The government of The Gambia has taken some initial steps toward addressing her heavy debt burden, says David Dunn, the International Monetary Fund (IMF) mission chief to The Gambia.

Dunn appeared alongside the minister of Finance and Economic Affairs, Abdou Kolley, at the Office of the Ministry at the Quadrangle on Monday, where he presented his team’s observation report during their 14-day visit to The Gambia to discuss performance under the authorities’ macroeconomic and financial programme that is supported by IMF under its Extended Credit Facility (ECF).

During their stay in the country, the mission met with the Finance minister as well as the governor of the Central Bank of The Gambia and other senior officials. According to Dunn, during the first half of 2012, Gambia government’s net domestic borrowing (NDB) was reduced to 1.2 percent of annual Gross Domestic Product (GDP), compared with 2.3 percent of annual real GDP during the same period in 2011. “Moreover, the government remains committed to ceilings on the NDB of 2 and half percent of GDP for 2012 as a whole and 1 percent of GDP in 2013,” he added.

By easing pressure on the domestic financial market and T-bill yields, Dunn said, it is projected that government’s interest payment on domestic debt relative to her revenues would fall from 18 and half percent in 2011 to 18 percent in 2012, to just under 15 and half percent in 2013. “Updated external debt indicators show progress has been made toward reducing Gambia’s debt vulnerability,” he said.

Speaking further, Dunn told the gathering that last year’s severe crop failure, which was caused by drought throughout the region, led to sharp contraction in the Gambia economy and the same year, the country’s real GDP fell by about 5 percent. The economic activity, he revealed, remained weak for much of 2012 but is expected to pick up substantially in the final quarter, as the upcoming harvest points to a strong rebound in crops and growth in the tourism sector continues. “The relief efforts by the government of The Gambia, international aid agencies and bilateral donors appear to have helped to mitigate the impact of the drought on vulnerable families and provided support to farmers.” For 2012 as a whole, however, Dunn stated that real GDP is projected to be about 4 percent while inflation has remained under control at about 4 and half percent (year-on-year).

The IMF mission chiefadded that based on a projected further rebound in agriculture in 2013, which anticipates that crop production will have fully recovered to pre-drought levels, the real GDP growth could surge to about 10 percent next year, before returning to its longer-term trend of about 5 and half percent a year over the medium term. However, he observed that there are downside risks to this outlook as well as greater upside potential. In particular, he went on, the possibility of prolonged weaknesses in the global economy or strong shocks to food and fuel prices could dampen growth in key sectors of the Gambia economy, saying at the same time, sound macroeconomic policies combined with a structural agenda that seeks to promote productive sector investment in infrastructure, as envisaged in the authorities’ Programme for Accelerated Growth and Employment (PAGE) could boost long-term growth trend.

According to him, strengthening the Gambia’s relations with the regional and international communities would be important for building confidence in the economy and generating greater support from development partners for PAGE priorities. He revealed that in line with commitments to Ecowas, the government is committed to replacing the general sales tax with a Value Added Tax (VAT) on 1st January 2013, which is expected to lead a boost in revenue collections. Beyond the VAT, he added, the government seeks to pursue a comprehensive tax reform that broadens the tax base, simplifies procedures and lower tax rates, while preserving revenues. “However, fuel subsidies continue to cut into potential tax revenues as little revenue has been achieved towards eliminating them, despite monthly price adjustments,” he noted.

He stated that growth of credit to the private sector and deposits in commercial banks has slowed considerably in 2012. In May, he said, with inflation pressures contained, the CBG acted to ease her monetary policy stance by reducing the stance requirement on deposit by 2 percentage points to 10 percent. He added that the CBG continues to strengthen banking supervision. He explained that in preparation for the upcoming increase in the minimum capital requirement at the end of 2012, the CBG has reviewed banks’ plans for meeting the new requirement and stands ready to strictly enforce the new measure.

He said preliminary data indicate that all performance criteria for the first review of the new ECF supported programme were met. In addition, Dunn stated that understandings were reached on several key policy issues. The mission, he said, will return to the IMF headquarters but will remain in close contact with the Gambian authorities to conclude discussions as soon as possible. Dunn then expressed his team’s commendation to the authorities for their candid and constructive policy discussions and expressed their appreciation for the excellent cooperation during their visit.