This is according to the International Monetary Fund (IMF) which recently completed a mission to the West African country to assess the effects of this shock to the Gambian economy as well as to explore the possibility of agreeing on a Rapid Credit Facility (RCF).
“The Gambia has been spared from the Ebola outbreak, but the crisis has deterred tourists, reducing activity in the sector dramatically. A projected decline of about 60 per cent in tourism, The Gambia’s principal export, will strain the country’s balance of payments,” said Bhaswar Mukhopadhyay, IMF’s mission chief.
“Delayed rains in 2014 are also causing distress in the economy, leading to a significant decline in crop production. Combating the effects of these shocks will require concerted policy effort as well as greater support from the international community.”
He added that even before the Ebola crisis, 2014 was already a difficult year for the Gambian economy due to past fiscal slippages putting pressure on government, business and consumers.
The government’s borrowing also led to increased interest rates while banks restricted their lending to the private sector and the local currency price of imported foods, especially basic foods, has risen.
“In light of substantially higher borrowing by the government and looming risks, it is imperative to reinforce corrective measures and to make bold choices about spending priorities. The mission welcomes the government’s determination to limit net domestic borrowing to one per cent of GDP this year,” explained Mukhopadhyay.
“This plan is being implemented in the budget but will require vigilance to keep spending on path and to respond to any emerging spending pressures by reducing lower-priority expenditures. The mission has engaged in discussion with the authorities about entering into a staff monitored program with a view to a future lending arrangement.”
The IMF believes that reforms in the National Water and Electricity Company and other public enterprises are urgently needed in order to put them on a sound financial footing and to limit their strain on the state budget.
“The mission welcomes the authorities’ commitment to a comprehensive restructuring of the energy sector. Similar efforts will be required for a number of other public enterprises that have recently experienced financial distress,” he said.
“The government has taken bold steps in its budget agreements, its reform agenda for public enterprises, and its rallying of the donor community. These efforts will need to continue to turn interest rates around and reduce pressure on the Dalasi.”