The current account deficit has widened due to an increase in imports relative to exports. Further, the re-export trade has virtually collapsed in recent years. In addition, external financing in the form of budget support were not forthcoming. This notwithstanding, remittance inflows helped stabilize foreign currency supply. To this end, gross international reserves stood at about 4 months of prospective imports cover as at endSeptember 2024.

Fiscal Policy and Debt Sustainability

8. Despite the spending pressures related to the hosting of the OIC summit and support to the NAWEC to maintain electricity supply, the authorities are committed to achieving the 2024 fiscal target under the ECF arrangement. Going forward, they will implement prudent expenditure management to safeguard fiscal and debt sustainability. To this end, they will deploy combination of revenue enhancing and tight expenditure controls measures. Efforts in this direction include raising the National Road Authority fuel levy, auditing of large taxpayers, implementing an IT system for excisable goods, fuel marking, and increased non- tax collections. They are also committed to fulfilling triggers in budget support programs of development partners for timely disbursements. At the same time, they are strengthening expenditure controls and cash management to align spending with available resources while preventing further accumulation of domestic arrears to ensure fiscal sustainability.

9. Our Gambian authorities will continue to strengthen fiscal consolidation efforts in 2025 and have submitted the 2025 budget to the National Assembly, which is consistent with the ECF program parameters. To this end, they will reduce unproductive operational costs while safeguarding poverty-reducing spending. A basic civil service salary raise of 30 percent will be financed by new permanent revenue measures to ensure fiscal sustainability. Going forward, they will review the wage structure and management, including by upgrading the payroll data and eliminating ghost workers, rationalizing and reducing allowances, and developing a targeted strategy to address recruitment and retention of skilled workers. To avoid recurrence of electricity pressures, they will include a contingency for potential support to NAWEC in the budget while actively pursuing its reform.

10. The authorities are committed to maintaining their medium-term fiscal strategy to address large social and development expenditure needs. To this end, they plan to implement a domestic revenue mobilization strategy and the Gambia Revenue Authority (GRA) Corporate Strategy Plan for 2025-2029 to improve voluntary compliance, enhance trade facilitation, and improve internal efficiencies to further boost revenue collections. They are also introducing new systems to bolster Rental Income tax collection and revenue assurance for Mobile network Operators (MNOs), enforce a duty waiver policy, streamline tax exemptions, reduce revenue losses, and establish a framework that will allow the collection of tax and non-tax revenue through commercial banks and strengthen the audit capacity. They are also procuring an Integrated Tax Administration System (ITAS) and reviewing the alignment of the IVAT Act with ITAS implementation. In the medium term, they plan to intensify revenue mobilization through digitalizing VAT collection with the introduction of smart invoice technology and broaden the tax base with the creation of specialized rental property Income Tax Unit and improving compliance. Furthermore, they are introducing administrative fees and audits of the tourism and hospitality sectors to strengthen non-tax revenue.

11. While public debt remains sustainable, risks of overall and external debt distress remain high. To this end, the authorities are embarking on fiscal consolidation measures and are making efforts to implement a domestic resource mobilization strategy and address the debt- development trade-off. That said, they intend to use innovative options, such as the Africa50 Asset Recycling Program, to finance infrastructure projects. Similarly, they are increasing the efficiency of the SOEs and PPPs to minimize risks of contingent liabilities. Furthermore, they are avoiding contracting non-concessional borrowing and will adhere to concessional borrowing plan under the ECF-supported program and implement a strong medium-term fiscal framework.

Monetary, Exchange Rate, and Financial Sector Policies

12. The Central Bank of The Gambia (CBG) remains committed to ensuring price stability. In this regard, they curtailed inflationary pressures, which declined from 18.5 percent at endSeptember 2023 to 10 percent at end-October 2024. That said, the slightly picked-up domestic inflation at end-August 2024 due to the presence of short-term price pressures warranted prudent policy calibration to maintain the declining inflation. To ensure that inflation converges to the CBG’s medium-term target of 5 percent, the monetary policy committee (MPC) will closely monitor inflation developments, tighten monetary policy, and keep the policy rate on hold. The CBG will employ a set of policy tools, including issuing CBG bills, the use of the deposit window, and the reserve requirement ratio to ensure inflation reaches the CBG’s target. Meanwhile, the CBG will continue improving its communication strategy and has employed a press officer to increase communication with the public, particularly after the MPC meetings. At the same time, they hold radio shows regularly with the public to gauge inflation expectations.

13. The authorities are committed to a market-determined exchange rate and the smooth functioning of the exchange rate system. To this end, the CBG published a new foreign exchange policy and revised the foreign exchange bureau guidelines to ensure transparency and the smooth functioning of the market. In this regard, the wedges between the parallel and official exchange rates have narrowed. Meanwhile, the CBG is finalizing the forex intervention policy and limiting any forex market interventions to only alleviating excess market volatility.

