Gambia: Gambia Economy Profile

• Introduction
• Recent Economic Developments and Prospects
• Macroeconomic Policy
• Fiscal Policy
• Monetary Policy
• External Policy
• Structural Issues
• Other Recent Developments
• Public Resource Mobilisation
• Social Context and Human Resource Development
• Construction & Real Estate
• Industry

Recent Economic Developments and Prospects

Recent Developments & Prospects

In 2011, the Gambia’s economic growth was affected by crop failure that reduced production by 45%. Agricultural production began to recover in 2012, however, and real GDP consequently grew by 1.0% in 2012 following a contraction of 4.4% in 2011. Crop production is expected to recuperate in 2013 and 2014, which, in addition to the continued expansion of tourism, should boost real GDP growth to 4.3% in 2013 and 5.1% in 2014. These projections are contingent upon the efficiency of the reforms and measures taken in response to the drought. The outlook also depends on favourable weather conditions, as agriculture in the Gambia is mainly rain-fed.

Services continue to be the largest driver of the economy, contributing to over 60% of GDP in 2011. Within the sector, re-export, trade and tourism, as well as transport and telecommunication are the major drivers of growth. Tourism specifically is a significant source of foreign exchange earnings as well as employment. According to the World Travel and Tourism Council, travel and tourism generated 25 000 jobs in 2011 (3.7% of total employment). This has been forecasted to grow in 2012 by 6% to reach 26 500 jobs (3.8% of total employment).

Re-export and transit trade have been an important part of the Gambian economy as the port of Banjul – the only port in the country – has historically been one of the most efficient and safest in the region. That said, the Gambia is gradually losing its comparative advantage as outlined in the World Bank’s 2008 “Diagnostic Trade Study”. Tension and temporary border closures to goods between Senegal and the Gambia have also affected activity. In general, the country’s infrastructure remains weak, particularly the road network. The planned trans-Gambia bridge, to be funded by the African Development Bank (AfDB), will be a positive development.

The telecommunication sector is quite developed; the country’s mobile market penetration rate of 89% is well above the 53% African average. There are four mobile networks (one is government-owned) in the Gambia with a fifth one, Globacom, preparing to enter the market. A second mobile operator launched 3G mobile broadband services in early 2012, bringing more competition to the sector.

Agriculture continues to be the second most important sector in the Gambian economy in terms of GDP share and employment, accounting for about 44% of the population. The 2011 fall in crop production precipitated a food crisis that affected nearly half of the population, according to the Ministry of Agriculture. In response, the government carried out an assessment that identified immediate actions to assist the most affected populations and to prepare farmers for the upcoming agricultural season. According to the Central Bank, the recommendations consist mainly of supplying and distributing seed and fertiliser, as well as providing between USD 23 million and USD 28 million in food relief (about 2.5 to 3.0% of GDP). The country has also benefited from the assistance of donors such as the AfDB and the World Bank.

While the agriculture sector is expected to recover in the medium term, it remains at risk as it depends on unpredictable rainfall. Furthermore, the limited use of modern inputs such as improved seeds and fertiliser, as well as the low level of mechanisation, all imply that productivity growth will be modest. Agriculture is already heavily dependent on groundnuts, 60% of which are exported. This makes the sector vulnerable to international price variations. In addition, low produce availability will threaten seed security for the next cropping season.

Manufacturing continues to be a small-scale, underexploited and primarily domestic-oriented sector. It is also dominated by urban micro-, small- and medium-sized enterprises (MSMEs) working on low value added activities such as packaging agriculture products and fish processing. Manufacturing accounted for 4.9% of GDP in 2011. Its share has been stagnant over the years despite government efforts to promote the industrial sector under Vision 2020. The weakness of the sector is explained by the small Gambian market, poor investment and weak trade facilitation.

Mining and quarrying is the smallest component of the Gambia's economy in 2011 (2.7% of GDP) as the country only produces industrial minerals for local consumption. Exploration is being undertaken, however. The government expropriated Carnegie’s mine and the case is currently under arbitration at the International Centre for Settlement of Investment Disputes.

Macroeconomic Policy

The performance of macroeconomic management was good compared to the past and to other countries in the region. In fact, The Gambia was the best performer in terms of the WAMZ convergence criteria, failing to meet only one: the size limit on fiscal deficits. The WAMZ monetary union objective, which was supposed to be implemented in December 2009, has been rescheduled to commence on January 1, 2015.

Monetary policy has been prudent in the Gambia and has succeeded in reducing inflationary pressures, interest rates and exchange rate changes. The gradual elimination of fiscal predominance has also contributed to more independent policy from the Central Bank of the Gambia (CBG). The main challenge for the CBG is to strengthen liquidity management against the backdrop of government plans to reduce the stock of outstanding Treasury bills. Thus, the CBG may have to employ new policy instruments to manage liquidity.

The CBG is pursuing price stability with the objective of keeping inflation at or below 5%. It has decided to limit the growth of reserve money to about 7% in 2012 to offset the expansionary impact of the reduced reserve requirement in May 2012. This has in turn helped to ease inflation, which fell from 4.8% in 2011 to 4.2% in 2012. Nevertheless, inflation is projected to rise to 5.0% and 5.1% in 2013 and 2014, respectively, as a result of the VAT introduction in 2013 and recovery in agricultural production. Although GDP inflation has been contained in 2012, the Monetary Policy Committee voted that a further reduction of the policy rate is inappropriate. Thus, the Committee decided to leave it at 12% as of February 2013.

