heightened stock of 120 percent of GDP that the new government inherited is a
serious challenge, says Ulrich Jacoby, head of mission, International Monetary
Fund (IMF) team that visited the country.
“Maintaining debt sustainability would necessitate refraining from large-scale investment projects involving loans or contingent liabilities before additional fiscal and borrowing space has been achieved, and leveraging private capital.”
During the mission’s visit to Banjul to conduct Article IV consultation discussions and review performance under the Staff Monitored Program (SMP), Mr. Jacoby said careful evaluation and prioritization of investment projects within the due diligence procedures of the Investment Implementation Task Force will be crucial in that regard.
He said mobilization of additional external resources to foster debt sustainability and implementation of the authorities’ debt strategy would be important to create borrowing space.
Mr. Jacoby explained that the economy has started to recover following the sharp growth slowdown in 2016, which stemmed from a bad harvest, foreign exchange scarcity, and a drop in tourism due to the political turmoil after the presidential elections in December 2016.
“Economic growth in 2017 is projected at 3 percent, with a strong rebound in tourism and trade, and renewed interest from foreign direct investors in energy, tourism, agriculture and transportation. Inflation has reversed its rising trend, reflecting the stabilization of the dalasi and a gradual decrease in food prices.”
With much improved fiscal discipline and external financial support, Mr. Jacoby said the dalasi has remained stable since April and international reserves recovered strongly.
Economic growth, he said, is expected to gradually accelerate to about 5 percent by 2020, assuming continued good policy implementation and a significant expansion in electricity supply, expansion of irrigation and commercial farming, investment in the tourism and trade sectors, and continued infrastructure investment. “Headline inflation is expected to decline to slightly below the Central Bank of The Gambia’s (CBG) 5 percent target in the medium term.”
According to him, performance to date under the Staff Monitored Program has been broadly encouraging, but more progress is needed. The drastic reduction in government’s net domestic borrowing—stemming from increased donor support, fiscal consolidation and the recent pick-up in domestic revenue—has contributed to the decline in interest rates. “Looking ahead, the authorities will need to maintain fiscal discipline and implement the remaining fiscal and structural measures committed to under the SMP.”
He added that the reform of public enterprises remains critical as they pose significant fiscal risks and contribute to high public debt. “The mission welcomes ongoing reform efforts which should continue, including medium-term strategic plans for achieving financial viability.”
Mr. Jacoby recommended that Central Bank of The Gambia (CBG) should continue maintaining a flexible exchange rate regime and further rebuild reserves, giving external vulnerabilities and the high debt. Safeguarding the stability of the financial sector in light of the decline in interest rates is also a key priority.