14. The authorities are strengthening supervision to ensure financial sector stability. In this regard, despite the financial sector being solid, resilient, and adequately capitalized and liquid with most financial soundness indicators above the required thresholds, banks’ nonperforming loans (NPLs) increased significantly from low single digits to double digits at end-2023 due to concentration risks in certain banks’ loan portfolios because of a single borrower. To this end, the authorities are taking steps to strengthen regulatory and supervisory reforms with the adoption of the Basel Capital Framework to improve the assessment of capital requirements for banks with the implementation of pillar 1 of Basel II. Relatedly, they required banks to augment their minimum regulatory capital by GMD100 million annually until end-2027.

Structural Reforms

15. Our authorities are committed to the objectives of the RF-NDP, 2023-27, to address the country’s development challenges. In this regard, they aim to strengthen macroeconomic stability and implement deep structural transformation of the economy through significant investments in priority sectors. Further, they aim to maintain the sustainability of public finances and support the country's resilience to climate change. While the authorities are making progress in implementing their reform agenda, they are strengthening their engagement with development partners.

16. The authorities are improving the business environment to foster private sector-led growth for job creation and sustainable growth. To this end, they plan to set up a digital platform for business registration. They are also developing a robust Credit Reference Bureau to increase access to finance; upgraded the national switch (GamSwitch), which now rides on a robust software (Powercard) to enhance its resilience and scalability, revenue generation capability, and facilitate interoperability within the financial system to foster greater financial inclusion.

17. The authorities are strengthening expenditure management by implementing public financial management (PFM) reform to support near- and medium-term fiscal framework. They are working closely with the National Assembly to expedite the adoption of the PFM Act and PPP bill to strengthen budget processes. Further, they are seeking Cabinet approval of the roadmap for the implementation of program-based budgeting. They are rationalizing and consolidating subvented agencies with MDAs and extending the use of IFMIS to four new donor-funded and all government-funded projects to enhance accountability and transparency in the use of public resources. At the same time, they are strengthening governance, operational, and financial efficiency of state-owned enterprises (SOEs) through performance contracts to limit contingency risks and developing a pipeline of appraised investment projects based on the Gambia Strategic Review Board (GSRB) prioritization tool to make effective investment decisions.

18. The authorities are committed to improving governance and fighting corruption. They have engaged the IMF to conduct a governance diagnostic and will finalize and publish a plan for the implementation of some recommendations in the report. They plan to adopt a revised NAO Act to strengthen the independence and effectiveness of the National Audit Office. In line with the governance diagnostic report, the authorities are implementing reforms including the digitalization and automation of administrative processes, contract enforcement, and limits on discretion in public decisions.

19. The authorities are strengthening the central bank’s independence. In this regard, the CBG will cease providing financial assistance beyond its core mandate to any third party to preserve its financial autonomy. That said, the CBG will advance emergency lending to the government only on a temporary basis and in truly catastrophic circumstances in consultation with the IMF. Further, the CBG Board will approve amendments to the CBG Act in line with the IMF safeguards recommendations, under mutual agreement followed by Cabinet approval and submission to the National Assembly once the current constitutional reform process is completed. Additionally, they are completing the revised draft law on AML/CFT to align it with international standards. They are also enhancing financial inclusion with the increased presence of fintech companies.

20. The authorities remain committed to protecting the most vulnerable population. In this regard, they are completing the expansion of the social registry to include Banjul and Kombo areas and they plan to increase the coverage of the Family Strengthening Program to 15 thousand individuals by 2026. Relatedly, they intend to create a budget line that will specifically fund social protection programs through the approved National Social Protection Act and regulations to tightly monitor and report on them on a quarterly basis.

21. The authorities are cognizant of the country’s vulnerability to climate change-induced extreme weather events, including floods, storms, drought, and coastal erosion. Given the significant adaptation investment required to mitigate the adverse effect of such disasters, the authorities intend to request an RSF-supported program to address the recommendations outlined in the recent Climate Policy Diagnostic (CPD) and Climate Public Investment Management Assessment (C-PIMA). These recommendations include finalizing the national Disaster Management Policy and increasing the coverage of social safety nets while linking it to disaster response; enhancing coastal zone management; greening PFM reforms; and implementing revenue-enhancing measures in the transport and waste sectors to help address public health challenges while contributing to the low-carbon changeover of the economy.

Conclusion

22. The Gambian authorities remain on track in implementing the necessary reforms despite the challenging circumstances. They have reinforced their commitment to the ECF arrangement while consolidating the gains made under the previous ECF program. The Fund remain instrumental in anchoring reforms aimed at restoring macroeconomic stability. To sustain and maintain their reform agenda formulated in their NDP, the authorities seek the Executive Directors’ support in completing the second ECF review to help catalyze additional donor support and address fundamental structural challenges. They look forward to continued support from the Fund to help realize their growth and development objectives.