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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