05 April 2015, Banjul – The Executive Board of the International Monetary Fund (IMF) today approved emergency financial assistance under the Rapid Credit Facility (RCF) 1 in the amount equivalent to SDR7.775 million (about US$10.8 million) for The Gambia to enable the authorities to meet their urgent balance of payment and fiscal needs.
The Executive Board noted the authorities’ cancellation of the Extended Credit Facility (ECF) arrangement for The Gambia that was approved on May 25, 2012 to support the government’s economic program (see Press Release No. 12/191). In addition, the Board was informed about the IMF Managing Director’s approval of a one-year staff-monitored program (SMP)2 to guide policy implementation.
Though The Gambia remains completely free of Ebola, the crisis has caused a deep decline in tourism related activities, the economy’s principal foreign currency earner. A projected decline of about 60 percent in tourism, The Gambia’s principal export, will strain the country’s balance of payments.
The shocks, coming in the wake of an extended period of weak policy implementation have exacerbated an already fragile macroeconomic situation. To address their difficulties, the Gambian authorities have taken bold steps in their 2015 budget, developed an ambitious reform agenda for public enterprises in the energy and telecommunication sectors, and made strong efforts to secure donor support.
The IMF financial assistance is intended to address urgent balance of payments needs that have arisen on account of the shock. It will help fill budgetary gaps while the authorities implement economic and structural policies aimed at restoring macroeconomic stability, and reducing poverty.
The Executive Board’s approval of the RCF disbursement will also enable the authorities to engage in further discussions with the donor community regarding assistance to meet their remaining financing needs. The Board’s approval enables the immediate disbursement of the full amount of the RCF loan, which is equivalent to 25 percent of The Gambia’s quota in the IMF.
Following the Executive Board discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair, issued the following statement:
“The Gambia is facing urgent balance of payments needs triggered mostly by the impact of the regional Ebola outbreak on tourism. Although the country remains free of Ebola, the regional outbreak is expected to cut by more than half tourism receipts for the 2014/15 season, giving rise to an urgent balance of payments need.
At the same time, the delayed summer rain has led to a significant drop in agricultural production with serious implications for growth in 2014 and food security. Policy slippages and persistent financial difficulties in public enterprises have exacerbated the problems and pushed The Gambia’s Extended Credit Facility (ECF) arrangement off track.
“The authorities have taken a number of upfront policy actions. The 2015 budget envisages lowering net domestic borrowing, anchored by revenue and expenditure measures, and complemented by stepped-up budget support from external donors.
The authorities have taken steps to begin resolving the financial problems of key public enterprises and intend to take measures to secure their medium-term fiscal consolidation and poverty reduction objectives.
“The envisaged adjustment and structural reforms, if properly implemented, would contribute significantly to addressing The Gambia’s present difficulties and achieving the targets envisaged in the Programme for Accelerated Growth and Employment. Such measures should also help lower domestic interest rates and thus alleviate medium-term spending pressures associated with the currently very high level of domestic interest costs.
In light of the large fiscal cost of poor performing public enterprises in 2014, the authorities should promptly identify contingency plans to protect budgetary outcomes in 2015 from unexpected shocks. They should also meet their external debt obligations in a timely manner.
Further measures, beyond those incorporated in the 2015 budget, are also required to undertake a deeper restructuring of the budget and public enterprises to put the medium-term fiscal position on a sound footing.
“Determined and strong policy implementation under the Rapid Credit Facility is critical to restore macroeconomic stability and to catalyze the critical donor financing.
The Staff-Monitored Program will help enhance policy implementation and establish a good track record, which remain fundamental for a possible future Fund-supported program.”
1 The RCF provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs. Financial assistance under the RCF is provided as an outright disbursement to Poverty Reduction and Growth Trust (PRGT)-eligible members that face an urgent balance of payments need, and where a full-fledged economic program is either not necessary or not feasible.
2 An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.
