The Gambia tackles poor governance  
afrol News / IMF Survey - Although the price of poor governance is difficult 
to  quantify, the toll it takes on a country's progress can be substantial. In 
The  Gambia over the past decade, a property seizure and a coup, among other 
events,  led to major setbacks in overall economic performance and contributed 
to  worsening poverty. But the country has persevered in its reforms and has 
taken  relatively timely steps to address governance issues and win back donor 
support. In early July 2002, the International Monetary  Fund (IMF) approved 
a three-year Poverty Reduction and Growth Facility  Arrangement for US$ 27 
million to help The Gambia make further progress on the  economic front and 
improve its fiscal performance. 
Throughout the mid-1980s  and early 1990s, The Gambia successfully 
implemented a wide range of financial  and structural reforms. The country turned its 
economic fortunes around on the  strength of its Economic Recovery Program, 
launched in 1985 and designed to  restore financial stability and lay the 
foundation for sustained economic  growth, and its Program for Sustained Development, 
begun in 1990, to stimulate  private sector development. 

These back-to-back adjustment efforts  benefited from sustained financial 
support and technical assistance from the IMF  and other multilateral and 
bilateral creditors and donors.

These early  adjustment efforts reversed declines in GDP, and the economy 
recorded modest  real growth, increasing imports to address supply constraints, 
lifting virtually  all controls on interest rates, and eliminating external 
arrears while building  up international reserves by the end of 1991/92. The 
country also made strides  in improving its resource allocation, reducing price 
and other government  controls; introducing a market-determined exchange rate, 
and liberalizing  marketing arrangements for groundnuts - its principal cash 
crop.  

Privatization efforts, however, met with mixed results. The sale of The  
Gambia's Oilseeds Processing and Marketing Company (one of the largest public  
enterprises) to The Gambia Groundnut Corporation (a marketing monopoly owned by  
the Swiss firm Alimenta) lacked transparency and a support mechanism for  
farmers. These problems created an uneasy relationship between the government  and 
Alimenta that later erupted into a major conflict between them.  

Shocks and reversals 
Generally favorable developments came to  an abrupt halt in 1993, when The 
Gambia was buffeted by a series of external  shocks and internal turmoil that 
would increase poverty and undo some of the  progress made in developing a sound 
macroeconomic environment.

The  Gambia, a major regional trading center, saw its reexport activities - 
which  accounted for about 80 percent of its exports and 35 percent of its 
imports -  severely affected by a suspension of repurchases of the CFA franc notes 
(at the  time the major trading currency in the country) outside the CFA 
zone; a  tightening of border controls by Senegal; and a substantial devaluation 
of the  CFA franc (in January 1994). 

The government, which since 1992 had been  preparing a comprehensive plan to 
reduce poverty, approached donors for  increased aid. However, shortly after a 
successful presentation of the plan to a  roundtable donor meeting in Geneva, 
the democratically elected civilian  government was toppled in a military 
coup in July 1994.

Donors cut off  all nonhumanitarian aid, leaving the new military government 
with no external  resources to address poverty and no technical assistance to 
tackle the country's  already weak institutional capacity. Political and other 
uncertainties rippled  through the economy, resulting in lower growth and 
reversals in a number of  other economic indicators.

With the issuance of travel advisories,  tourist arrivals into The Gambia 
were nearly halved in 1994/95, with a  corresponding decline in tourist-related 
services. Real GDP, which had recovered  significantly during the late 1980s 
and early 1990s, contracted by 4 percent in  1994/95 and, on average, remained 
low - below the rate of population growth -  through 1997.

With the poor performance of the reexport and tourism  sectors, domestic 
government revenues also tumbled (declining by more than 4  percent of GDP during 
1994/95 - 1995/96), and expenditure increased  significantly - reaching a peak 
of 30 percent of GDP in 1995/96 and signaling  the reemergence of severe 
financial imbalances. 

The overall deficit,  excluding grants,more than quintupled, and the growth 
in broad money more than  doubled in 1994/95, as the government increasingly 
resorted to the domestic  banking system to fund its activities. As a result, 
the stock of government  domestic debt doubled, rising to about 23½ percent of 
GDP at the end of 1997.  Heavy domestic government borrowing also crowded out 
private sector credit,  which contracted during the period.

Getting back on track 
When  a new government assumed office in 1997, following elections marred by 
a ban on  several major opposition parties, the highest priorities were to 
halt the  economic slide and restore relations with the donor community.

With a  resumption of some aid from the international community, including an 
Enhanced  Structural Adjustment Facility (ESAF) Arrangement with the IMF in 
1998, the  authorities launched a comprehensive economic program to reestablish 
a sound and  sustainable macroeconomic environment supported by structural  
reforms.

The new effort focused on improving public finances and  strengthening the 
role of the private sector in the economy.When the IMF recast  its financial 
assistance for low-income countries to give greater attention to  fighting 
poverty, The Gambia developed a new poverty reduction strategy and  sought support 
from the IMF under its Poverty Reduction and Growth Facility  (PRGF). In 2000, 
The Gambia submitted its new poverty alleviation strategy to  the Executive 
Boards of the IMF and the World Bank as its interim poverty  reduction strategy 
paper (PRSP).

