Gambia: Barrow shifts economy out of doldrums
The Gambia’s economic growth is expected to gradually accelerate to about 5% by 2020.
This is assuming continued good policy implementation and a significant expansion in the electricity supply, irrigation and commercial farming, investment in the tourism and trade sectors, and ongoing infrastructure investment. This is a far cry from the situation that prevailed a year ago when coalition leader Adama Barrow won a surprise election against the country’s dictator, Yahya Jammeh.
When he assumed office in January, The Gambia’s international reserves could pay for less than a month’s imports of goods and services. Today, international reserves have reached a value of four months’ imports. The President said that despite the 120% debt to GDP ratio inherited by his government, his team is working hard to stabilise the economy.
“Government borrowing has gone down, interest rates gone down and 12% debt has already been paid within a year,” Barrow said when I interviewed him at his office. The President also stressed that his administration was working on concessions with development partners, so they pay in such a way that it will not suffocate the government.
China has already extended debt relief to Gambia and partners have recommended several levels and standards necessary to maintain stability and boost growth. The Gambia’s debt to GDP ratio went down from 120% in 2016 to 112% in 2017.
A further decline is expected in 2018, to 108%. The projected fall in the country’s debt is attributed to the government’s spending cuts and support from international funding partners that addressed the budget deficit, according to the IMF’s World Economic Outlook report for 2017.
“The debt service to the GDP ratio has risen from 22% to 46% in 2016. The Gambia has seen a sharp decrease in Treasury bill rate due to budget support [received from development partners],” the IMF country representative in Banjul, Ruby Randall, said.
According to the head of the IMF mission to the country in November 2017, headline inflation is expected to decline to slightly below the Central Bank of The Gambia’s (CBG) 5% target in the medium term. “Performance to date under the Staff Monitored Program (SMP) has been broadly encouraging, but more progress is needed,” said Ulrich Jacoby, who led the IMF team to Banjul.
The drastic reduction in the government’s net domestic borrowing – stemming from increased donor support, fiscal consolidation and the recent pick-up in domestic revenue – has contributed to the decline in interest rates, Jacoby explained. Looking ahead, Jacoby said the authorities will need to maintain fiscal discipline and implement the remaining fiscal and structural measures committed to under SMP.
Economy stabilised, says Central Bank governor
The Gambia’s Central Bank Governor Bakary Jammeh explained to reporters how the situation they faced when coming into office had caused them ‘sleepless nights’ as his team struggled to turn around a dire situation. Bakary Jammeh was put in charge of the Central Bank soon after the new government was sworn in in February 2017.
The new administration led by Adama Barrow faced its biggest challenge in “fixing and stabilising a broken economy” that Jammeh had left behind. There was no proper handing-over ceremony and the new leaders decried “a serious looting” of the country’s coffers.
“During the ensuing political crisis [December to January last year], inflation was at 8%, and reserves of the commercial banks at the country’s Central Bank were at minus $20m thanks to uncontrolled government borrowing,” Governor Bakary Jammeh said at a press conference. The country was literally bankrupt, he added.
Economic growth was at 2.2% and agriculture, which was the economy’s backbone, was suffering from a poor performance in the 2016 harvest season. Ninety per cent of government finance in 2016 was spent on things like wages and salaries, goods and services, and debt servicing. “As we speak,” Central Bank Governor Bakary Jammeh commented, “our reserve is $160m from that negative point. Inflation is dropping, from 8.8% in January 2017 to 7.6% as of September 2017.
The dalasi [The Gambia’s national currency] is stable, and growth prospects are high – every day we are talking to investors here because there is renewed interest in The Gambia. “For the past seven years, an IMF programme for the Gambia did not exist. Now, the Staff Monitored Program (SMP) entered into is on track; we negotiated a three years’ extended credit facility programme in the first quarter of 2018,” Jammeh added.
“Economic growth in 2017 is projected at 3% with a strong rebound in tourism and trade, and renewed interest from foreign direct investors in energy, tourism, agriculture and transportation,” confirmed the IMF’s Jacoby. “Inflation has reversed its rising trend, reflecting the stabilisation of the dalasi and a gradual decrease in food prices. With much improved fiscal discipline and external financial support, the dalasi has remained stable since April and international reserves have recovered strongly,” he indicated.
Stability of the financial sector
Discussing the role of the Central Bank, Governor Jammeh explained: “The Central Bank has different monetary policy regimes – some do inflation targeting, others monetary targeting and exchange rate targeting. What we do is to control the quantity of money, set targets for it
“Treasury Bills have reflected the policy rate of the Central Bank. We set targets with the IMF and we are on track on all targets… The reduction of the policy rate from 23% in January to 20% on 5 May 2017, and 15% by December, was meant to signal direction, as a normalisation initiative,” the governor maintained.
“The fact that it was 23%, that it was decoupled from the entire system, demanded we do something about it. Also, we needed to know which liquidity is attached to the policy rate,” he argued. He said that the policy rate being brought down led to the lending rates of commercial banks coming down.
“This is one impact. We understand that their lending rates were linked to it. So the moment we bring it down, we bring down the lending rates in the process. Those who are lucky to have loans from banks would have realised its impact on their interest payments on those loans to the banks,” he explained.
In the meantime, reforming public enterprises remains critical, as they pose significant fiscal risks and contribute to high public debt. “The mission welcomes ongoing reform efforts which should continue, including medium-term strategic plans for achieving financial viability,” stated the IMF’s Jacoby in his end-of-mission statement.
“The Central Bank should continue maintaining a flexible exchange rate regime and further rebuild reserves, given external vulnerabilities and the high debt. Safeguarding the stability of the financial sector in light of the decline in interest rates is also a key priority,” he added.
Freeze on Yahya Jammeh’s assets
Meanwhile, according to the country’s justice ministry, Yahya Jammeh personally, or through others acting under his instructions, directed the unlawful withdrawal of at least $5m of state funds. The Gambian government has since taken action to freeze Jammeh’s assets within the country.
These figures were only preliminary, and the government acted swiftly by launching a Commission of Inquiry into the assets and financial activities of the former President, his associates and family. In December, the US Treasury announced a global freeze order on Yahya Jammeh’s assets, and other international investments related to the exiled dictator.
The Executive Order, signed by President Trump, provides for the US Treasury to impose sanctions against ‘malign actors’ worldwide, and targets human rights abusers and corrupt people around the world. It builds on the Global Magnitsky Human Rights Accountability Act passed by US Congress in 2016. “During his tenure, Jammeh used a number of corrupt schemes to plunder The Gambia’s state coffers or otherwise siphon off state funds for his personal gain,” a US Treasury release said, referring to Jammeh’s “large-scale theft”.