The IMF has warned that major policy slippages by the Gambia Government have led to worsening economic outlook 
considerably, especially since budget support from donors will not be forthcoming. It warned that the recent policy slippages are threatening near and medium term growth prospects and therefore called for strong corrective measures to address the growing macroeconomic imbalances and bring policies back on track. They recommend the restoration of the flexible exchange rate.
The remarks are contained in the following press release issued upon conclusion of its Article IV consultation with the Gambia:
PRESS RELEASE NO. 15/430
September 21, 2015
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
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.
