IMF Completes Second Review of Staff Monitored Program with The Gambia
On June 18, 2018, the Managing Director of the International Monetary Fund completed the second review of the Staff Monitored Program (SMP) with The Gambia.
1 The SMP, which commenced in April 2017, was extended through September 2018 in the context of the first review in March 2018, to enable the authorities to establish a track record for a possible Extended Credit Facility (ECF) arrangement and to incorporate the outcome of the International Conference for The Gambia that was held in Brussels during May 22–23, 2018.
The Gambia embarked on far-reaching economic reforms following its peaceful democratic transition in 2017. The current supportive political environment, ongoing democratic transition and gains in political and economic inclusion have been confidence-enhancing, helping to engender significant international goodwill. As a result, development partners pledged over US$1.5 billion at the recent Brussels conference held in support of The Gambia’s 2018–21 National Development Plan (NDP).
Economic recovery is well underway and the outlook is favorable, albeit contingent on continued adherence to the policy reform agenda. The pickup in growth in 2017 to an estimated 3.5 percent from 2.2 percent in 2016 was underpinned by a recovery of agriculture following improved weather conditions, a rebound in tourism, increased trade over improved relations with neighboring Senegal, and renewed foreign direct investment. Fiscal consolidation and significant external financial support helped to improve the external position, stabilize the domestic currency, and spur a steady decline in consumer price inflation from 8.8 percent (year-on-year) at end-January 2017 to 6.6 percent at end-April 2018. Gross international reserves increased from 1.4 months of next year’s projected imports at end-2016 to about 2.8 months at end-2017. With the government’s reduced domestic borrowing, private sector credit grew by 13.8 percent (year on year) at end-April 2018, reversing its earlier declining trend. Continued strengthening of risk-based supervision and a greater willingness to act on early signs of asset quality problems by the central bank will help further to underpin financial stability.
A Staff Monitored Program is an informal and flexible instrument for dialogue between the Fund staff and a member country on its economic policies. It is neither accompanied by financial support nor endorsed by the IMF Executive Board.
Implementation of the SMP remains broadly satisfactory. All-but-one indicative quantitative targets through end-March 2018 were met and most structural benchmarks were implemented. Although the continuous target on nonconcessional borrowing was breached at end-2017 by a substantial margin, corrective measures are now in place to prevent a future reoccurrence.
However, The Gambia’s debt vulnerabilities have risen, with the debt-to-GDP ratio reaching nearly 130 percent of GDP by end-2017 and total debt service-to-revenue (excluding grants) now projected to average 53 percent over 2018–20. An updated debt sustainability analysis shows that The Gambia’s public debt is now unsustainable, with high external and domestic debt as well as a large pipeline of already-contracted loans that pose risks to solvency. As a result, the authorities have adopted a multi-pronged strategy to restore and maintain debt sustainability, comprising (1) measures to boost domestic revenue mobilization; (2) re-prioritizing the existing projects pipeline and seeking improvements in the terms of the already-contracted loans to raise their concessionality; (3) request for debt relief and restructuring from external creditors; and (4) an NDP financing strategy that emphasizes grant financing and private investment. Furthermore, strengthening investment appraisal and selection processes should help to boost investment efficiency and productivity.
The authorities are also developing and implementing both a medium-term economic and fiscal framework (MTEFF), which will help anchor fiscal policy and facilitate policy-driven budget allocations, and a medium-term debt strategy (MTDS), which foresees a lengthening of the maturity of domestic debt to reduce rollover risk, both of which will be regularly reviewed.
Risks to the outlook stem primarily from legacy issues, including a possible resurgence of political instability, rising public debt and debt service ratios, and lack of control over external debt accumulation, including by state-owned enterprises (SOEs). Mitigating these risks will require implementation of the MTEFF and the MTDS, alongside critical SOE reforms to strengthen their governance and enhance their operational efficiency and transparency. The recent completion of the prior action paving the way for the commencement of special audits of key SOEs was a critical milestone in this regard. The authorities are also amending the legal framework of the central bank to strengthen its operational autonomy and to support healthy financial intermediation and inclusion.
The IMF staff stands ready to continue to support the Government and the people of The Gambia with the implementation of the country’s economic reform agenda—through its policy advice and the delivery of well-tailored technical assistance—as The Gambia aspires to successfully transition to a possible ECF arrangement.