JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH GAMBIA | ECONOMIC UPDATE - SPRING 2024 Jumpstarting Inclusive and Sustained Growth  1 © 2024 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2024. Jumpstarting Inclusive and Sustained Growth. The Gambia Economic Update. © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Table of Contents Abbreviations and Acronyms iv Acknowledgments vi Executive Summary vii Chapter 1: The State of the Economy 1 1.1. Recent developments 2 Global and regional growth has been sluggish amid continued tightening of monetary policies and financing conditions 2 Economic activity increased in The Gambia despite global economic headwinds 2 Vulnerabilities persist in the external sector, but the current-account deficit has been relatively stable 5 Monetary policy has been tightening to address mounting inflationary pressures 10 The fiscal deficit decreased while remaining high, and the country continues to face fiscal vulnerabilities and high public debt 14 1.2. Outlook, risk and opportunities 18 The medium-term outlook is positive with a solid recovery driven by a commitment for macro-fiscal stability and the implementation of RF-NDP 2023–2027 and rebound in all sectors 18 Rising regional and domestic risks cloud to the outlook 21 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 25 2.1. The Gambia’s economy has been caught in a low and volatile growth trap 26 2.2. Weak foundation for structural transformation 28 2.3. Economic growth has not been inclusive despite progress 37 Poverty and inequality remain high despite recent resilient growth 37 The incidence of growth reveals significant declines in per capita consumption growth 37 Social disparities prevail in access to essential services 39 The Gambia’s labor market suffers from significant underutilization, low labor force participation, and high informal employment, with large gender disparities 40 2.4. Other structural constraints have impaired The Gambia’s growth dynamics 42 Low revenue collection hampers the provision of public goods and fiscal and debt sustainability 44 Poor and inadequate infrastructure is a major barrier to private sector-led growth 45 2.5. Policy options for laying the foundation for higher and more inclusive growth 49 References 54 TABLE OF CONTENTS i GAMBIA | ECONOMIC UPDATE - SPRING 2024 Table of Boxes Box 2.1. Ongoing projects contributing to narrowing the infrastructure gap 47 Box 2.2. Some key features of the business environment in The Gambia 48 List of Figures Figure 1. The Gambian economy continued its recovery in 2023 4 Figure 2. Growth has been stronger in the first quarter of each year, likely due to the tourism season 4 Figure 3. Industrial output heavily depends on the construction sector 4 Figure 4. Services are driven by wholesale and retail trade as well as tourism-related activities 4 Figure 5. The Gambia’s growth performance has been on par with that of the SSA and ECOWAS since 2017, reversing its historical low performance 5 Figure 6. The number of tourist arrivals has continued to increase but remains below pre-pandemic levels 6 Figure 7. The depreciation of the dalasi against the US dollar that began in 2022 continued in 2023 6 Figure 8. High, although declining international food and energy prices, compounded by the depreciation of the dalasi against the US dollar . . . 7 Figure 9 . . . have triggered a significant deterioration in terms of trade . . . 7 Figure 10 . . . and steadily increased the trade deficit due to price effect and narrow exports 7 Figure 11. Food and energy prices have been the main driver of inflation . . . 11 Figure 12. . . . leading to further tightening of the monetary policy stance 11 Figure 13. In 2023, NFA contracted further . . . 12 Figure 14. . . . and the money supply continued to fall 12 Figure 15. Banks’ assets are increasingly dominated by government debt 13 Figure 16. The interest rate spread remains high, although it has been declining 13 Figure 17. The financial sector remains sound 13 Figure 18. The cost of government domestic borrowing has increased 13 Figure 19. The fiscal deficit widened in 2022 14 Figure 20. Public debt remains high 16 Figure 21. Selected public debt indicators under baseline and alternative scenarios, 2023–2033 19 Figure 22. Services will continue to drive growth 20 Figure 23. Private-sector demand will continue to support growth 20 Figure 24. Inflation should gradually ease toward the CBG’s target beginning in 2026 20 Figure 25. The CAD should remain under control in the medium term 20 Figure 26. The fiscal deficit expected to narrow, leading to a primary balance surplus in the medium term 20 Figure 27. Public debt levels are expected to decline 20 Figure 28. Debt service spending is expected to outpace social sector spending beginning in 2025 22 Figure 29. The stop-start nature of The Gambia’s growth 26 Figure 30. Between 1992 and 2022, The Gambia’s growth rate was one of the lowest in SSA and ECOWAS 27 Figure 31. Growth has been moderate and volatile, marked by periods of timid economic growth and punctuated by deep downturns 27 Figure 32. The Gambia’s GDP per capita remains low 27 Figure 33. Contribution to real GDP growth, 1990–2022 28 ii TABLE OF CONTENTS JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 34. Services continue to be the main growth driver . . . 29 Figure 35. . . . especially services related to trade, repair, accommodation, and food 29 Figure 36. Long-term productivity growth has been negative, with limited capital stock per worker 30 Figure 37. Growth has recently stemmed from increases in the capital stock, with productivity growth increasing in 2017–2019 . . . 31 Figure 38. . . . but productivity growth has been falling since 2020 31 Figure 39. Agricultural total factor productivity index (2015–100) 32 Figure 40. Agriculture value-added per worker (constant 2015 $) 32 Figure 41. The Gambia’s level of human capital is low 33 Figure 42. Structural factors held back growth in 2003–16. . . . 33 Figure 43. . . . while they contributed to growth in 2017–22 33 Figure 44. Productivity remained negative over 2000–2016 period except in industry. . . . 35 Figure 45. . . . but all sectors have experienced an increase in productivity since the Gambia’s democratic transition, although there has been no shift in labor to more productive sectors 35 Figure 46. The Gambia has experienced an increase in productivity since 2017 36 Figure 47. . . . driven by within-sector productivity 36 Figure 48. Growth was driven by within-sector productivity in a context of limited intersectoral growth driven by within-sector productivity 36 Figure 49. Growth incidence curves, 2015–2020 38 Figure 50. Consumption patterns 39 Figure 51. Road count density and distance to nearest cell tower 40 Figure 52. Small area estimates of the average distance to the nearest education and health facility (district level) 41 Figure 53. Estimated poverty rates and distance to health and education facilities 41 Figure 54. The Gambia faces low labor force participation . . . 43 Figure 55. . . . and high underemployment 43 Figure 56. Employment is concentrated in services . . . 43 Figure 57. . . . but is mainly informal 43 Figure 58. Tax-to-GDP ratio, 2020 (percent) 45 Figure 59. Revenues are increasingly dependent on external financing 45 Figure 60. ICT usage in The Gambia and SSA, 2000–2020 (percent) 46 Figure 61. Financial inclusion in The Gambia and SSA 47 Figure 62. Mobile money usage in The Gambia and SSA 47 Figure 63. The Gambia underperforms regional peers on governance effectiveness 49 List of Tables Table 1. Policy options to lay the foundations for higher and more inclusive growth x Table 2. Balance of payments, 2020–2023 9 Table 3. Summary of fiscal operations, 2020–2023 17 Table 4. Access to electricity in The Gambia and SSA, 2020 (percent) 45 Table 5. Potential gains from domestic revenue mobilization reforms 51 TABLE OF CONTENTS iii GAMBIA | ECONOMIC UPDATE - SPRING 2024 Abbreviations and Acronyms AES Alliance des Etats du Sahel” ASYCUDA Automated System for Customs Data CAD Current Account Deficit CBG Central Bank of The Gambia CPF Country Partnership Framework. CPI Consumer Price Index ECOMIG ECOWAS Military Intervention in The Gambia ECOWAS Economic Community of West African States FDI Foreign Direct Investment GBOS The Gambia Bureau of Statistics GDP Gross Domestic Product GERMP The Gambia Electricity Restoration and Modernization Project GGC The Gambia Ground Corporation GNI Gross National Income GSRB Gambia Strategic Review Board GRA The Gambia Revenue Authority HCI Human Capital Index ICT Information and Communication Technology IMF International Monetary Fund MOA Ministry of Agriculture MOBSE Ministry of Basic and Secondary Education MOFEA Ministry of Finance and Economic Affairs MOH Ministry of Health MOTIE Ministry of Trade, Industry, Regional Integration and Employment MOTWI Ministry of Transport, Works and Infrastructure MPR Monetary Policy Rate MPC Monetary Policy Committee NDA Net Domestic Assets NFA Net Foreign Assets NPL Non-Performing Loan ODA Official Development Assistance OIC Organization of Islamic Cooperation OMVG The Gambia River Organization for Development (Organisation pour la Mise en Valeur du Fleuve Gambie) PPP Purchasing Power Parity iv ABBREVIATIONS AND ACRONYMS JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH PV Present Value R&D Research and Development ROA Return On Assets ROE Return On Equity SCD Systematic Country Diagnostic SOE State-Owned Enterprises SSA Sub-Saharan Africa TFP Total Factor Productivity TRRC Truth, Reconciliation and Reparations Commission VA Value-Added VAT Value-Added Tax WAP Working Age Population ABBREVIATIONS AND ACRONYMS v GAMBIA | ECONOMIC UPDATE - SPRING 2024 Acknowledgments The Gambia Economic Update monitors significant recent EAWM2), Kemoh Mansaray (Senior Economist, EEAM1) economic developments in the country, highlighting the and Rachel K. Sebudde (Senior Economist, EAEM1) for key structural challenges The Gambia faces in its pursuit their comments and suggestions. Sincere