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


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SUMMARY
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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
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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
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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
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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
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6. (SBU) The IMF report underscores the GOTG's progress on

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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