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Wednesday, September 27, 2023

Poverty trends in The Gambia: A tale of two crises

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By Sering Touray

Prior to 2020, poverty in The Gambia was gradually declining, supported in part by economic growth – though modest – mostly centred on the construction and tourism sectors. In 2015, nearly half of Gambians (48.6%) were considered to be poor, that is, unable to meet the basic cost of living estimated at D1,503 per person per month. Estimates since then showed a gradual decline in poverty reaching 45.8% in 2019 (see panel a) of Figure 1. The Gambia was on course to a slow but steady decline in poverty: counterfactual analysis shows that in the absence of Covid-19 poverty would have declined by 3.2 percentage points in 2020 from its 2015 levels. On the other side of the coin, non-monetary indicators of welfare such as access to basic services, education and health care improved markedly since 2015.

The Covid-19 pandemic undermined such progress, increasing the incidence of poverty by 4.8 percentage points in 2020. Data from the 2020/21 household survey showed that more than half of Gambians (53.4% or 1.1 million) were poor – an increase of 4.8 percentage points from the 2015 poverty levels. The pandemic reversed gains registered prior to 2020 – increasing poverty; disrupting learning and access to health care; and constraining the fiscal space needed to make further progress. Despite a rapid government response through social assistance programs that reached a large share of the population, households were adversely affected through large contractions in employment, near-universal loss of income, and increased cost of living due to disruptions in global supply chains.

Poverty remains more of a rural phenomenon where the poor typically work in the agricultural sector, while in urban areas the largest share of the poor participate in the informal service sector. The poverty rate in rural areas was estimated at 76% in 2020 compared to 34 % in urban areas. However, a high share of the poor lives in densely populated urban settlements such as Brikama, which is home to 307,501 poor people or 48% of the poor, the highest number of poor people in the country.

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What has changed since?

Recovery from the Covid-19 pandemic has been constrained by additional shocks – particularly rising food prices. Economic growth was steady at 4.3% in 2022 – indicating a gradual recovery from the Covid-19 pandemic driven by improved agriculture production, public consumption, and infrastructure investments. However, spillover effects from Russia’s invasion of Ukraine resulted in high inflation – reaching decades highs; and dampened private demand. Inflation averaged 11.6% in 2022 (year-on-year), with food and non-food inflation at 14.5% and 8.6%, respectively.

Consequently, recent forecasts combining the latest household survey, sectoral growth rates, and price data show an increase in poverty in 2022. Poverty using the international poverty line of US$2.15 (in 2017 PPPs) is believed to have increased to 20.3% in 2022 from 18.4% in 2021. The sharp increase in projected poverty (1.9pp increase in 2022 compared to a 1.2pp increase in 2021) is largely due to weaker growth in per capita GDP, and high prices eroding the purchasing power of households. The poor who spend a larger amount on food (about 65% of total consumption on food or 10 percentage point higher than non-poor households- most of which are imported staples such as rice, oil, flour, and so forth) are adversely affected by rising food prices.

Although stronger projected growth in The Gambia is expected to have a positive effect on poverty reduction in the coming years, these gains will be tempered by continued high food prices with lingering effects on poverty.  GDP growth is projected to average 5.5% between 2023-25, driven by increased activity in tourism and construction. Agriculture is expected to remain volatile during the period – given its reliance on rain-fed crop production (see Figure 2). However, inflation is expected to remain high in 2023 before declining to an average of 7.3% between 2024-2025, reflecting global uncertainty and high commodity prices with a protracted war on Ukraine. As a result, poverty (based on the international poverty rate) is expected to increase in 2023 by 1.5pp in 2023, 0.11pp in 2024; before declining by 0.06pp in 2025 to reach 21.9%.

Despite mitigating the adverse effects of rising food prices on poverty, high reliance on agriculture (mainly rainfed crop production) among the poor also exposes them to high risk of poverty traps. Overall, over 80% of the poorest households are employed in the agricultural sector – compared to under 10% of the richest households. However, income from agriculture remains low for the poorest households – about 20% – pointing to structural constraints in the sector undermining productivity. A larger share of income (about 45%) of the poorest households is obtained through non-labor income- mainly remittances and other transfers such as the NAFA cash transfer program currently being implemented in rural Gambia.

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Given the large share of households in the upper end of the distribution is employed in the service sector (including tourism) – a source of about 67% of income for the richest households; continued recovery in tourism in The Gambia is critical for sustaining anticipated gains in 2023.

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Sering Touray is an economist with the Poverty and Equity Global Practice – West and Central Africa. He works on The Gambia, Cabo Verde, and Guinea Bissau. He has previously worked on poverty analytics in Sudan, the Central African Republic; and Haiti; and a co-author in a regional flagship report on inequality in Southern Africa. He joined the World Bank in April 2017 as one of 10 fellows of the Africa Fellowship Program. He holds a PhD in Economics from Heriot-Watt University in Edinburgh, a master’s degree in Economics from the University of Edinburgh’s School of Economics, and an undergraduate degree in Economics and Computer Science from the University of The Gambia.

This article was first published at https://blogs.worldbank.org/africacan/poverty-trends-gambia-tale-two-crisis

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