appreciation of inclusive and sustained growth, and analyzing policy goes to Oscar Parlback (Consultant) for editing the report. options. This report is prepared by the World Bank’s Macro­ Theresa Adobea Bampoe (Senior Program Assistant, economics, Trade and Investment (MTI) Global Practice EAWM1) and Aji Oumie Jallow (Administrative Assistant, team led by Ephrem Niyongabo (Economist, EAWM1) AWMGM) provided outstanding administrative support. and Wilfried A. Kouame (Senior Economist, EAWM1), and comprised of Sering Touray (Economist, EAWPV) and The findings, interpretations, and conclusions expressed Miodrag Petkovic (Consultant). The team benefited from in this report do not necessarily represent the views of the the guidance of Keiko Miwa (Country Director, AWCF1), World Bank and are entirely those of the authors. Hans Anand Beck (Practice Manager, EAWM1), Daniela Marotta (Lead Economist, EAWM1, AFCE1), Feyi Boroffice Comments and questions on the content of this report (Resident Representative, ACWF1) and Edouard Al-Dahdah are welcome. Please contact Ephrem Niyongabo (Lead Country Economist, EAWDR). We also thank the (eniyongabo@worldbank.org) and/or Wilfried A. Kouame peer reviewers Mamadou Ndione (Senior Economist, (wkouame@worldbank.org). vi ACKNOWLEDGEMENT JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Executive Summary Jumpstarting sustained and inclusive growth is the only while public investment was driven by the completion of way to improve the living conditions of the Gambians. infrastructure projects related to the hosting of Organiza- Heightened global and regional uncertainties coupled tion of Islamic Cooperation (OIC) conference. with vulnerability climate shocks cloud the economic outlook, making efforts to improve the living conditions Decade-high average inflation in a context of monetary of the Gambians more challenging. The tightening of policy tightening increased poverty despite rising per financing conditions has led to higher borrowing costs, capita income. Headline inflation averaged 16.9 percent exacerbating debt vulnerability although increased grants (year-on-year) in 2023, from 11.5 percent (year-on-year) financing helped mitigate fiscal risks while supporting eco- in 2022, primarily driven by as external factors, such as nomic activity. The Gambia needs to maintain prudent the depreciation of the Dalasi against the US dollar and macro-fiscal policies to build fiscal space, enhance its its passed-through by imported prices and the positive capacity to absorb shocks, especially in the context of the domestic output gap. The latter likely captures the impact end of the debt deferral and overlapping external shocks. of fiscal and monetary policies, in a context of heightened Fiscal consolidation efforts started in 2023 should be domestic government borrowing with a monetary policy maintained with accelerated revenue collection measures that remained largely accommodative to support the and rationalization of public spending, while preserving financing of the fiscal deficit despite recent monetary much-needed public services provision, investment and tightening. By eroding households purchasing power, pro-poor spending. Structural issues such as reliance on persistent inflation – notably food price inflation which low-value added tourism, limited private sector develop- increased at 22.2 percent (14.5 percent a year before) is estimated to have pushed additional Gambians in extreme ment, and low productivity continue to affect the Gambia poverty (international poverty line of $2.15, in 2017 growth potential – calling and new growth model to enable PPPs) – a 0.5 percentage point increase in poverty to economic opportunities for all Gambians. 16.9 percent in 2023. Some of the administrative measures to combat inflation and ease the cost of living for its Recent economic developments citizens remain in place. Pressures from energy prices, especially electricity, weighed heavily on inflation, with The Gambia’s economy continued its recovery in 2023, an average 10 percent increase in 2023. To curb persistent driven by public consumption and investment spending. inflation, the Central Bank of the Gambia (CBG) raised Economic growth accelerated at 5.3 percent – 2.7 percent in policy interest rates by a cumulative of 400 basis points per capita terms in 2023 – from 4.9 percent (2.4 percent since December 2022 to 17 percent in December 2023 in per capita terms) in 2022. On the supply side, growth from 13 percent a year before. However, the effect of was mainly supported by improved agricultural and indus- monetary tightening seems limited due to weak transmis- trial production, while growth in services was subdued as sion channels as inflation was driven by external factors. higher inflation, monetary tightening and economic slow- down in advanced economies disrupted the tertiary sectors The fiscal deficit decreased while remaining in 2023 and slowed private consumption although it remained rel- as increased tax collection and higher levels of grants atively high . On the demand side, growth was supported failed to fully offset the rising expenditure. Supported by public consumption spending and investment spending by continued economic recovery and the implementation from both private and public sectors. Private investment of revenue boosting measures, total revenue increased from and consumption were supported by remittances flows, 17.7 percent of GDP in 2022 to 20.6 percent of GDP in Executive Summary vii GAMBIA | ECONOMIC UPDATE - SPRING 2024 2023. Tax revenue rose by 0.5 ppts of GDP in 2023 thanks development partners. Industry growth will be boosted to new administrative measures and strengthened collec- by ongoing large infrastructure projects, sustained public tion efforts. At the same time, grants increased by 2.5 ppts and private construction, and improvements in the busi- to 8.1 percent of GDP, driven by both budget support and ness environment. Services are expected to continue to project investment as development partners maintained grow assuming higher tourist arrivals as global economic strong support to the Gambia democratic transition. Total recovery and trade resume while regional and global geo- expenditure increased from 22.7 percent of GDP in 2022 political tensions tame. Efforts to building fiscal buffers to 24.7 percent in 2023, driven primarily by infrastructure through revenue-based consolidation and rationalization projects related to the preparation of the OIC Conference of public spending should be maintained to enhance debt but its increase was offset by revenue performance. As a sustainability. result, the fiscal deficit declined from 5.0 percent of GDP in 2022 to 4.1 percent. With lower net domestic The outlook is clouded by significant downside risks borrowing, public and publicly guaranteed debt is esti- with rising regional and global uncertainties. Risks mated to have declined to 76.7 percent of GDP in 2023, include the prolonged, regional, and global geopolitical from 83.4 percent in 2022. The Gambia remains at high tensions, debt vulnerabilities, reemerging forex pressures, risk of debt distress with its debt deemed sustainable. extreme weather events, fiscal slippage, and continued Limited margins to absorb potential future shocks calls financial tightening. The prolonged regional and global for accelerated efforts to build fiscal buffers. geopolitical tensions with Russia’s invasion of Ukraine, the conflict in the Middle East and “Alliance des Etats du Pressure from imports led to a slight deterioration of Sahel” (AES) withdrawal from ECOWAS could trigger the external position despite higher exports of goods a new increase in commodity prices and disrupt supply and services. The current-account deficit (CAD) is esti- chains. A delayed recovery of the global economy could mated at 4.2 percent of GDP in 2023, similar to its level in also lower tourist arrivals, undermine growth prospects 2022, on the back of the recovery in tourism and increased and heighten fiscal and external imbalances. A persistently exports of goods combined with the uptick in imports high import bill fueling inflation and a further decline related to large infrastructure projects. The CAD was in international reserves would potentially lead to severe financed through foreign direct investment (FDI), donor shortages of essential imports and increased pressure on support, external government borrowing, and international the domestic currency. Domestic and external fiscal risks reserves, which declined from 5.4 to 4.9  months of include weaker-than-expected growth, pressures to clear imports, alongside a depreciation of the nominal exchange state-owned enterprises’ (SOEs) contingent liabilities, rate of 10.5 percent. continued rise in the government’s credit cost, weaker- than-expected grants, end-of-debt service deferrals in 2024, and other external price shocks. The Gambia is also Outlook, risks and challenges highly vulnerable to climate shocks that impact agricul- tural output and household income. The outlook is positive supported by the implementa- tion of the Recovery-Focused National Development Plan (RF-NDP) 2023–2027 but it hinges on a con- Spotlight: Jumpstarting inclusive and tinuous commitment to macro-fiscal stability. Real sustained growth GDP growth is projected to strengthen around 5.6 per- cent in 2024–2026 (3.2 percent in per capita terms), The pace of economic growth has been declining and supported by increased economic activity in all sectors. volatile since independence before regaining momentum Agriculture is expected to continue to grow, assuming with the democratic transition in 2017. From an average favorable rainfall alongside with an efficient use of fertil- of 5.7 percent over 1968–1978, the average Real GDP izers, continued seeds improvements and support from growth gradually fell to 3.0 percent over 1979–2016 owing viii Executive Summary JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH to the occurrence of climate events such as droughts, lim- 3 out of 10 