On September, 18, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation(1) with The Gambia.
The Gambia has experienced large balance of payments and fiscal imbalances, caused by persistent policy slippages in recent years and financial difficulties in public enterprises. This was exacerbated by sizable exogenous shocks from the impact of the regional Ebola outbreak on tourism and the delayed summer rains in 2014. The authorities embarked on an economic program based on a strong 2015 budget and structural reforms, and efforts to secure donor support. The Fund supported the authorities’ efforts through a Rapid Credit Facility (RCF) disbursement in early April 2015 and a Staff-Monitored Program (SMP).
However, major policy slippages have occurred since the RCF disbursement, pushing the SMP off track and worsening the outlook considerably especially since budget support from donors will not be forthcoming. In early May 2015, the President’s office issued a directive imposing an exchange rate overvalued by more than 20 percent compared to the prevailing market rates, which the Fund staff assessed to be broadly in equilibrium. The fiscal position too has deteriorated significantly since mid-April, while inflationary pressures and T-bill rates have increased, reflecting the inconsistent macroeconomic policies. In the absence of corrective policies, The Gambia’s external viability and fiscal sustainability could be at serious risk.
Executive Board Assessment(2)
Executive Directors noted that a cycle of exogenous shocks followed by policy slippages had led to weaker real GDP growth in The Gambia than in other countries of the region. Directors regretted that recent policy slippages have worsened an already difficult macroeconomic situation and are threatening The Gambia’s near- and medium-term growth prospects.
Accordingly, they called for strong corrective measures to address the growing macroeconomic imbalances and bring policies back on track to achieve the objectives of the authorities’ economic program monitored by Fund staff. Directors agreed that bold action on a variety of fronts, including targeted structural reforms, is urgently needed to restore policy credibility, rebuild policy buffers, re-engage development partners and achieve The Gambia’s poverty alleviation goals.
Directors stressed that an ambitious and sustained fiscal adjustment is necessary to bring the fiscal situation under control. They encouraged the authorities to implement the measures in the current budget and to identify soon additional measures for a deep budget restructuring beginning in 2016. Such an adjustment will create space for development spending while fostering macroeconomic stability and social progress over the medium term. Directors also highlighted the need to articulate a strategy to overhaul public enterprises in the energy and telecommunication sectors to stem their demand on budget resources.
Directors welcomed the Central Bank of The Gambia’s continued efforts to shore up financial stability. They commended steps underway to improve bank supervision and crisis management capacity. Directors observed that the flexible exchange rate regime had served The Gambia well, and agreed that the exchange directive currently in force to limit exchange rate flexibility should be rescinded immediately.
Directors welcomed The Gambia’s significant social gains over the past years but noted that there remains ample room to enhance inclusive growth and competitiveness. They encouraged the authorities to step up agricultural reforms and improve infrastructure in energy and transport to enhance economic diversification and resilience to shocks.
(1) Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
(2) At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: imf.org/external/np/sec/misc/qualifiers.htm.