25 September 2014
IMF says Ebola and delayed rains will affect The Gambia's economy
The Gambia's economy is vulnerable to contraction as a result of Ebola and poor precipitation, the IMF team led by Bhaswar Mukhopadhyay that visited Banjul from September 4 - 17 2014 has disclosed.
The report stated: “The Gambia remains Ebola-free but news from the sub-region appears to be deterring tourists and this will pose an additional challenge. At the same time the delayed start of the rainy season will have a substantial impact on the harvest. Agriculture is The Gambia's largest economic sector and its second largest exporter after tourism. Together the impact of these two external shocks will be felt on economic growth, the government budget trade and the banking system though more information is needed to quantify these risks.
In light of substantially higher borrowing by the government and looming risks it is imperative to reinforce corrective measures and to make bold choices about spending priorities. The target of limiting net domestic borrowing to 2.5 percent in 2014 is no longer realistic but efforts will be required to limit borrowing and steer the budget toward zero net domestic borrowing in the medium-term. Moving forward, a deeper restructuring of the government budget would be required to limit the sources of spending pressures and make space for priority spending.
Implementation of reforms is also urgently needed to put Nawec on a sound financial footing and limit its strain on the state budget. The mission welcomes the authorities' commitment to implement recommendations of a comprehensive energy sector study being conducted with the help of consultants and the World Bank to restructure the energy sector. It will equally be important to ensure that other public enterprises are operated on a sound financial basis to minimise contingent fiscal risks and provide effective support to private sector activities.
Commendable progress has been made in liberalising fuel imports, reducing the size of fuel subsidies and improving revenue collection. The authorities are encouraged to sustain such progress ensuring that competition drives lower prices for businesses and consumers and strengthen the social safety nets that better target vulnerable populations. These reforms promote competitiveness and investment and allow the government to focus resources on those who need it most. The mission thanks the authorities for the candid and constructive discussions during the mission and looks forward to an active and continued dialogue with the aim of restoring macroeconomic stability as a foundation for economic development in The Gambia”.
The report added: “The macroeconomic environment stabilised in early 2014 with a successful tourism season leading to improved revenues, a stable exchange rate and moderate inflation. Government spending was contained and interest rates appeared to be edging downward slowly. Since that time spending pressures have re-emerged led by financial difficulties of the public utility provider (Nawec) as well as some spending in excess of budgeted levels. These borrowing needs have kept interest rates high while putting pressure on the dalasi. Public debt which stood at more than 80 percent of GDP at the end of 2013 is projected to exceed 90 percent of GDP by the end of this year. The burden of government borrowing will exert further pressure on inflation, international reserve and the exchange rate”.
The report stated: “The Gambia remains Ebola-free but news from the sub-region appears to be deterring tourists and this will pose an additional challenge. At the same time the delayed start of the rainy season will have a substantial impact on the harvest. Agriculture is The Gambia's largest economic sector and its second largest exporter after tourism. Together the impact of these two external shocks will be felt on economic growth, the government budget trade and the banking system though more information is needed to quantify these risks.
In light of substantially higher borrowing by the government and looming risks it is imperative to reinforce corrective measures and to make bold choices about spending priorities. The target of limiting net domestic borrowing to 2.5 percent in 2014 is no longer realistic but efforts will be required to limit borrowing and steer the budget toward zero net domestic borrowing in the medium-term. Moving forward, a deeper restructuring of the government budget would be required to limit the sources of spending pressures and make space for priority spending.
Implementation of reforms is also urgently needed to put Nawec on a sound financial footing and limit its strain on the state budget. The mission welcomes the authorities' commitment to implement recommendations of a comprehensive energy sector study being conducted with the help of consultants and the World Bank to restructure the energy sector. It will equally be important to ensure that other public enterprises are operated on a sound financial basis to minimise contingent fiscal risks and provide effective support to private sector activities.
Commendable progress has been made in liberalising fuel imports, reducing the size of fuel subsidies and improving revenue collection. The authorities are encouraged to sustain such progress ensuring that competition drives lower prices for businesses and consumers and strengthen the social safety nets that better target vulnerable populations. These reforms promote competitiveness and investment and allow the government to focus resources on those who need it most. The mission thanks the authorities for the candid and constructive discussions during the mission and looks forward to an active and continued dialogue with the aim of restoring macroeconomic stability as a foundation for economic development in The Gambia”.
The report added: “The macroeconomic environment stabilised in early 2014 with a successful tourism season leading to improved revenues, a stable exchange rate and moderate inflation. Government spending was contained and interest rates appeared to be edging downward slowly. Since that time spending pressures have re-emerged led by financial difficulties of the public utility provider (Nawec) as well as some spending in excess of budgeted levels. These borrowing needs have kept interest rates high while putting pressure on the dalasi. Public debt which stood at more than 80 percent of GDP at the end of 2013 is projected to exceed 90 percent of GDP by the end of this year. The burden of government borrowing will exert further pressure on inflation, international reserve and the exchange rate”.