people in urban areas. Underemployment is high ited accumulation of capital (human and physic), reliance at 41.5 percent in 2022, while 63 percent of employment on low value-added tourism, weak governance, economic are informal. Growth incidence analysis reveals large per mismanagement, investment climate combined with poor capita consumption growth declines, affecting dispropor- infrastructure, which resulted in declining productivity. tionately poor households, especially relying on the agri- The economy has shown relative resilience since 2017 culture sector for substance. Limited and volatile growth amid multiples global shocks (the COVID-19 pandemic, has prevented the Gambia’s ability to sustainably address spillover from Russia’s invasion of Ukraine and conflict social and regional disparities in access to basic services such in the Middle East), with real GDP growth averaging as connection to roads, distribution of cell towers, access 4.8 percent over 2017–2023 thanks to improvements in to primary and secondary schools as well as health facili- macro-fiscal management and stability and increased ties, with rural areas being the most underserved. donors’ support. On the demand side, while its historical contribution was marginal, investment has become a The Gambia needs a new growth model to promote major driver of economic activity, alongside private con- sustained and inclusive growth. The country remains sumption while contribution from net exports remains trapped by low productivity and the lack of transformative negative due to a large trade deficit. On the supply side, structural change, hampering job creation and inclusive services, and specially tourism, remain the main driver of growth. The consolidation of the democratic transition growth, while the contribution of the agriculture sector offers an opportunity to transform the growth model to GDP has been declining, reflecting continuous pro- from reliance on low value-added tourism to a dynamic ductivity decline. Industry sector remains the smallest private sector that offers more economic opportunities sector, although its share in the GDP has been moder- to all Gambians, especially the youths. Strengthening ately increasing, driven by construction activities in recent macroeconomic policy buffers and fast-tracking struc- years. There is no evidence movement of labor towards tural reforms are needed to build resilience and support more productive sectors, highlighting an absence of struc- the government’s inclusive growth agenda, as stated in the tural transformation and resources misallocation within RF-NDP 2023–2027. Key short to medium terms reform the economy. options include: (i) strengthening domestic revenue mobi- lization to improve fiscal and debt stability and the provi- Limited long-term growth combined with high demo- sion of public goods and services, (ii) supporting capital graphic growth and recent high-level of inflation accumulation and productivity growth by sustaining have prevented strides in economic opportunity and infrastructure investments, (iii) governance and business poverty reduction. National poverty rate was estimated at environment reforms to attract more domestic and foreign 48.6 percent in 2015 before declining to 45.8 percent in investment, (iv) sustaining investments in human capital 2019 thanks to a solid post-elections recovery. These hard- to ensure that growth in the labor force translates more won gains were reversed with the succession of shocks than proportionally in output growth and higher incomes since 2020 compounded with persistent high inflation, per capita, (v) increasing public financing on research and which has eroded households purchasing power over the development (R&D) to support agriculture productivity past years. Poverty is mainly a rural phenomenon, with growth, and (vi) strengthening regional integration to 7 out of 10 people being poor in rural areas compared to increase the country’s trade performance. Executive Summary ix GAMBIA | ECONOMIC UPDATE - SPRING 2024 Table 1. Policy options to lay the foundations for higher and more inclusive growth Reform Area Policy Option Timeline Strengthen macro­ Implement the new foreign exchange policy that reaffirms commitment to a ST economic stability market-determined exchange rate. Accelerate revenue-driven fiscal consolidation efforts to build adequate fiscal ST and foreign exchange buffers. Address the drivers of inflation and roll out targeted social programs to support ST vulnerable population. Strengthen revenue Strengthen domestic revenue mobilization to improve fiscal and debt collection, governance, stability: and institutions • Streamline tax incentives and exemptions by revising the exports and ST investments promotion framework • Conduct an overhaul review and cost-benefits analysis of subsidies and ST duty waivers to assess their socioeconomic impacts • Accelerate the digitization of tax and customs administrations process MT and payment Develop a comprehensive approach to strengthen governance and tackle ST corruption, based on recent diagnostics and existing vulnerabilities Improve the competition, institutions, fight against corruption: • Develop antitrust laws MT • Setup independent regulatory bodies for anti-corruption and competition MT with adequate resources to pursue anticompetition and anticorruption investigations with judicial support Invest in infrastructure Address Banjul port’s institutional and physical capacity limitations to smooth ST/MT and human capital international trade and improve international connectivity Improve digital connectivity and digital financial services MT Improve service delivery in health and education: ST • Increase the efficiency of spending on inputs and learning materials ST • Rationalize the allocation of the health budget in favor of primary care • Tackle spending inefficiencies in those sectors. MT • Addressing the skills mismatches to support the shift of labor towards MT more productive sectors. Increase agricultural Increase public financing for agricultural research and development to support MT productivity agricultural innovations). Sustain support to technological adoption and productivity enhancements ST (improved seeds, improved fertilizer subsidies targeting, increased access to MT institutional private financing). Develop competitive agricultural value chains Increase trade Developing a re-export trade hub and exploiting the high potential for MT performance regional integration. Note: Short term: ≤ 1 year; medium term: 2–3 years. x Executive Summary Chapter 1: The State of the Economy GAMBIA | ECONOMIC UPDATE - SPRING 2024 1.1.  Recent developments costs of living tempering consumption growth. High debt burdens and interest rates have narrowed fiscal space, Global and regional growth has been sluggish while surging import bills and higher debt burdens have amid continued tightening of monetary policies heightened financing needs. Increased political instabil- and financing conditions ity has increased in parts of the region, weighing on eco- nomic activity. Weak growth in advanced economies has Global economic growth slowed for the second consecu- weakened their demand for SSA’s exports, leading metal tive year in 2023 amid continued tightening of countries’ exporting economies to adjust to lower prices. Against monetary stance and credit conditions. Global economic this backdrop, economic growth in SSA slowed further activity slowed for a second consecutive year, from 6 per- to 2.9 percent in 2023, from 4.4 percent in 2021 and cent in 2021 to 3 percent in 2022, before settling at an esti- 3.7 percent in 2022 (World Bank 2024). mated 2.6 percent in 2023. Moreover, growth in advanced economies was downgraded to 1.5 percent in 2023, down from 5.5 percent in 2021 and 2.5 percent in 2022.1 By con- Economic activity increased in The Gambia trast, aggregate growth moderately accelerated in emerging despite global economic headwinds and developing markets from 3.7 percent in 2022 to 4 per- cent in 2023, almost entirely due to a rebound in China The Gambia’s economy continued its recovery in 2023, following the removal of strict pandemic-related mobility driven by public consumption and investment spending. restrictions. Still, growth remained far below the 7 percent Economic growth accelerated from 4.9 percent (2.4 per- growth recorded in 2021 (World Bank 2024). The weak cent in per capita terms) in 2022 to 5.3 percent in 2023 growth performance in the global economy is due to con- (2.7 percent in per capita terms)2 (Figure 1). Growth tinued monetary tightening to rein in high inflation, further was mainly supported by agriculture and industry, while tightening of credit conditions, and weak global trade growth in services was subdued. Public consumption growth. After the sharp increase in global commodity spending as well as private and public investment spend- prices and supply disruptions, which increased inflation to ing also drove growth. Economic growth was stronger levels not seen in several decades, global headline inflation in the first quarter of each year (Figure 2), likely due receded in 2023 because of base effects, abating supply to the induced effects of tourism, which peaks between chain pressures, and falling commodity prices. However, November and April. While The Gambia’s growth per- core inflation remained elevated in many countries and formance has historically been below the average of SSA above target in most inflation-targeting economies. Global and the Economic Community of West African States financial conditions have tightened due to policy rate hikes (ECOWAS) (see Chapter 2), the country has reversed the and, to a lesser extent, some bouts of financial instability, trend and outperformed regional peers since 2017, except as several large banks experienced substantial mark-to- in 2021–22 (Figure 5). market losses due to the sharp rise in policy interest rates. On the supply side, the agriculture sector grew by Economic growth in Sub-Saharan Africa (SSA) slowed 7.2 percent in 2023, up from 3.6 percent in 2022, for a second consecutive year in 2023 amid external although its share in GDP has been continuing to headwinds, persistent inflation, higher borrowing decline due to low productivity. Growth in the agri- costs, and rising insecurity and political instability. culture sector was driven mainly by contributions from The economic recovery from the COVID-19 pandemic the crop as well as forestry and logging subsectors, while remains incomplete in many countries, with elevated contributions from the livestock and fishing as well as 1 World Bank (2024). Global Economic Prospects, January 2024. Washington, DC: World Bank. doi:10.1596/978-1-4648-2017-5. 