THE GAMBIA'S 2008 ECONOMIC OUTLOOK

UNCLAS SECTION 01 OF 02 BANJUL 000018

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TAGS: ECON EAID EFIN ETRD PGOV KMCA IMF GA
SUBJECT: THE GAMBIA'S 2008 ECONOMIC OUTLOOK

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REFTEL(S): 07 BANJUL 614 AND PREVIOUS
07 BANJUL 574

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SUMMARY
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1. (U) On December 20, 2007, the World Bank and International
Monetary Fund (IMF) issued a press release announcing that The
Gambia has reached completion point under the Enhanced Heavily
Indebted Poor Countries (HIPC) Initiative, and is now eligible for
debt relief under HIPC and the Multilateral Debt Relief Initiative
(MDRI). The debt relief for which The Gambia now qualifies was
already incorporated into the 2008 budget presented to the National
Assembly on December 14, 2007. However, the prospects for sustained
fiscal gains may not be as bright as the GOTG wishes to project, and
prudent management will be necessary in the coming years. END
SUMMARY

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HIPC COMPLETION POINT REACHED
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2. (U) A December 20, 2007, World Bank/IMF press release announced
that The Gambia had reached completion point under the Enhanced HIPC
Initiative. The debt relief equals just over USD 66 million in net
present value (NPV),reducing The Gambia's debt by 27 percent.
Total assistance under HIPC is estimated at USD 140 million. Under
the MDRI, the country is now also eligible for additional debt
relief from the IMF, the World Bank's International Development
Association, and African Development Fund. Total debt service
savings under the MDRI will amount to approximately USD 374 million
in nominal terms over the next 43 years. Thus, The Gambia is
expected to receive the equivalent of USD 514 million in nominal
debt relief under the HIPC and MDRI initiatives on both principal
and interest payments.

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2008 BUDGET PRESENTED
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3. (U) On December 14, 2007, Secretary of State (Minister) for
Finance and Economic Affairs, Musa Bala Gaye, formally presented the
2008 budget to the National Assembly. He reiterated the draft
budget figures (ref A) that anticipated the debt relief resulting
from HIPC Completion Point, and noted that 46 percent of the budget
would go toward poverty reduction measures. The minister also
elaborated on the performance of key economic sectors in the coming
year, and reflected upon the impact of the strengthened currency,
the dalasi. He interpreted the rapid, significant appreciation of
the dalasi as a correction of its true value after a rapid decline a
few years ago. The minister largely attributed this to improved
fiscal policy, remittances, and foreign direct investment, and
maintained that the economic rebound would be stable in the medium
term. He further noted the appreciation of the dalasi was due to a
reduced demand for foreign exchange to finance The Gambia's external
debt because of HIPC and MDRI debt relief. On the matter of the
startlingly rapid pace of the appreciation against most foreign
currencies, he asserted that banks had behaved inappropriately,
resulting in the jump.

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TIGHTENED FISCAL CONTROLS...
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4. (U) Bala Gaye noted that the January 2007 introduction of the
Integrated Financial Management Information System had led to
improved financial discipline. He also revealed that the backlog of
GOTG accounts from 2002 to 2006 had been prepared and submitted to
the auditor, and would be followed by a discussion by the Public
Accounts Committee. Other improvements for the new year include a
civil service reform project carried out with the World Bank and an
action plan for aid effectiveness. The minister noted that the
banking sector was on the upswing, the Central Bank was performing
well, and the 2007 balance of payments was USD 2.5 million less than
in 2006. Bala Gaye also stressed the need for a "massive injection"
of donor funds to fund the current Poverty Reduction Strategy Paper,
which would be discussed at the postponed Donors' Round Table
Conference to be held in London in February.

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BUT SOME NEGATIVE RESULTS
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5. (U) Though the domestic economy has grown by an average of 6.4
percent from 2003 to 2006, and grew 7 percent in 2007, some areas
did not see improvement. 2007 figures for the agricultural and

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construction sectors are down from 2006. Inflation grew from 1.1
percent in 2006 to 6 percent in 2007, while inflation in food prices
was 0.7 percent in 2006 and 8.3 percent in 2007.

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TOURISM ON THE RISE
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6. (U) Bala Gaye cited major activity in the crucial tourism
sector, and touted the government's continuous development of the
sector. Highlighting a ten percent growth in 2007 due to higher
tourist numbers and the construction of new hotels, the minister
noted that the 2006-2007 winter tourism season saw 140,554 tourist
arrivals, a 19.5 percent increase on the previous season. The
projection for the current 2007-2008 season is 148, 674, up 5.8
percent. Despite the fact that European package tour operators tend
to keep their profits at home, The Gambia profited by 1.2 billion
dalasis (USD 52.2 million) from the 2006-2007 season thanks to
expenditures on food, beverages, transportation, and other
out-of-pocket expenses. He noted that this June will bring the
ninth "Roots" festival, which should result in further increases in
the tourism trade.

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REACTIONS TO BUDGET SPEECH
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7. (U) National Assembly member Sidia Jatta, a vocal opposition
member, questioned the minister's report on the robust economy when
average people are suffering from the high cost of living and low
wages and pensions. National Assembly members also queried the
sustainability of an economy that relies largely upon its tax base,
stressing the need for diversification. Members also underscored
the lack of an increase for civil service wages, which were
subsequently raised by 20 percent in a New Year's Day announcement
by President Jammeh.
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COMMENT: DEBT RELIEF IS NOT THE END
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8. (SBU) While we favorably view The Gambia's attainment of HIPC
Completion Point and its subsequent debt relief measures, we remain
wary of the viability of their lasting effects. As IMF reps
previously cautioned donors (ref B),the GOTG could easily incur
future debt within a few years. Since, for example, the IMF
informed donors of large, unreported security expenditures in 2007,
the GOTG's adherence to their stated 2008 fiscal policy remains in
doubt. The rising cost of living for average Gambians is also
problematic, and puzzling given the glowing economic outlook
heralded by the Finance Minister. Tight and transparent financial
management which benefits its citizens and the full disclosure of
grants, loans, and cancelled debt are necessary for The Gambia's
future economic stability and success. We are also uncertain how
the announced raise for the civil service (which is severely
underpaid, contributing to corruption) will impact the budget. END
COMMENT

BACHMAN