The CBG will continue to use its rediscount rate to signal changes in policy and to monitor average daily reserve money. The aim is to shift to an average daily reserve money target in early 2013 once an effective market tool for managing daily liquidity is made available. Monetary policy in 2013 will aim to limit average reserve money and broad money to 10% and 14%, respectively.

The Central Bank will continue to monitor energy and food prices. The Gambia’s relatively low inflation provides scope for monetary policy to accommodate the first-round inflationary effects of higher energy and food prices. However, the CBG appears poised to tighten monetary policy if shocks to energy and food prices shift to a higher price level.

The midpoint exchange rate in the interbank market was GMD 30.44 (Gambia dalasi) per USD at the end of March 2012. The Gambia has accepted IMF obligations to maintain an exchange system free of restrictions on payments and transfers for current international transactions, with the exception of restrictions maintained for the preservation of national or international security.

CBG continues to work with other central banks within the ECOWAS to monitor the required convergence for the establishment of a monetary union. The target date for meeting the convergence criteria was 15 January 2013.

Economic Cooperation, Regional Integration & Trade

Its location and the ease of transportation to neighbouring land-locked countries via the Gambia River helped the Gambia to become a trade and transit hub of western Africa. The Gambia operates a liberal trade regime and there are no barriers to capital movement. Consequently, the country ranks well in cross-border trading with some of the world’s lowest per container export and import costs (averaging USD 800 less than competitors). The Gambia also enhanced its competitiveness after the depreciation of the dalasi from 2009-12, but it stands to lose ground in the medium term as neighbouring countries improve infrastructure, including building and upgrading their ports.

Re-exports constitute about 80% of the country’s total exports; 60% of the government’s tax revenue stems from foreign trade. Its main merchandise exports are peanuts, fish and cotton, and its major export destinations are China, the United Kingdom and India. Regional integration within the ECOWAS (primarily Côte d’Ivoire, Senegal, Guinea and Guinea Bissau) is also high, accounting for 26% of total external trade in 2009.

Imports have grown from 35.9% of GDP in 2011 to 36.5% in 2012, mainly because of a surge in capital imports following the implementation of the public investment plan. As for exports, they started to recover and their share in GDP increased from 11.9% in 2011 to 13.1% in 2012. Consequently, the trade deficit decreased from 23.9% in 2011 to 23.5% in 2012. The trade balance is projected to improve in 2013 and 2014 as exports are expected to rebound.

The key strategic issues for trade liberalisation are the tariff reform, the capacity to reform the regulatory framework according to World Trade Organization conventions, and the ability to exploit the potential gains of trade liberalisation. The government is also implementing the ECOWAS Trade Liberalization Scheme (ETLS) under which unprocessed goods from the ECOWAS region enter the Gambia without paying custom duties. A committee to regulate the scheme has been established under the Ministry of Trade, Industry, Employment and Regional Integration. In addition to the ETLS, the government is committed to implementing ECOWAS programmes including: the Inter-state Road Transit Scheme; Common External Tariff; ECOWAS Protocol on the community levy; and the Gambia’s operational plan for the ECOWAS Economic Partnership Agreement-Development Programme.

The Automated System for Customs Data has been rolled out to the most important border stations. The Gambia Bureau of Statistics, CBG and the GRA Customs and Excise Department have resumed holding quarterly meetings on re-exports. These gatherings are important for trade facilitation given that approximately 80% of merchandise imports are re-exported.

Debt Policy

Despite progress, the debt burden is still high in the Gambia. The country is at great risk of debt distress as a consequence of the large public debt and the contracting of non-concessional loans, especially since 2008. The stock of domestic public debt increased in 2012 to 33.1% of GDP from 30.4% in 2011. However, it is expected to decline from 29.7% in 2013 to 26.5% of GDP in 2014. Similarly, the stock of external public debt surged from 40.8% of GDP in 2011 to 44.2% in 2012, and is expected to fall to 41.4 % in 2013 and 39.4% in 2014.

The country’s interest bill is projected to continue its upward trajectory in 2012 (to 23.5 % of government revenue), but decline afterward. In addition to reducing the stock of debt (relative to GDP), low levels of annual NDB would ease pressure on interest rates and inflation, which in turn would substantially replenish fiscal savings to help finance PAGE priorities.

The debt situation in the Gambia has deteriorated after it reached the Heavily Indebted Poor Countries (HIPC) Initiative completion point in December 2007. Interest on domestic debt now consumes 18.5% of government revenues; with obligations on external debt added, it consumes to 22.5%. The country continues to risk high debt distress according to recent reports on Debt Sustainability Analysis. With technical assistance from the AfDB's Institutional Support Project for Economic and Financial Governance, in 2010 the Ministry of Finance and Economic Affairs prepared a debt management strategy encouraging the government to contract only highly concessional additional debt.

The government exercised fiscal restraint in 2012 to stem the growing debt burden — particularly domestic debt — by eliminating certain extra-budgetary expenditures and stabilising revenues. Still, government revenues fell short of budget targets, mainly on account of implicit fuel subsidies. In early 2012, sharply rising import prices led to a temporary increase in fuel subsidies, but these were reduced by sustained monthly adjustments in pump prices.

With support from the IMF, authorities are preparing a new debt management strategy to ease the burden and risks of external and domestic debt. This strategy will take into account IMF recommendations on new external borrowing by the government that will require a minimum grant element of 35%. External borrowing by state-owned enterprises, which will be restricted to concessional terms, will also need explicit government guarantees. The strategy will enhance debt management capacity and create an enabling environment to attract non debt-creating resource inflows.

Figure 2: Stock of total external debt and debt service 2013