The two boards reviewed the interim PRSP  and concurrently approved, in 
November 2000, The Gambia's eligibility for debt  relief (SDR 67 million in net 
present value terms or SDR 91 million in current  value) under the enhanced 
Heavily Indebted Poor Countries (HIPC)  Initiative.

With the support of the IMF and other donors, The Gambia made  substantial 
progress in reducing macroeconomic imbalances and tackled a range of  structural 
and institutional reforms. Fiscal policy was tightened appreciably;  consumer 
price inflation remained below 4 percent a year during 1998-2001,  thanks 
partly to favorable weather; exports and imports recovered; external  balances 
improved with a reduction in the current account deficit; and  international 
reserves rose further. 

Real GDP growth increased to an  average 5¼ percent annually. Marketing 
reforms, provision of extension services,  improved inputs, and access to credit 
spurred a recovery in the agricultural  sector, and a marked increase in tourist 
arrivals helped boost growth in  tourism.

The Gambia also further liberalized its trade regime, reducing  tariffs to 18 
percent from a top rate of 90 percent, and cutting the number of  tariff 
bands to 3 from more than 30. The tariff reforms, in combination with a 4  percent 
depreciation in the dalasi, boosted international competitiveness.  

In other areas, the country moved to improve the quality of its data,  
agreeing to participate in the IMF General Data Dissemination System (a  yardstick 
to guide countries that wish to bring their data up to international  
standards); introduced measures to strengthen its national accounts; and took  steps to 
improve price, monetary, balance of payments, and customs data.  

To strengthen the private sector's role in the economy, new laws were  
enacted to bolster monetary policy operations and the supervision of financial  
institutions; establish a regulatory and privatization framework and support  
institutions; and set up a one-stop investment center and exportprocessing  zone.

The road to economic recovery and reform was not without its bumps,  however. 
In 1999, the government seized property belonging to The Gambia  Groundnut 
Corporation without compensation. Alimenta took the case to the  International 
Center for Settlement of Investment Disputes, but the government,  in 
collaboration with the European Union (the lead donor in the groundnut  sector) and the 
IMF, reached an out-ofcourt settlement. 

The incident  prevented completion of the first review of the ESAF 
arrangement with the IMF,  but the lessons from the experience led to reforms to make 
privatization more  transparent and regulate economic activity more effectively. 
Under these new  measures, plans are under way to privatize the former 
Alimenta assets (which  reverted to government ownership as a result of the 2001 
settlement) and other  key enterprises, including the telecommunications sector.

On the fiscal  front, the picture was complicated by payments to Alimenta 
(the equivalent of 2  percent of GDP in 2001), a delay in donor disbursements, 
and shortfalls in  customs revenue (in part a product of a poorly planned and 
executed preshipment  inspection scheme).

Picking up steam
In recognition of the role  that governance issues have played in the ups and 
downs of its recent economic  history, The Gambia adopted a governance policy 
framework as one of the five  pillars of its PRSP. Implementation of the 
governance program has been uneven  and will likely remain a challenge, but it 
picked up momentum in April 2002 when  the National Assembly approved a measure 
that enhances the role of local  authorities in policy formulation and the 
budget process - key to the PRSP  exercise.

In June 2001 - in advance of presidential elections last year  and of 
parliamentary and local elections this year - the government lifted its  ban on the 
participation of some major opposition parties in the electoral  process. This 
consolidation of the country's transition to democracy prompted  the United 
States to normalize donor relations and restore economic aid, which  had been 
suspended since the coup in 1994.

Amid progress in restoring  democracy and improving donor relations, and 
advances on a number of structural  reforms, the government finalized its PRSP, 
which outlines a more comprehensive  approach to poverty reduction and taps 
wider participation from civil society,  including the poor. The authorities also 
committed themselves to a new  adjustment and reform program supported by the 
IMF's PRGF and won assurances of  more technical assistance from the IMF and 
other donors, focused on building up  the country's institutional capacity.

Broadly in line with the country's  PRSP goals, the medium-term economic 
framework for 2002/03 - 2004/05 highlights  a number of objectives: roughly 6 
percent annual real GDP growth; 3¾ percent  annual average inflation; an external 
current account deficit (excluding  official transfers) of 10¼ percent of GDP 
by 2005; gross external reserves  equivalent to five months of imports of 
goods and services; a reduction in the  overall budget deficit (excluding grants) 
to 5 percent of GDP in 2002 and a  further decline to 2 percent by 2005; 
marked increases in total and government  investment (with projected increases, by 
2005, of 22 percent and 7 percent,  respectively); and a boost in the 
government saving-investment balance to  improve the external current account position.

As The Gambia moves ahead  to consolidate economic growth and poverty 
reduction, increased donor support  will be formalized at a planned September 2002 
roundtable in Geneva. Efforts  will also be made to improve the coordination of 
technical assistance to  strengthen institutional capacity.

The challenge now for The Gambia is to  persevere with economic adjustment 
and reforms in the context of the PRSP, the  enhanced HIPC Initiative, and the 
PRGF-supported program. Two key issues will be  to avoid new governance lapses 
while mitigating existing ones and to resolutely  reduce the government 
deficit and domestic debt, which will free up additional  resources to help with 
poverty reduction. 

By Robin Kibuka and Meshack  Tjirongo 
© afrol News / IMF  Survey



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