2 Official national accounts statistics had initially estimated growth at 4.3 percent for 2021 and 4.4 percent for 2022, which was subsequently revised to 5.3 percent for 2021 and 4.9 percent for 2022. 2 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH aquaculture subsectors fell. The increase in agricultural Laminkoto and Diabugu Electricity Project in the Sami growth was primarily attributed to a good rainy season and Sandu Districts, was completed in 2023, which con- and improved agricultural practices with the use of improved nected new communities to the grid for the first time4. seeds and increased fertilizer subsidies,3 alongside an The enhancement in electricity access lays foundation for increase in investment in projects by international part- stimulating growth across sectors. While the industry ners. While these recent improvements support the sector’s sector represents the smallest share of GDP, its share output, over the long term, the agriculture sector has seen increased from 9.8 percent in 2010 to 15.3 percent in the slowest productivity growth while experiencing strong 2023. Further analysis shows that the industry sector growth in its share of employment. Low productivity in the has had the highest productivity growth in the Gambian agriculture sector is due to several constraints, including economy, but it has the lowest level of employment growth a lack of adequate irrigation facilities and production compared to other sectors, which limits its contribution machinery, limited access to institutional credit, difficul- to economic growth. ties in procuring inputs and storing products, the negative impact of climate change and variability, increasing soil Services growth slowed from 6 percent in 2022 to salinity, and low public funding (World Bank 2023). The 4.1 percent in 2023, although services remained the continuing decline in its productivity explains agricul- principal sector in the economy. The following tourism- ture’s limited contribution to economic growth, with its related subsectors drove services growth in 2023: (i) wholesale share of GDP falling from 35 percent in 2010 to 25 percent and retail trade as well as repair of motors and motorcycles; in 2023. This calls for continued efforts to sustain the (ii) transport and storage; and (iii) accommodation and recent positive developments in the sector and reverse food services activities (Figure 4). The tourism sector its long-term productivity negative trend (more detailed remains a key driver of growth, contributing 8.5 percent analysis in next chapter). of GDP (15.5 percent of GDP factoring in induced and indirect effects).5 International tourist arrivals reached Growth in industry accelerated from 3.1 percent in 206,936 visitors in 2023—a 13 percent increase from the 2022 to 6.5 percent in 2023. The growth acceleration level in 2022 and 2 times higher than in 2021. Despite the was due to improved performance in the electricity, mining strong recovery, tourist arrivals remain below pre-pandemic and quarrying, and construction subsectors, while the levels, and tourism activity remains insufficient to offset manufacturing and water supply subsectors contracted the contraction in other subsectors (i.e., information and or experienced limited growth. The performance of the communication; financial and insurance; real estate; pro- sector remains heavily dependent on the construction fessional, scientific, and technical activities; administrative subsector (Figure 3). Construction activities were fueled and support services; and arts, entertainment, and recre- by robust remittance inflows. Growth in the electricity ation). The slowdown in services while private consumption subsector was driven by improvements in service delivery, remained relatively high reflects a sort of “dual economy” particularly with the addition of the OMVG infrastructure in The Gambia where most of the consumption in the to the electricity network. In terms of access to elec- tourism sector is imported rather than locally grown. tricity, a key investment, the GERMP Backbone Phase 1, Moreover, the slow recovery of the tourism sector reflects 3 Farmers across the country spent GMD 1,150 on a 50kg bag of fertilizer, GMD 850 less than in 2022. The price reduction was due to government subsidies on fertilizer. The Government of The Gambia paid a subsidy of GMD 1,384 for each bag of fertilizer purchased by farmers in an effort to make fertilizer affordable (Baldeh “Farmers to spend D850 less on 50kg fertilizer bag this year,” https://fatunetwork.net/ farmers-to-spend-d850-less-on-50kg-fertilizer-bag-this-year/). 4 The GERMP is the Gambia Electricity Restoration and Modernization project, supported by the World Bank to improve the power generation and transmission capacity in the country. The GERMP Backbone Phase 1 involves the construction of a 30KV distribution network with secondary substations, including last mile connections (meter connections to households). 5 World Bank 2022a. Chapter 1: The State of the Economy 3 Figure 2. Growth has been stronger in the first Figure 1. The Gambian economy continued its quarter of each year, likely due to the tourism recovery in 2023 season 10.0 Contributions to quarterly GDP growth 8.0 7.2 30.0 6.2 6.0 5.2 4.8 5.3 4.9 5.3 4.1 20.0 4.0 2.9 1.9 10.0 2.0 0.6 0.0 0.0 –2.0 –1.4 –10.0 –4.0 –20.0 –6.0 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 –8.0 –8.1 –10.0 Primary Industry Services 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Net taxes GDP Figure 3. Industrial output heavily depends on Figure 4. Services are driven by wholesale and the construction sector retail trade as well as tourism-related activities Industry: sectoral contribution (quarterly, percentage Services. sectoral contribution (quarterly, percentage change) change) 20.0 70.0 16.0 60.0 12.0 50.0 8.0 40.0 4.0 30.0 0.0 20.0 –4.0 –8.0 10.0 –12.0 0.0 –16.0 –10.0 –20.0 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 –20.0 –30.0 –40.0 Arts, entertainment and recreation –50.0 Public administration and defence; social sectors 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 Professional, scientific and technical activities Real estate activities Financial and insurance activities Construction Information and communication Mining, manufacturing, electricity and water Wholesale and retail trade; repair; transportation and Industrial output storage; accommodation and food Source: World Bank staff using The Gambia Bureau of Statistics (GBoS) data. Note: Industry is divided into: (1) mining and quarrying; manufactur- Note: Services include: (1) wholesale and retail trade; repair of motor ing; electricity, gas, steam, and air conditioning supply; water supply; vehicles and motorcycles; transportation and storage; and accommo- and sewerage, waste management, and remediation activities; and dation and food service activities; (2) information and communication; (2) construction. (3) financial and insurance activities; (4) real estate activities; (5) profes- sional, scientific and technical activities as well as administrative and support service activities; (6) public administration and defense; com- pulsory social security; education; and human health and social work activities; and (7) arts, entertainment and recreation; repair of house- hold goods; and other services. 4 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 5. The Gambia’s growth performance has reached 36.4 percent of GDP in 2023, well above the SSA been on par with that of the SSA and ECOWAS average of 21.9 percent of GDP in 2022 (WDI 2022). since 2017, reversing its historical low performance The contribution of net exports to growth remained GDP growth in The Gambia, SSA and ECOWAS negative in 2023 despite increased exports. The base 8.0 of goods exports is narrow, and exports have been histor- ically low as share of GDP, averaging 5 percent of GDP 6.0 over 2017–2023. In addition, the ban on timber and 4.0 cashew cross-border exports following security concerns at the border with Senegal since July 2022 continues to 2.0 negatively affect goods exports. Nonetheless, the level of exports increased by an estimated 18.9 percent in 2023 0.0 (up from 8.5 percent in 2022), owing to a rise in ser- –2.0 vices exports driven by a gradual recovery in tourism inflows, along with improvements in goods exports. Although exports –4.0 grew faster than imports, the contribution of net exports to Average 2017 2018 2019 2020 2021 2022 2023 1992–2016 economic growth remained negative due to the large trade deficit, which increased from 29.6 percent of GDP in 2022 Gambia (The) ECOWAS SSA to 29.6 of GDP in 2022 to 32.3 percent of GDP in 2023. Source: World Bank Staff using WDI data. Despite increased income per capita, poverty rates increased in 2023 due to rising inflation. Inflation continued its uptrend throughout 2023 to reach decade lingering global travel hesitancies due to the rising cost of highs. Yearly inflation averaged 16.9 percent in 2023, living following shocks in the global economy, alongside up from 11.6 percent in 2022, when inflation reached regional competition, and weak marketing and tourism double digits for the first time in almost three decades. infrastructure in the country. Despite having the highest Both food and nonfood inflation were high, averaging share of employment, the services sector continues to face 22.2 percent