Strengthening the Gambia’s economic recovery

The Gambia has recently achieved a major milestone in its economic recovery journey with the approval of a staff-level agreement from the International Monetary Fund (IMF) to unlock $100 million under a new 3-year Extended Credit Facility arrangement. This move comes at a crucial time for the West African nation as it aims to tackle inflation, address foreign exchange pressures, and strengthen its overall economic resilience. The country is set to receive approximately $10.9 million upon final approval of the agreement, providing a much-needed financial boost to support its recovery efforts. Alieu Secka, a Transformation Specialist at ABSS Consulting, shed light on the significance of this agreement and the challenges that lie ahead in a recent interview with CNBC Africa. One of the immediate priorities highlighted by Secka is the need to contain inflation, which currently stands at around 18.5% officially but is estimated to be closer to 50% in reality. In addition to inflation, the country is facing significant foreign exchange challenges and liquidity issues in the market. The staff-level agreement with the IMF is viewed as a vital step towards addressing these pressing issues, with a focus on stabilizing the economy and facilitating smoother functioning of the foreign exchange market. Secka emphasized the global challenges that are impacting not only The Gambia but economies worldwide. Factors such as the conflict in Ukraine and the Israeli-Palestinian war are expected to have repercussions on smaller economies like The Gambia, which are still recovering from the effects of the COVID-19 pandemic. Despite these challenges, The Gambia has shown resilience, with economic growth reaching 4.6% and projected to rise to 5% in the coming year. The road to recovery is fraught with obstacles, but the staff-level agreement signals a step in the right direction. Another critical aspect discussed in the interview was the vulnerability of The Gambia to climate change and the urgent need for investments in climate resilience infrastructure. The country is susceptible to droughts and floods, and with rising sea levels posing a threat to low-lying areas like Banjul, there is a pressing need for proactive measures to mitigate these risks. Secka highlighted the importance of resilient investments in infrastructure and environmental conservation to safeguard the population and ensure sustainable development. In the realm of currency dynamics, Secka addressed the depreciation of the Dalasi and its impact on the economy. The local currency has depreciated by up to 25% against major currencies, leading to higher inflation and economic challenges. The infusion of foreign exchange through the IMF facility, coupled with the expected boost from remittances and tourist inflows, is anticipated to help stabilize the currency and alleviate some of the economic pressure. The conversation also delved into The Gambia's export relationships with neighboring countries like Senegal and Guinea, as well as trade partners like the United Kingdom. The export base, which includes products like peanuts, fish, and cotton, plays a crucial role in generating foreign exchange inflows. Secka underscored the need to maximize these export opportunities while also diversifying the export portfolio to increase revenue streams and reduce dependency on imports. The competitive nature of the foreign exchange market poses a challenge, but strategic measures can help enhance the country's export competitiveness. Furthermore, the discussion touched upon the imperative of improving the tax-to-GDP ratio in The Gambia, which currently stands at a low 18%. Formalizing businesses and streamlining the tax system are essential steps to boost revenue generation and align the country's tax policies with regional standards. Achieving a higher tax-to-GDP ratio is crucial for funding social spending initiatives and bolstering the country's resilience against external shocks. As The Gambia navigates its economic recovery path, the IMF agreement signals a positive development in its efforts to address key challenges and stimulate growth. The collaboration between the government and international financial institutions will play a pivotal role in shaping the country's economic trajectory in the coming years, paving the way for a more resilient and sustainable future.