A mission from the International Monetary Fund (IMF) completed a two week review of the Gambia’s economy, raising concerns about the country’s excess public debt, which is projected to exceed 90 percent of Gross Domestic Product (GDP) by the end of this year.
The mission, led by Bhaswar Mukhopadhyay, assessed Gambian authorities’ progress in implementing policies since its April visit. This forms part of the second review of the Jammeh government’s reform program supported by an Extended Credit Facility arrangement with the IMF. The first review was completed in May 2013. However, policy slippages in the second half of that year have delayed the completion of the current review.
Among others, the mission held discussions with Vice-President Isatou Njie Saidy, Finance Minister Kebba S. Touray, Central Bank Governor Amadou Colley, bankers and development partners.
In a statement, the mission reported stability in the Gambia’s macroeconomic environment in early 2014, with a successful tourism season leading to improved revenues, a stable exchange rate, and moderate inflation. “Government spending was contained and interest rates appeared to be edging downward slowly. Since that time spending pressures have reemerged, led by financial difficulties of the public utility provider (NAWEC), as well as some spending in excess of budgeted levels. These borrowing needs have kept interest rates high while putting pressure on the Dalasi. Public debt, which stood at more than 80 percent of Gross Domestic Product (GDP) at the end of 2013, is projected to exceed 90 percent of GDP by the end of this year. The burden of government borrowing will exert further pressure on inflation, international reserves, and the exchange rate.”
The mission wrote that the Gambia remains Ebola-free. However, news from the subregion appears to be deterring tourists. Also the delayed start of the rainy season will have a substantial impact on the harvest in a country were agriculture is the Gambia’s largest economic sector. “Together the impact of these two external shocks will be felt on economic growth, the government budget, trade, and the banking system, though more information is needed to quantify these risks.
IMF officials were deeply concerned about the Gambia’s substantially higher borrowing and looming risks attached. The Gambia government is urged to reinforce corrective measures and to make bold choices about spending priorities. “The target of limiting net domestic borrowing to 2.5 percent in 2014 is no longer realistic but efforts will be required to limit borrowing and steer the budget toward zero net domestic borrowing in the medium-term.” The mission recommended a deeper restructuring of the government budget would to limit the sources of spending pressures and make space for priority spending.
“Implementation of reforms is also urgently needed to put NAWEC on a sound financial footing and limit its strain on the state budget,” the mission recommended, welcoming Gambian authorities’ commitment to implement recommendations of a comprehensive energy sector study being conducted with the help of consultants and the World Bank to restructure the energy sector. It will equally be important to ensure that other public enterprises are operated on a sound financial basis, to minimize contingent fiscal risks and provide effective support to private sector activities.
“Commendable progress has been made in liberalizing fuel imports, reducing the size of fuel subsidies, and improving revenue collection. The authorities are encouraged to sustain such progress, ensuring that competition drives lower prices for businesses and consumers, and strengthen the social safety nets that better target vulnerable populations. These reforms promote competitiveness and investment, and allow the government to focus resources on those who need it most.”
The mission thanked Gambian “authorities for the candid and constructive discussions during the mission, and looks forward to an active and continued dialogue with the aim of restoring macroeconomic stability as a foundation for economic development in The Gambia.”