and 10.9 percent, respectively in 2023, up from low productivity growth, which explains the continuous 14.5 percent and 8.6 percent, respectively, in 2022. decline in the share of the sector in GDP, from 60 percent By eroding the purchasing power of poor households, the early 2000s to 51 percent in 2023. persistent inflation - notably food price inflation, is expected On the demand side, economic activity was supported to have increase poverty to 16.9 percent in 2023, from by private and public sector consumption and invest- 16.4 percent in 2022 - an increase of over 25,000 people, ment although private consumption slowed due to using the international poverty line of $2.15 (in 2017 PPPs). higher inflation. Growth was stimulated by high public spending to accelerate infrastructure projects related to Vulnerabilities persist in the external sector, the preparation of the Organization of Islamic Cooper- but the current-account deficit has been ation (OIC) conference, scheduled to take place in The relatively stable Gambia in 2024 after many postponements. High public investment spending was combined with increased private The current-account deficit (CAD) is estimated at 4.2 per- investment in construction activities, supported by remit- cent of GDP in 2023, similar to its level in 2022. Similar tances inflows, which nominally increased by 3.5 percent, to in 2022, goods imports increased in 2023 due to per- year-on-year, to US$737.12 million—32.1 percent of sistently high world commodity prices, combined with an GDP—in 2023. Spurred by support from development uptick in imports related to ongoing large infrastructure partners, public investment boosted total investment, which projects. While tourist arrivals increased, they remained Chapter 1: The State of the Economy 5 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 6. The number of tourist arrivals has Figure 7. The depreciation of the dalasi against continued to increase but remains below the US dollar that began in 2022 continued pre-pandemic levels in 2023 Tourists' arrivals GMD per US$ 300,000 65 63 250,000 235,789 61 209,135 206,936 59 200,000 182,975 57 150,000 55 102,460 53 100,000 89,232 51 49 50,000 47 Dec-19 Apr-20 Aug-20 Dec-20 Apr-21 Aug-21 Dec-21 Apr-22 Aug-22 Dec-22 Apr-23 Aug-23 Dec-23 0 2018 2019 2020 2021 2022 2023 Source: World Bank Staff using data from the Gambia Tourism Board. Source: World Bank Staff using Central Bank of The Gambia (CBG) data. below pre-pandemic levels. The CAD is an estimated 4.2 per- more than 40 percent of total imports and represent, together cent of GDP in 2023, comparable to its level in 2022, with electrical machinery and vehicles, the top three imports, driven by more dynamic tourism activity, combined with accounting for almost 60 percent of total imports. The rest increased goods exports and robust current transfers (Fig- is spent mainly on consumer goods such as sugar, cereals, ure 6). Despite narrow goods exports and high import salt, and sugar, in addition to fertilizers (GBOS, 2024). pressures, The Gambia was among the group of countries The export of goods reached US$98.7 million (4.2 percent in ECOWAS with a CAD below 5 percent of GDP in of GDP) in 2023, up from US$51.3 million (2.4 per- 2022–20236. cent of GDP) in 2022. Exports are dominated by animal or vegetable fats, oil seeds and oleaginous fruits, and The trade deficit widened further in 2023 due to a fish and crustaceans, with the three categories averaging higher import bill, despite the rise in goods and ser- 70 percent of total exports in the fourth quarter of 2022 vices exports. Merchandise trade registered a deficit of and 2023, respectively. The absence of manufactured prod- 32.4 percent of GDP in 2023, up from 29.6 percent of GDP ucts within the export basket is an additional signal of in 2022, due to pressure on imports. The value of imports weak competitiveness of the economy. With a restrained reached US$855.2 million (36.5 percent of GDP) in 2023, export basket, high global commodity prices although up from US$694.0 million (31.9 percent of GDP) in gradually declining, have triggered negative terms of trade 2022.The composition of imports shows that they are for The Gambia, leading to a steadily rising trade deficit not mainly oriented towards capital goods that support and depreciation of the currency (Figure 7 through Fig- productivity and the structural transformation of the eco­ ure 10). With the gradual pickup in tourism resulting in nomy. Imports are dominated by mineral fuels, which total higher services exports, the services trade balance recorded 6 The CAD averaged 2.5 percent of GDP in ECOWAS between 2022 and 2023. In terms of the CAD, ECOWAS is comprised of three groups of countries: (i) countries with a CAD below 5 percent of GDP (Cabo Verde, The Gambia, Ghana, Nigeria, and Togo); countries with a CAD between 5 and 10 percent of GDP (Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Guinea, Mali, and Sierra Leone); and (iii) countries with a CAD in the double-digits (Liberia, Niger, and Senegal) (IMF 2023; World Bank 2023a). 6 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 8. High, although declining international food and energy prices, compounded by the Figure 9 . . . have triggered a significant depreciation of the dalasi against the US dollar . . . deterioration in terms of trade . . . Commodity: Monthly Prices Terms of trade, annual percentage change 400.0 200.0 2 350.0 1 300.0 150.0 0 250.0 200.0 100.0 –1 150.0 –2 100.0 50.0 –3 50.0 –4 0.0 0.0 –5 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 –6 –7 Energy price index 2016 = 100 (lhs) –8 Food price index 2014–2016 = 100 (rhs) 2020 2021 2022 2023 Source: FAO. Food Price Index; Federal Reserve Bank of Saint Louis. Source: International Monetary Fund (IMF) Terms of Trade Index. Global price of Energy index. Figure 10 . . . and steadily increased the trade deficit due to price effect and narrow exports Trade balance (US$ million) 1,200 0 –100 1,000 –200 800 –300 600 –400 –500 400 –600 200 –700 0 –800 2019 2020 2021 2022 2023 Exports of goods and services Imports of goods and services Trade balance Source: World Bank Staff using CBG data. a surplus of US$79.4 million in 2023, unchanged from transfers) increased from US$40.0 million (1.8 percent of 2022 but moderately down as a share of GDP (from GDP) to US$ 64.8 million (2.8 percent of GDP) in the 3.7 percent in 2022 to 3.4 percent in 2023). same period. Moreover, official remittances recorded by the central bank (comprising both current transfers and The increase in current transfers and financial inflows investments) increased from US$462 million (21.3 per- helped contain the CAD in 2023. The secondary income cent of GDP) in 2022 to US$531.8 million (22.7 percent account (current transfers) increased from US$503 mil- of GDP) in 2023. Remittances constitute the majority of lion (23.2 percent of GDP) in 2022 to US$610.8 million the secondary income account, and they average 545 per- (26.1 percent of GDP) in 2023. Budget support (official cent of the CAD, i.e., the CAD is sensitive to movements Chapter 1: The State of the Economy 7 GAMBIA | ECONOMIC UPDATE - SPRING 2024 in remittances. With a few commodities and sectors for the balance of payments due to heavy dependence on exports, coupled with the highly seasonal nature of tourism, imports of priority goods. In 2022, the CBG intervened the country depends heavily on remittances to lower the on the forex market by selling around US$139 million to current account deficit that would have been much wider cope with risks related to the availability of commodities otherwise. Remittances have played a substantial role in following the rise in global commodity prices, combined supporting private investment and consumption, their with disruptions to certain cross-border exports, which significant increase over the last years (from 14 percent resulted in a severe forex shortage in the second half of of GDP in 2016) highlights their significant impact on 2022. At end-2022, the high tourism season lessened the economic activity and macroeconomic stability as well forex shortages, and the CBG significantly reduced its forex as households’ welfare in The Gambia. Financial inflows sales, becoming briefly a slight net buyer on the market in increased, driven by development assistance and foreign January 2023. Since March 2023, however, forex shortages direct investment (FDI). Net inflows in the capital account have reemerged, and the CBG has resumed selling forex. increased from US$82.7 million (3.8 percent of GDP) to Between January and end-September 2023, it sold on a net US$159.9 million (6.8 percent of GDP) between 2022 basis around US$35 million, exacerbating forex shortages. and 2023. By contrast, net inflows in the financial account Despite pressures on the forex market, the level of forex remained in negative territory over the same period, con- reserves remains comfortable, and the currency mis- tracting by US$107.6 million (−4.6 percent of GDP) in alignment remains consistent with macroeconomic 2023, almost comparable to 2022 with a contraction of fundamentals. The sale of forex by the CBG to limit the US$101 million (−4.7 percent of GDP), due to the high risks of shortage of essential imported goods and restrict rate of other investment outflows that offset FDI inflows. the fluctuation of the exchange rate is one of the reasons The nominal exchange rate’s depreciation continued explaining the low amount of forex reserves over the last two years compared to 2021. However, although gross alongside a decline in foreign exchange (forex) reserves. reserves declined from 5.4 months of prospective imports The CAD has been financed through FDI, donor support, at end-2022 to 4.9 months at end-2023, they remain at a external government borrowing, and partially international comfortable level. In addition, the external sector assess- reserves, the latter of which continued to decline for a ment revealed that the CAD at 4.2 percent of GDP, after second consecutive year as months of next