Washington, DC – January 12, 2024: The Executive Board of the International Monetary Fund (IMF) today approved a 36-month arrangement under the Extended Credit Facility (ECF), in the amount of SDR 74.64 million (about US$100 million), and concluded the 2023 Article IV consultation with The Gambia. The Executive Board’s decision enables an immediate disbursement of SDR 10.9 million (US$ 14.56 million). The program will build on the recently completed 2020-23 ECF-supported program and the authorities’ 2023-2027 Recovery-Focused National Development Plan and aims to strengthen economic recovery, tackle inflation, address foreign exchange pressures, reduce debt vulnerabilities, advance structural reforms, and foster strong and inclusive growth.
The Executive Board also concluded the 2023 Article IV consultation with The Gambia. The policy consultation focused on drivers of inflation, macroeconomic implications of the gender gap, climate-related risks and policies, debt sustainability, and external stability.
The Gambia has weathered more resiliently successive exogenous shocks, namely the COVID-19 pandemic and Russia’s war in Ukraine, relative to peer countries. Economic growth, supported by tourism and public and private construction, is expected at 5.6 percent this year, up from 4.9 percent in 2022. In the medium term, growth is expected at around 5 percent, supported by strong remittance inflows, sustained recovery in the tourism sector, and new infrastructure projects. Headline inflation remains elevated, at 18.0 percent y-o-y in October 2023, driven primarily by international commodity prices. Inflation is projected to gradually ease following the tightening of the monetary policy stance.
Foreign exchange pressures and shortages are reemerging. Forex reserves, in months of imports, are projected to slightly decline in the medium term due partly to the expiration of the debt service deferral period, but to broadly remain at an adequate level (around 4 months) with the support of disbursements from the IMF and other development partners.
Following the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and acting Chair, issued the following statement:
“The Gambia has been consolidating its democratic transformation. The 2020?23 ECF arrangement accompanied the country’s socio?economic reforms and helped alleviate the repercussions of the COVID?19 pandemic and Russia’s war in Ukraine. Nonetheless, inflation persists, foreign exchange pressures are reemerging, and debt vulnerabilities remain high. The authorities are committed to maintaining macroeconomic stability, reducing debt vulnerabilities, and pursuing reforms under a new IMF?supported program.
“Fiscal, monetary, and exchange rate policies under the new program aim to address the near- and medium-term challenges. As such, policy efforts should focus on fiscal consolidation to build fiscal resilience, while safeguarding priority and poverty-reducing spending. Monetary and exchange rate policies will aim to tackle inflationary pressures and address foreign exchange pressures through a market?determined exchange rate.
“To firmly put public debt on a downward trajectory, it is paramount to implement the planned medium-term fiscal strategy, including further streamlining of tax incentives and fuel subsidies, rationalization of subsidies to state-owned enterprises, and better prioritization of public investment projects. The authorities are committed to overhaul the SOE sector, bolster domestic resource mobilization, and advance governance reforms, in line with the recommendations from an IMF governance diagnostic mission.
“In view of lingering vulnerabilities, including the upcoming expiration of debt service deferrals, it would be important to build fiscal and external buffers. In this regard, maintaining prudent domestic borrowing, strictly adhering to the external borrowing plan, and seeking grants and highly concessional financing would be key.
“The authorities are encouraged to persevere in their ambitious structural reform agenda, including on enhancing governance and improving the business environment to support private sector-led growth and poverty reduction. Adopting strong climate-related policies and tackling gender inequality would also support more resilient and inclusive growth.”
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for the consolidation of the democratic transformation and their strong implementation of economic reforms under the previous ECF arrangement. Despite a robust economic recovery, Directors noted downside risks, including from high inflation, reemerging foreign exchange pressures, and debt vulnerabilities. They emphasized the importance of continued reform implementation and program ownership to maintain macroeconomic stability and foster inclusive growth. The new arrangement, complemented with capacity development, will support the authorities’ reform agenda and help catalyze additional financing.
Directors welcomed the authorities’ medium?term fiscal framework, anchored in strengthened domestic revenue mobilization and enhanced spending efficiency. They underscored that a revenue?based fiscal consolidation remains key to ensure fiscal sustainability and put public debt on a downward path, while creating space for pressing social and development needs. Directors also emphasized the importance of further streamlining tax incentives and fuel subsidies, addressing fiscal risks from state?owned enterprises (SOEs), and enhancing public financial management. Noting the expiration of debt service deferrals in 2025, Directors also recommended building buffers, enhancing debt management, and maintaining prudent external borrowing.
Directors commended the central bank’s monetary policy actions and noted that further tightening, guided by inflation developments, could be needed. Welcoming the central bank’s publication of the foreign exchange policy, Directors stressed the importance of a market?determined exchange rate to ease foreign exchange pressures and safeguard reserves.
Directors positively noted that the financial sector remains resilient and encouraged the authorities to continue to strengthen financial supervision and the regulatory framework. Enhancing the AML/CFT framework in line with international standards remains important.
Directors underscored the need to press ahead with the authorities’ comprehensive structural reform agenda, including on governance and the business environment. They welcomed the authorities’ commitment to implement the recommendations from the Fund governance diagnostic and encouraged accelerating the implementation of the anti?corruption bill. Reducing gender gaps and enhancing financial inclusion will also be important.
Directors also welcomed the authorities’ commitment to building climate resilience and the request for a Climate Public Investment Management Assessment. Enhancing public financial and investment management could play a catalytic role in unlocking climate financing.
It is expected that the next Article IV consultation with The Gambia will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.
The previous 2020-23 ECF arrangement (SeePress Release No 20/99) accompanied the country’s reforms and helped alleviate the repercussions of the COVID-19 pandemic and Russia’s war in Ukraine. Considering the outstanding challenges and the authorities’ 2023-27 Green Recovery-Focused National Development Plan (RF-NDP), the authorities have requested a new ECF-supported program with the Fund.
The program, supported by the ECF, will be articulated around the following pillars: (i) addressing inflation and foreign exchange pressures; (ii) reducing debt vulnerabilities and overhaul the SOE sector; (iii) strengthening governance and unlock growth potential; and (iv) addressing long-term challenges related to climate change and gender gaps.
Address inflation and foreign exchange pressures. The central bank will tighten further the monetary policy stance based on inflation developments, reaffirm a market-determined exchange rate, and ensure smooth functioning of the forex market.
Reducing debt vulnerabilities and overhaul the SOE sector. As both public and external debt are at high risk of distress, fiscal consolidation efforts will be sustained. This will require bolstering domestic revenue mobilization and enhancing expenditures efficiency through prioritization and strict PFM principles. Efforts will be made to turn SOEs into revenue-generating assets, including through partial privatization.
Strengthening governance and unlock growth potential. Key recommendations from a recent governance diagnostic will help guide reforms. The business environment will be strengthened to foster strong and inclusive growth.
Addressing long-term challenges related to climate change and gender gaps. The Gambia is highly vulnerable to climate shocks. The authorities have produced key climate policy documents. Closing gender gaps will bolster income and reduce inequality.