A mission from the International Monetary Fund (IMF) led by Bhaswar Mukhopadhyay, visited Banjul from January 8-14, 2015. Though The Gambia remains completely free of Ebola, the crisis has caused a deep decline in tourism related activities, the economy’s principal foreign currency earner. The mission assessed the effects of this shock to the Gambian economy and explored the possibility of agreeing on a Rapid Credit Facility (RCF) arrangement with the IMF. 1 The mission also discussed the Gambian authorities’ plans to address policy slippages over the past two years and the possibility of establishing a program monitored by the IMF (SMP). 2 While the discussions have been fruitful, additional time is needed to reach a final agreement.
At the end of the mission Mr. Mukhopadhyay issued the following statement:
“The Gambia has been spared from the Ebola outbreak, but the crisis has deterred tourists, reducing activity in the sector dramatically. A projected decline of about 60 percent in tourism, The Gambia’s principal export, will strain the country’s balance of payments. Delayed rains in 2014 are also causing distress in the economy, leading to a significant decline in crop production. Combating the effects of these shocks will require concerted policy effort as well as greater support from the international community.
“Even before the crisis, 2014 was a difficult year for the Gambian economy. The consequences of past fiscal slippages put pressure on the government budget, public enterprises, the private sector, and households. Government borrowing lifted interest rates, which increased interest payments considerably. Banks have restricted their lending to the private sector while higher debt burdens and import costs due to currency depreciation have weighed on the public enterprises. Difficulties in public enterprises have put further stress on the public budget. The local currency price of imported goods, especially basic foods, has risen.
“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 mission welcomes the government’s determination to limit net domestic borrowing to one percent of GDP this year. This plan is being implemented in the budget but will require vigilance to keep spending on path and to respond to any emerging spending pressures by reducing lower-priority expenditures. The mission has engaged in discussion with the authorities about entering into a staff monitored program (SMP) with a view to a future lending arrangement.
“Implementation of reforms is also urgently needed to put the National Water and Electricity Company (NAWEC) and other public enterprises on a sound financial footing and limit their strain on the state budget. The mission welcomes the authorities’ commitment to a comprehensive restructuring of the energy sector. Similar efforts will be required for a number of other public enterprises that have recently experienced financial distress.
“The government has taken bold steps in its budget agreements, its reform agenda for public enterprises, and its rallying of the donor community. These efforts will need to continue to turn interest rates around and reduce pressure on the Dalasi.
“The mission thanks the 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.
“The mission met with Finance Minister Kebba S. Touray, Central Bank Governor Amadou Colley, other senior government officials, public enterprises, the banking sector, and development partners.”
1 The RCF (http://www.imf.org/external/np/exr/facts/rcf.htm ) is a lending arrangement that provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs.
2 An SMP is an informal agreement between country authorities and Fund staff, whereby the latter agree to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.
International Monetary Fund (IMF)