‘POOR WEATHER CONDITION HINDERS GAMBIA’S GDP GROWTH’ - SAYS IMF

The deputy division chief of the African Department of the International Monetary Fund (IMF), David Dunn, has announced a rather moderate performance of Gambia’s Gross Domestic Product (GDP) this year, projecting it to have slowed down slightly, to about five and half percent due to poor weather condition, which has hindered crop production in some areas of the country.

David DUNN

“However, comparing this to 2008-2010 performance, the country’s GDP is reported to have grown around six and half percent despite the prolonged global economic crises. The achievement of this robust economic growth was driven mainly by agriculture,” he explained.

Mr Dunn was speaking on Tuesday at the Ministry of Finance and Economic Affairs in Banjul during a press briefing on the 2011 Article IV consultation.

Dunn, who led an IMF mission to the country from 18 October to 1 November 2011 to conduct discussions for the 2011 Article IV consultation, said the 12-month inflation rate has deepened to about four per cent in recent months and is projected to remain below five per cent for 2011 as a whole, while the gross international reserves of the country remain at a comfortable level at just under five months of imports.
However, he pointed out: “The Gambia however continues to face a number of challenges, notably a heavy debt burden.”
Large fiscal deficits in particular have led to a “surge in domestic debt in recent years and most of them consist of short-term T-bills, which must be regularly re-financed”.

“The interest on domestic debt is on the rise and now consumes 18.5% of government revenues, compared to the inclusion of obligation on external debt, which led to the interest consuming twenty-two and half per cent of government revenues,” he said.

To address the high cost and risks of this debt, the government has taken bold actions to curb new domestic borrowing. By strictly controlling spending, new domestic borrowing is on track to be just over two and half per cent of the GDP this year, down from about four and half per cent of GDP last year.

Dunn further commended the Gambia government for observing strict limits on borrowing from the Central Bank of The Gambia (CBG), including the elimination of its overdrafts. This, he said, has allowed the CBG to implement a more consistent and proactive monetary policy.

He observed that the CBG lowered its policy interest rate for the first time in 2011, by one percentage point to fourteen per cent. “If inflation remains subdued, there may be scope for further cuts in the policy rate going forward,” he said.

ON FALLING TAX

The IMF official described “falling tax revenues” as a major concern, saying tax revenues (relative to GDP) have fallen steadily since 2007, and are down to less than 12.5% percent in 2011. At the same time, the tax base has eroded substantially, while the remaining taxpayers face high tax rate, he said.
To improve this situation and restore revenues, the IMF mission strongly encourages the government to consider a comprehensive tax reform over the next few years, building upon the planned introduction of a Value Added Tax (VAT), which is due next January 2012.

The mission also recommends that government immediately implement fully its fuel pricing formula, including a specific excise tax and rigorously adhere to the monthly price adjustments going forward.

The mission has observed that The Gambia is making important progress in its fight against poverty, particularly in the areas of education and some health indicators, but progress on “reducing income poverty is also anticipated from the inclusiveness of the strong growth of agriculture in recent years”.