The Executive Board of the International Monetary Fund (IMF) has approved a new arrangement for The Gambia under the Extended Credit Facility (ECF) to the tune of about US$28.3 million.
This decision will enable an immediate disbursement equivalent to about US$14.2 million.
According to a statement from the IMF Banjul office on Monday, this is aimed at meeting an acute balance of payments need arising from the recent crop failure due to drought, and helping to catalyze support from development partners for The Gambia’s new poverty reduction strategy, the Programme for Accelerated Growth and Employment (PAGE).
Over the medium term, the IMF seeks to ease The Gambia’s heavy debt burden through fiscal adjustment, while implementing a strong economic reform agenda in support of the PAGE.
In the statement, Naoyuki Shinohara, IMF’s Deputy Managing Director, said the Gambian economy has made good progress in achieving strong growth and making a substantial reduction in poverty.
However, he said, major crop failure due to the drought has created hardship that calls for effective and timely delivery of assistance for the most vulnerable households.
“The Gambia’s heavy debt burden poses high costs for the government and risks for the economy,” Mr Shinohara said.
“To address this problem,” he continued, “the IMF's new ECF-supported program rightly focuses on fiscal adjustment to curb government's domestic borrowing. Limiting external borrowing to concessional loans is also necessary to reduce the risk of debt distress.”
According to Mr Shinohara, the IMF planned fiscal adjustment will require consistent strong implementation to build confidence and achieve fiscal savings. Rebuilding the government’s revenue base is key to fiscal adjustment, especially the upcoming introduction of a Value Added Tax and reductions in fuel subsidies.
He pointed out that financing the government’s new poverty reduction strategy - the Programme for Accelerated Growth and Employment - under tight budget constraints will be a challenge.
In this regard, fiscal savings from lower interest on domestic debt and private sector participation in infrastructure investment could be helpful.
Added Mr Shinohara: “To ensure that such investments are productive and to guard against potentially large contingent liabilities for the government, robust institutions and regulatory frameworks are critical. To support growth, reforms are needed in key sectors such as energy and telecommunications.”
The Gambian economy performed well during the previous ECF arrangement, which expired at the end of March 2011, the IMF report recalled, saying that during the period 2007 to 2010, real GDP growth was robust and inflation was low-to-moderate, despite the global financial crisis and sharp food and fuel price shocks. Moreover, growth was inclusive and the incidence of poverty fell considerably.
However, the report noted, fiscal deficit widened substantially in the latter years of the programme, due to a steady erosion of revenues and large extra-budgetary spending, leading to a sharp increase in costly domestic debt.