year’s imports adjusting for cyclical and transitory factors related to the although they were moderately higher in amount, totaling COVID-19 pandemic, was 0.6 percent of GDP below 4.9 months of imports (US$474.3 million) in 2023 the estimated norm, implying real effective exchange rate from 5.4 months of imports (US$454.7 million) in overvaluation of 3.7 percent in 2022, which was broadly 2022 and 7.7 months of imports (US$530.4 million) in in line with the level implied by medium-term funda- 2021. The Central Bank of The Gambia’s (CBG) reference mentals and desirable policies (IMF, 2023). The CAD in exchange rate depreciated by 10.5 percent on average, year- 2023 stayed similar to the level of 2022, likely remaining on-year, in 2023. The wedge with the parallel exchange rate consistent with macroeconomic fundamentals, i.e., with stood at around 6.8 percent in the same year, reflecting the an overvaluation of the real effective exchange rate of less CBG attempts to restrict the fluctuations of the official than 5 percent7. exchange rate. The continued depreciation of the currency and persistent pressures on the foreign exchange market Policy improvements are underway to address uncertain- are cause for concern, given the pass-through of imported ties and smooth the forex market. While The Gambia’s de prices into the domestic economy and the pressures on jure exchange rate regime is a free floating since 1986 and 7 Recent research on the exchange rate misalignments has set the following classification based on country’s misalignments: above −10% to −15% and more as a strong undervaluation, -5% to -10% as a moderate undervaluation, above +10% to +15% and more as a strong overvaluation, +5% to +10% as a moderate overvaluation, and between −5% and 5% as in line with macroeconomic fundamentals (Grekou 2019). 8 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Table 2. Balance of payments, 2020–2023 In USD Million In Percent of GDP 2020 2021 2022 2023 2020 2021 2022 2023 1. Current account (68.2) (86.8) (91.2) (97.1) 23.8 24.3 24.2 24.2 A. Goods (net) (503.3) (574.6) (642.7) (756.5) 227.7 228.7 229.6 232.3 Exports, f.o.b. 71.2 32.4 51.3 98.7 3.9 1.6 2.4 4.2 Imports, f.o.b. (574.5) (607.0) (694.0) (855.2) −31.7 −30.3 −32.0 −36.5 B. Services (net) (29.0) (10.6) 79.9 80.1 21.6 20.5 3.7 3.4 Services exports 81.7 109.1 215.4 239.8 4.5 5.5 9.9 10.2 of which: Travel income 46.6 58.0 154.0 159.7 2.6 2.9 7.1 7.5 Services imports (110.6) (119.7) (135.5) (160.4) −6.1 −6.0 −6.2 −6.8 C. Income (net) (31.1) (50.9) (31.4) (31.7) 21.7 22.5 21.4 21.4 Income credits 2.4 4.0 13.2 13.1 0.1 0.2 0.6 0.6 Income debits (33.5) (54.9) (44.6) (44.8) −1.8 −2.7 −2.1 −1.9 D. Current transfers 495.2 549.3 503.0 610.8 27.3 27.4 23.2 26.1 Official transfers 82.7 9.7 40.0 64.8 4.6 0.5 1.8 2.8 Remittances 400.2 527.0 462.0 531.8 22.1 26.3 21.3 22.7 Other transfers 12.3 12.6 1.0 14.2 0.7 0.6 0.0 0.6 Capital and financial account 2.  132.0 244.0 (18.3) 52.3 7.3 12.2 20.8 2.7 E. Capital account 66.9 53.6 82.7 159.9 3.7 2.7 3.8 6.8 F. Financial accounts 65.1 190.4 (101.0) (107.6) 3.6 9.5 24.7 24.6 Foreign direct investment 66.8 99.3 99.7 102.4 3.7 5.0 4.6 4.4 Portfolio investment 3.8 3.9 4.1 4.5 0.2 0.2 0.2 0.2 Other investment (5.5) 87.2 (204.8) (214.5) −0.3 4.4 −9.4 −9.2 3. Errors and omissions 30.9 (35.0) — — 1.7 21.7 0.0 0.0 Overall balance (1 1 2 1 3) 94.7 122.2 (109.5) (45.0) 5.2 6.1 25.0 21.9 Memorandum items International reserves in US$ 352.1 530.4 454.7 474.3 million International reserves in months 5.8 7.7 5.4 4.9 of imports Nominal GDP (US$ million) 1,814 2,001 2,170 2,339 Source: CBG; IMF; World Bank staff calculations. Chapter 1: The State of the Economy 9 GAMBIA | ECONOMIC UPDATE - SPRING 2024 in accordance with Section 64 of the CBG Act 2018, its CBG’s medium-term target of 5 percent (Figure 11). Infla- facto exchange rate regime is a managed float. The CBG tion remains high at the start of 2024, reaching 16.2 in Act 2018 provides that in the event of a foreign exchange January 2024 (year-on-year) from 13.1 percent in January crisis or misconduct by market participants, the CBG may 2023 (year-on-year). Recent empirical analysis8 highlights temporarily restrict the purchase, sale, holding or transfer of the decisive long-term role of the global price of com- foreign exchange. Any restrictions shall be for an initial period modities (food, oil, and fertilizer), the exchange rate, of not more than twelve months and may be extended for and the domestic output gap. The short-run dynamics another period not exceeding twelve months. It is within the of inflation point to the roles of global food prices and the framework of these provisions that in addition to the sale of second-round effects of changes in food prices and the currencies to attenuate pressures on the forex market, the output gap (Nachega et al. 2023). The Gambia is a net CBG introduced in late April 2023 a requirement for com- importer of essential foods and energy. The weight of mercial banks, forex bureaus, and money transfer agencies to food items in The Gambia’s consumer price index basket comply with its reference exchange rate in their transactions, is around 50 percent, leading to co-movement between which was perceived as an attempt to control the parallel global food inflation and headline inflation. The trans- exchange rate. As a result, the Association of Licensed Forex mission of movements in international energy prices into Bureaus, which has at least 119 forex bureaus approved domestic prices is somewhat complex, as the price of fuel by the CBG, threatened in early May 2023 to close all its products (and transport services) is highly administered in forex bureaus, before finally reaching an agreement with the country. The co-movement between currency depre- the CBG. It argued that forex bureaus could not sustain ciation and domestic inflation, which is also impacted by the losses on their operations due to the implementation the high dependence on imports, appears stronger. The of the CBG reference rate. This type of currency control co-movement between headline inflation and the domestic is criticized for its potential negative impact on the forex output gap captures the impact of fiscal and monetary market, such as routing remittances through informal chan- policies or remittances, a key determinant of private con- nels at the expense of the official market. In December 2023, sumption and investment in the country. In addition, the CBG has published a robust forex policy reaffirming inflation is highly persistent, with the coefficients of the the commitment to market-determined exchange rates and first and fourth lags of inflation highly significant, suggest- ensuring the smooth functioning of the forex market. Sub- ing the existence of inertial factors. The increase in utility sequently, the exchange rate depreciated by about 5 percent tariffs also fueled inflation in 2023, by 41 percent (per between end-December 2023 and mid-February 2024 and kilowatt) and 28 percent (per cub metric) for electricity the wedge with the parallel market rate has broadly closed. and water tariffs, respectively, after remaining stable for These developments, combined with the large number of more than 5 years. tourist arrivals, have eased pressures on the forex market. While the CBG was a net forex seller in 2023, no interven- The CBG further tightened its monetary policy stance tions took place in December 2023 under the new policy. to tackle inflation, but its effectiveness has proved rel- atively limited. To curb rising inflationary pressures, the Monetary policy has been tightening to address monetary policy rate (MPR) was increased at each mone- mounting inflationary pressures tary policy committee (MPC) meeting, from 10 percent in April 2022 to 17 percent December 2023 (Figure 12). External factors play a key role in inflation affecting The CBG has maintained the reserve requirement for The Gambia. As mentioned early, inflation pursued its commercial banks steady at 13 percent and the standing uptrend throughout 2023 to reach even higher levels in deposit facility interest rate at 3 percent. The standing decades, averaging 16.9 percent in 2023 – far above the lending facility was increased to from 11 to 18 percent 8 IMF Article IV – Staff report No EBS/23/153. 10 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 11. Food and energy prices have been Figure 12. . . . leading to further tightening the main driver of inflation . . . of the monetary policy stance. Inflation and components (yoy, 12 months Monetary Policy Rate average percentage change) 40 20 19 35 17 30 25 15 20 10 15 13 10 11 5 0 0 9 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 7 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Headline inflation (rhs) Energy inflation Food inflation Source: World Bank Staff using GBoS data. Source: World Bank Staff using CBG data. (MPR plus 1 ppt point) between April 2022 and December Growth in monetary aggregates continued to decel- 2023. As bank excess reserves increased in Q3 2023, the erate, reflecting the impact of global shocks on the MPC at a meeting in late November announced a plan to balance of payments and the banking system’s net issue central bank bills to mop up excess liquidity. How- foreign assets. Annual growth in broad money decel- ever, the effect of monetary tightening has been limited due erated sharply from 7.1 percent, year-on-year, at end- to: (i) inflation being essentially imported; (ii) monetary December 2022 to 2.5  percent in the same period in policy having been slow to react to the rise in domestic 2023. This marks a second consecutive annual decline (from inflation, with the CBG keeping the policy rate at 19.5 percent, year-on-year, in 2021) and reflects a continu- 10 percent—a level reached in March 2020 during the ing contraction in net foreign assets (NFA) of both the CBG deflationary shock of the COVID-19 pandemic—until and commercial banks. Following 19.5 percent growth May 31, 2022, when the MPC raised the policy rate to in 2021, NFA contracted by 8.9 percent in 2022, before 11 percent; and (iii) the magnitude of the adjustments contracting by 21 percent in 2023. The decline in NFA in in the policy rate being limited, such that the policy rate the banking system reflects the impact of adverse external in real terms fell into negative territory in Q2 2022. From shocks on the balance of payments. Growth in the banking June 2022 to June 2023, the real policy rate was, on system’s net domestic assets (NDA) remained the main source average, −0.9 percent, reflecting a still very accommo- of liquidity despite a moderate deceleration. NDA grew by dating monetary policy. An analysis of inflation drivers 17.5 percent in 2023, down from 20.7 percent in 2022 reveals a negative and statistically significant correlation (Figure 13), supported by increased government and private between inflation on the one hand and the combined sector borrowing (16 percent of increase, respectively), despite effect of the rate of change of the policy rate and its square the CBG’s continued monetary policy tightening. On the on the other hand, suggesting that monetary policy has liability side of the CBG’s balance sheet, the sharp deceler- the potential to tame inflation in the short run provided ation in money supply growth reflected an even greater con- that the monetary policy rate is adjusted rapidly and boldly traction in reserve money than in 2022 (Figure 14), despite (Nachega et al. 2023). 