Gambia Not Directly Affected by Global Financial Crisis But… IMF Report

Latest report by an International Monetary Fund (IMF) mission to the Gambia reveals that so far, the financial system in The Gambia has not been affected directly by the global financial crisis.

The report however says that adverse impacts from recession in Europe and the USA are likely to slow down real GDP growth from about 6 percent in 2008 to less than 5 percent in 2009.

The report follows a fourth review under the Poverty Reduction and Growth Facility (PRGF) by the IMF mission led by Mr. Tsidi Tsikata.

According to the IMF report, inflation has been rising in recent months reaching an annual rate of 6.3 percent in September but is expected to remain in single digits, as pressures from abroad ease with falling commodity prices.

The mission advised the government to restrain its expenditures in light of what it described as weaker-than-expected revenue performance and an uncertain outlook for 2009. “The mission estimates that government revenue will fall short of budget estimates by over D400m (about 2 percent of GDP) in 2008 due mainly to implicit subsidization of petroleum product prices and lower revenues from non-oil imports (including re-exports),” the report added.

With recent decline in world oil prices, the report adds, the government should recoup some of the revenue loss associated with a less-than-full pass through of rising world prices to consumers earlier this year.

The mission also advised government to restrain discretionary expenditures in the fourth quarter of 2008 in order to limit domestic borrowing and avoid a marked increase in interest rates.

The mission noted that a reduction in re-export activity may represent a permanent erosion of an important part of the tax base, and cautioned against over-optimistic revenue projections and an overly expansionary budget for 2009.

While supportive of civil service reform, the mission also noted that another large increase in the wage bill (following a 40 percent increase in 2008) would constrain in the room provided by debt relief to increase poverty reducing expenditures.

The mission endorsed the Central Bank of the Gambia’s commitment to containing inflation using all instruments at its disposal.

In order to enhance the effectiveness of monetary operations, the mission called for greater collaboration between the Central bank of the Gambia and the Department of State for Finance and Economic Affairs in forecasting government revenues and expenditures.

With the entry of two new banks into the country’s banking industry and five more awaiting licenses, the mission expressed concern that the growing number of banks was stretching the Central Bank’s supervision capacity to the limit and risked diverting resources from meeting other pressing needs.

The mission welcomed a review of the scope of activities eligible for incentives under the Investment Promotion Act, which is currently underway. It advised the applications for investment incentives to be carefully scrutinised, but that once approved, the incentive should be provided in a predictable way.

“The government requested assistance from the IMF to review tax policy, especially in the areas of rationalizing central and local government taxation and broadening tax base.

“With regard to the PRGF supported program, the mission found that except for the fiscal basic balance target which was missed, overall performance against the end-September 2008 targets was good”, the IMF report stated.

The mission noted that the terms of external loans recently ratified by the National Assembly were in line with the minimum degree of concessionality agreed under the program. The mission urged the government to meet the target date of February 2009 for completing work on a national debt strategy, with a view to placing government borrowing decisions in an appropriate medium-term contract.

Meanwhile, the Executive Board of the IMF is expected to discuss the report of the mission in January 2009.