THE GAMBIA: CAUTIOUSLY UPBEAT IMF REPORT ON

UNCLAS SECTION 01 OF 02 BANJUL 000668 SIPDIS SENSITIVE SIPDIS SECSTATE PASS EXIMBANK, OPIC,AND USTDA E.O. 12958: N/A TAGS: ECON EFIN EINV PREL IMF GA SUBJECT: THE GAMBIA: CAUTIOUSLY UPBEAT IMF REPORT ON ECONOMIC PERFORMANCE BANJUL 00000668 001.2 OF 002 SUMMARY -------------- ¶1. (U) Following October Article IV Consultations here, the IMF "commended" the GOTG for achieving "macroeconomic stability" over the past two and a half years and expressed satisfaction over its performance under the October 2005-March 2006 Staff Monitored Program (SMP). However, the IMF also indicated that there remained ample room for improvement in the GOTG's economic policies, while holding out the prospect of a new Poverty Reduction and Growth Facility (PRGF) and subsequent (badly needed) debt relief for The Gambia. END SUMMARY. UPBEAT TENOR OF IMF REPORT -------------- ¶2. (U) In its report (Public Information Notice No. 06/119) on its October Article IV consultations here, the IMF "commended" the GOTG for achieving "macroeconomic stability" over the past two and a half years. The IMF cited, inter alia, the country's low inflation rate -- below two percent during the first half of 2006 -- and what it termed "respectable economic growth," pegged at an annual average rate of 5.7 percent for 2003-5. The IMF described The Gambia's floating exchange rate as "serving the country well," noting that its currency, the dalasi, had actually registered modest appreciation, in "nominal and real effective terms" following sharp depreciation in 2001-3. It attributed the appreciation to a tight money policy and increased inflows of overseas worker remittances, transfers, and foreign investment. ¶3. (U) Portraying the Gambian economy as "relatively competitive," the IMF pointed to sharp increases in revenue from tourism -- characterized as the major source of the country's foreign exchange earnings -- and described its gross international reserves as "at a comfortable level," equivalent to four months of imports. Turning to the Staff Monitored Program (SMP) in effect October 2005-March 2006, the IMF judged the GOTG's performance as "satisfactory" and paid particular tribute to the strengthened internal controls at the Central Bank of The Gambia and its efforts to clear a backlog of unaudited government accounts. The IMF did note slippage in the GOTG's performance in meeting fiscal targets for December 2005, but added that the slippage had been made 
up by March 2006. ROOM FOR IMPROVEMENT -------------- ¶4. (U) But the IMF also indicated that there remained ample area for improvement in the GOTG's economic policies. It cited, inter alia, a widening external current account deficit resulting from increased imports, higher-than-budgeted expenditures for the GOTG-hosted African Union Summit in June/July, and the "collapse" in groundnut exports in 2005 due to a failed GOTG-supported marketing strategy. The IMF spoke of "severe challenges" that the country continued to face -- in particular, a high debt burden, narrow productive base, vulnerability to "exogenous and policy-induced shocks," and widespread poverty. It characterized The Gambia as currently "debt-distressed" and assessed that the country might remain at moderate risk of debt distress even after it qualified for assistance under the Multilateral Debt Relief Initiative (MDRI). The IMF urged the GOTG to make a "long-term commitment to reform" so as to promote higher growth and reduce poverty. PROSPECTS FOR PRGF -------------- ¶5. (U) The IMF report concluded by holding out the prospect of concluding a new Poverty Reduction and Growth Facility (PRGF) with the GOTG; in the words of the report, "Directors generally considered that there is a basis for proceeding to discuss with the authorities a program that could be supported under a three-year PRGF arrangement." There was no mention of the time frame for holding such discussions, but they are expected to occur before the end of 2006. COMMENT -------------- ¶6. (SBU) The IMF report underscores the GOTG's progress on BANJUL 00000668 002.2 OF 002 economic reform following the bleak period of 2001-2, when the economy declined and irregularities at the Central Bank prompted the IMF to suspend the PRGF with The Gambia shortly after initiating it. Thanks to the GOTG's success in stabilizing the economy, as described in the report, there is now the prospect of a new PRGF for The Gambia in 2007 and subsequent, badly-needed debt relief under MDRI. But, as highlighted in the report, the GOTG is hardly in a position to rest on its laurels, given the areas for improvement cited by the IMF. On the negative side of the GOTG's economic policy ledger, we are struck by the IMF's finding of overspending on the AU Summit; various sources had claimed to us that the GOTG had received extensive Summit-related assistance from AU member states and others (e.g., Taiwan) and hence had not been required to devote much of its own funds to cover the Summit's cost. Interestingly, there was no mention in the report of costs associated with the Presidential election held here in September; while some contacts had expressed concern over possible budget-busting in connection with this event, we gather that IMF officials found no evidence of such overspending. END COMMENT STAFFORD