9.5 percent growth in commercial banks’ reserves. Chapter 1: The State of the Economy 11 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 13. In 2023, NFA contracted Figure 14. . . . and the money supply continued further . . . to fall NDA and NFA, percentage change M2 and Reserve Money 70.0 40.0 60.0 50.0 30.0 40.0 30.0 20.0 20.0 10.0 10.0 0.0 –10.0 0.0 –20.0 –30.0 –10.0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 NFA NDA M2 Reserve Money Source: World Bank Staff using CBG data. Source: World Bank Staff using CBG data. Public and private sector borrowing slowed but remained yield on government short-term securities rose from high despite further monetary tightening. Credit expan- 2.2 percent in May 2022 to 11.3 percent in May 2023, sion to the private sector registered annual growth of before dropping to 8.8 percent in October 2023 (Fig- 16 percent in 2023, lower than 25 percent recorded in ure 18). Increased liquidity in the banking system drives the previous year. Two factors can help explain the high, the fall in interest rates. albeit declining, level of private sector borrowing: (i) the distribution of credit across sectors; and (ii) banks’ reluc- The banking system remains stable, with robust tance to fully pass on the effects of monetary tightening financial soundness indicators, but is highly exposed because of the already high cost of private sector credit. to government borrowing. As of December 2023, the On the one hand, consumer credit is not affected by mon- risk-weighted capital adequacy ratio was 28.7 percent, etary tightening, unlike other sectors such as agriculture, well above the regulatory requirement of 10 percent. The construction, distributive trade, and tourism, for which liquidity ratio of 82.3 percent was also above the pruden- credit drops significantly after tightening (Momodou tial requirement of 30 percent. The banking sector’s asset 2021). The Gambia’s banks focus on financing consumer quality continued to improve, with non-performing loans goods and tend not to engage in investment financing (NPLs) falling from 5.2 percent of gross loans in December (Bukhari 2005), which could explain the rise in private 2021 to 4.6 percent in December 2022, 3.3 percent in borrowing despite monetary tightening. On the other December 2023. The results of stress tests of the banking hand, banks may have been reluctant to fully pass on the sector done by the CBG indicate that it remains resilient, higher policy rate to lending rates, which were already well-capitalized, and liquid enough to absorb future shocks. high, with a maximum of 19 percent and a minimum of The sector is also profitable, with return on assets (ROA) 10 percent. The minimum rate was increased by 1 ppt in and return on equity (ROE) reaching 2.6 percent and August 2022 for some sectors such as retail trade, manu- 23.1 percent, respectively, as of June 2023 (Figure 17). facturing, and construction. Interest rates on government However, the banking sector remains significantly exposed securities rose following the monetary tightening. How- to government indebtedness. As in previous years, banks’ ever, they declined in late 2023, reversing the rising trend assets are increasingly held in government debt, with observed at the beginning of the year. The weighted average claims on the government reaching 58.8 percent of banks’ 12 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 15. Banks’ assets are increasingly Figure 16. The interest rate spread remains dominated by government debt high, although it has been declining Claims on government and the private sector as 25.0 share of banks’ domestic asset 80 20.0 60 15.0 40 10.0 20 5.0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023- June 0.0 2017 2018 2019 2020 2021 2022-June Claims on the private sector Claims on government, net Lending interest rate Saving interest rate Source: World Bank Staff using CBG data. Source: World Bank Staff using CBG data. Figure 18. The cost of government domestic Figure 17. The financial sector remains sound borrowing has increased Financial soundness indicators, percentage Government securities yiels, percentage 40 8 20 30 6 15 10 20 4 5 10 2 0 0 0 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 2019 2020 2021 2022 2023-June Risk weighed capital adequation ratio (CAR) (lhs) Return on equity (ROE) (lhs) 3 months treasury bills rate, monthly average Non performaning loans (NPLs) (rhs) 6 months treasury bills rate, monthly average Return on assets (ROA) (rhs) 12 months treasury bills rate, monthly average Source: World Bank Staff using CBG data. Source: World Bank Staff using CBG data. domestic assets as of June 2023, higher than 28.9 percent low-interest rates on savings, which likely disincentivized for claims on the private sector (Figure 15). Although savings mobilization (Figure 16). Therefore, The Gambia’s private sector credit increased by 16 percent in 2023, it financial sector is not fulfilling its role of financing the continues to be crowded out by heightened government economy adequately (Bukhari 2005). In addition, the borrowing. The cost of private sector credit remains high, large exposure of banks to the government and the heavy with a wide interest rate spread above 10 percent and dependence of their income on government securities Chapter 1: The State of the Economy 13 GAMBIA | ECONOMIC UPDATE - SPRING 2024 could have an impact on the stability of the banking Figure 19. The fiscal deficit widened in 2022 system in case of a rapid fall in rates on government Fiscal stance (ppercent of GDP) securities, as highlighted in The Gambia Financial Sector Assessment Program of June 2022. This adds to other vul- 30.0 10.0 nerabilities in the banking sector, such as: (i) the systemic 25.0 risk posed by the high concentration of deposits in funding portfolios; (ii) liquidity risks, as government securities 20.0 are not particularly liquid due to the lack of a secondary 15.0 5.0 market; and (iii) longstanding structural issues that hinder bank financial intermediation, including information 10.0 asymmetries, weak contract enforcement, and foreclosure 5.0 issues (World Bank 2022b). 0.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 The fiscal deficit decreased while remaining high, and the country continues to face fiscal Total revenue and grants Total expenditures vulnerabilities and high public debt Fiscal deficit (rhs) The fiscal deficit decreased while remaining high at Source: MOFEA; IMF; World Bank staff. 4.1 percent of GDP in 2023 as increased tax collec- tion and higher levels of grants failed to fully offset the rising expenditure. Supported by the continued eco- GDP in 2023 and 9.5 percent of GDP on annual average nomic recovery and implementation of revenue-boosting 3 years before. measures, total revenue rose from 17.7 percent of GDP in 2022 to 20.6 percent of GDP in 2023. Domestic revenue Tax collection increased with the help of several reached 12.5 percent of GDP in 2023, up from 12.1 per- revenue-boosting measures. Tax revenue increased from cent in 2022, driven by increased tax revenue (Table 1), as 9.3 percent of GDP in 2022 to 9.7 percent in 2023, driven a result of new administrative measures and strengthened by higher tax collection on goods and services and inter- collection efforts. Meanwhile, grants increased by 2.5 ppts national trade (reflecting increased economic activity and to 8.1 percent of GDP, driven by budget and project elevated imports). It also increased due to the adoption of support. Total expenditure increased from 22.7 percent several revenue-boosting measures, including a series of of GDP in 2022 to 24.7 percent in 2023, driven pri- customs reforms aimed at improving the tax administration marily by infrastructure projects related to the preparation and process, notably the rollout of Asycuda World and the of the OIC conference. Despite the rise in total spending, implementation of the Single Window platform, e-tracking, a faster increase in revenues helped reduce the fiscal deficit, and the digital weighbridge, along with the creation of from 5.0 percent of GDP in 2022 to 4.1 percent in a rent tax office to effectively collect rental income tax and 2023—below the ECOWAS average of 5.1 percent of the completion of the taxpayer update for larger taxpayers. GDP in 20239 (Figure 19). However, the fiscal deficit While revenues and overall fiscal outturn remain dependent excluding grants remains high, reaching 12.2 percent of on grants, progress made in domestic revenue mobilization 9 ECOWAS is comprised of countries with deficit of: (i) around 3 percent of GDP (Cabo Verde, The Gambia, Guinea, and Liberia); (ii) around 5 percent of GDP (Benin, Cote d’Ivoire, Mali, Niger, Nigeria, and Senegal); or (iii) above 5 percent of GDP (Sierra Leone, Togo, Ghana, Guinea Bissau, and Burkina Faso) (IMF 2023; World Bank 2023a). 