The Ebola epidemic that is ravaging economies in West Africa could have ripple effect on The Gambia’s tourists and agriculture dependent economy, the International Monetary Fund (IMF) has said.
According to the Briton Woods institution, although the Gambia remains Ebola-free, the spread of the Ebola epidemic in the West Africa region has crippled the tourism sector.
“The Gambia remains Ebola-free but news from the subregion appears to be deterring tourists and this will pose challenges,” said Bhaswar Mukhopadhyay who led an IMF mission to the country to assess progress of the implementation of policies supported by the Extended Credit Facility (ECF).
Mukhopadhyay added besides the threats of Ebola, delayed start of the rainy season will have a substantial impact on the harvest. Agriculture is The Gambia’s largest economic sector and its second largest exporter, after tourism.
“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,” he noted.
The mission held discussions with Vice-President Isatou Njie Saidy, Finance Minister Kebba S. Touray, Central Bank Governor Amadou Colley, other senior officials, members of parliament, senior officials in public enterprises, the banking sector and development partners.
According to the IMF, the macroeconomic environment stabilized in early 2014, with a successful tourism season leading to improved revenues, a stable exchange rate, and moderate inflation. Besides, government spending was contained and interest rates appeared to be edging downward slowly.
However, 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 per cent of the gross domestic product (GDP) at the end of 2013, is projected to exceed 90 per cent by the end of this year.
“The burden of government borrowing will exert further pressure on inflation, international reserves and the exchange rate,” noted Mukhopadhyay.
In light of substantially higher borrowing by the government and looming risks, it is imperative to reinforce corrective measures and to make bold choices about spending priorities.
The target of limiting net domestic borrowing to 2.5 per cent 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.
Moving forward, a deeper restructuring of the government budget would be required 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 welcomed the government’s 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,” said Mukhopadhyay.
The ECF is IMF’s main tool for providing medium-term support to low-income countries with higher levels of access to financial resources, more concessional financing terms, more flexible program design features as well as streamlined and more focused conditionality.
International Monetary Fund (IMF)