14 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH thanks to ambitious reforms, should ground fiscal con- Nontax revenue was stable in 2023, supported by solidation10. A revenue mobilization strategy is still under revenue-boosting measures. Nontax revenue stood at preparation, which should be aligned with the priorities 2.7 percent of GDP in 2023, similar to 2.8 percent in of the national development plan (NDP 2023–2027) and 2022. The relatively unchanged level of nontax revenue encompass the reforms underway in revenue collection. was due to several measures supporting non-tax revenue The government has abolished large portions of the collection that targeted, for example, bridge tolls, airport country’s fuel subsidies, but challenges persist in duty concession fees, and SOE dividends. A central bank divi- exemptions, causing a notable increase in revenue loss dend of 0.6 percent of GDP also contributed to nontax in 2023. Fiscal measures adopted in 2022 to mitigate the revenue. impact of higher international energy, fertilizer, and food prices on Gambians included reducing the passthrough Current spending increased moderately while exter- of rising international oil prices on the domestic market, nally financed capital spending accelerated to com- implementing a partial price subsidization to offset the plete infrastructure projects. While current spending rising input cost of fertilizer, and removing taxes on food increased nominally in 2023, it declined as a share of GDP products. The total fiscal cost of price subsidies averaged from 14.3 percent in 2022 to 13.0 percent in 2023. The 2.2 percent of GDP in 2022, of which the cost of fertilizer nominal increase was due to a large increase in allowance and food items represented 1.4 percent and 0.3 percent payments (rising by 0.1 ppt to 4.8 percent of GDP), of GDP, respectively. In 2023, while remaining concerned including payments to diplomatic staff and their move- to attenuate the transmission of international price shocks ments, and increased interest payments because of tighter to the national economy, the government minimized fuel monetary policy (almost unchanged to 2.1 percent of GDP). subsidies by incrementally adjusting domestic pump Capital expenditure increased by 3.4ppts to 11.8 percent prices. Fuel subsidies averaged 0.4 percent of GDP from of GDP in 2023, mainly financed by external resources, January to October 2023, while fertilizer subsidies were representing 84 percent of financing in 2023 (increase of kept at almost the same level as in 2022 (0.5 percent of 11 percentage points compared to the average of 4 pre- GDP by end-October 2023). However, challenges persist vious years previous years). Capital spending was mainly in duty exemptions, causing a notable increase in revenue driven by investment spending to accelerate the comple- loss reaching GMD 3.09 billion, or 2.4 percent of GDP, tion of infrastructure projects related to the preparation in the first nine months of 2023, up from 1.7 percent of the OIC conference. of GDP over the entire year in 2022. This was largely due to duty waivers granted by the government for the The fiscal deficit was primarily financed through implementation of ongoing road works as well as agri- external borrowing. In 2023, net external borrowing culture, energy, and education projects. To ensure fiscal accounted for 81 percent of total deficit net financing and improvement, the authorities need to accelerate reforms 3.4 percent of GDP, increasing sharply from 33 percent that target fertilizer, fuel, and food subsidies. (1.6 percent of GDP) in 2022. The share of domestic 10 The Gambia Revenue Authority (GRA) exceeded its 2023 target (+4 percent), collecting GMD 15.7 billion, or 23 percent more than in 2022. This performance is attributed to a series of customs reforms aimed at improving tax administration and process, as highlighted above. The government set a more ambitious target of GMD 19 billion for 2024 (+21 percent compared to 2023), emphasizing further reforms and digitization to broaden the tax base, facilitate trade and enhance compliance. These include the implementation of digital excise stamps for excisable products, the introduction of fuel marking, the implementation of the revenue assurance system for the telecoms sector, and the introduction of a web-based Integrated Tax Administration System (ITAS) to automate the national tax collection system, as well as the commissioning of a tax court as part of the government’s efforts to foster the tax environment. During the first quarter of 2024, The Gambia Revenue Authority (GRA) collected GMD 5.2 billion (27.4 percent of the 2024 target) exceeding by 49 percent and 74 percent revenue collected in 2023Q1 and 2022Q1, respectively. Chapter 1: The State of the Economy 15 GAMBIA | ECONOMIC UPDATE - SPRING 2024 financing fell from 67 percent (3.2 percent of GDP) in Figure 20. Public debt remains high 2022 to 19 percent (0.8 percent of GDP) in 2023, reflect- Public debt (Percent of GDP) ing efforts to contain the rise in domestic debt. To reduce the cost of domestic financing and refinancing risk, the 100 government has focused on issuing longer-dated securi- ties, with T-bonds representing 50.6 percent of domestic 80 debt by September 2023, up from 49.7 percent in 2022 and 45.3 percent in 2021. External financing included 60 3 concessional loans and International Monetary Fund (IMF) Extend Credit Facility resources. However, higher 40 reliance on domestic borrowing crowds out private sector credit, as most bank credit is made up of claims on the 20 government. The public debt stock continues to be high but declined 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 due to lower net domestic borrowing. Total debt fell from 83.4 percent of GDP in 2022 to a still high of Domestic debt External debt Total debt 76.7 percent in 2023 (Figure 20). Between 2022 and 2023, external debt fell from 51.8 percent to 47.7 per- Source: MOFEA; IMF; World Bank staff. cent of GDP, while domestic debt fell from 31.6 percent to 29.0 percent of GDP. As of September 2023, total external outstanding debt reached US$1,125 million, debt-to-exports, debt-service-to-exports ratio, and exter- of which 67 percent was owed to multilateral creditors, nal debt service-to-revenue ratio) breach the threshold 32 percent to bilateral creditors, and 2 percent to private creditors. Over the same period, outstanding public for varying periods within the forecast horizon under the domestic debt reached US$683 million, which was held baseline. These breaches reflect continued weaknesses in in T-bonds (51 percent), T-bills (45 percent), and SAS projected exports in the early years and rising debt ser- bills, or Islamic bills (4 percent). Public debt is domi- vice commitments in the medium term, with the end nated by external debt, which accounted for 62 percent of debt-service deferrals negotiated with some creditors of the total stock of public debt in 2022 and 2023. The expected in 2024. The present value of the overall public Gambia’s public debt level remains above the ECOWAS debt-to-GDP ratio is on a downward sloping path. It average of 50.4 percent of GDP in 2023.11 drops below its benchmark of 55 percent by 2025, indi- cating that the public debt outlook remains sustainable. The country remains at high risk of debt distress, The sustainability of the country’s public debt is due to but debt is deemed sustainable. The joint IMF-World factors such as the country’s fiscal consolidation efforts, Bank Debt Sustainability Assessment (DSA) published in its reliance on grants and concessional loans, and support December 2023 shows that The Gambia is at high risk from development partners. However, predicting public of external and overall public debt distress. Three out of debt sustainability based on grants shows that underlying four external debt indicators (present value of external tensions could remain high. 11 ECOWAS is comprised of countries with public debt levels: (i) below 50 percent of GDP (Guinea and Nigeria); (ii) around 50–60 percent of GDP (Benin, Burkina Faso, Cote d’Ivoire, Liberia, Mali, Niger, and Nigeria); or (iii) above 60 percent of GDP (Cabo Verde, Gambia, Ghana, Guinea Bissau, Sierra Leone, and Togo) (IMF 2023; World Bank 2023). 16 Chapter 1: The State of the Economy Table 3: Summary of fiscal operations, 2020–2023 Dalasi (million) Percent of GDP 2020 2021 2022 2023 2020 2021 2022 2023 Total revenue and grants 21,584 17,587 21,287 29,415 23.1 16.8 17.7 20.6 Domestic revenue 13,677 14,939 14,497 17,843 14.7 14.3 12.1 12.5 Tax revenue 10,326 10,771 11,159 13,916 11.1 10.3 9.3 9.7 Tax on goods and services 4,934 4,776 4,667 6,145 5.3 4.6 3.9 4.3 Direct revenue 2,803 3,254 3,901 4,311 3.0 3.1 3.2 3.0 Tax on international trade 2,588 2,803 2,596 3,460 2.8 2.7 2.2 2.4 Non-tax revenue 3,351 4,168 3,338 3,927 3.6 4.0 2.8 2.8 Grants 7,907 2,648 6,790 11,572 8.5 2.5 5.6 8.1 Budget support 4,604 722 2,300 4,082 4.9 0.7 1.9 2.9 Project 3,303 1,926 4,490 7,490 3.5 1.8 3.7 5.2 Total expenditures 23,477 22,676 27,354 35,325 25.2 21.6 22.7 24.7 Current 16,877 16,139 17,214 18,521 18.1 15.4 14.3 13.0 Wages and compensation 4,055 4,593 5,627 6,805 4.3 4.4 4.7 4.8 Goods and services 3,850 3,985 4,057 3,902 4.1 3.8 3.4 2.7 Subsidies and transfers 6,011 4,381 4,913 4,790 6.4 4.2 4.1 3.4 Interest payments 2,967 3,179 2,617 3,024 3.2 3.0 2.2 2.1 External 548 709 553 678 0.6 0.7 0.5 0.5 Domestic 2,419 2,470 2,064 2,346 2.6 2.4 1.7 1.6 Capital 6,600 6,537 10,140 16,804 7.1 6.2 8.4 11.8 Externally financed 4,837 3,363 7,859 14,143 5.2 3.2 6.5 9.9 Gambia locally financed 1,763 3,174 2,281 2,661 1.9 3.0 1.9 1.9 Fiscal balance including grants 21,893 25,089 26,067 25,910 (2.0) (4.9) (5.0) (4.1) Fiscal balance excluding grants 29,800 27,737 212,857 217,482 (10.5) (7.4) (10.7) (12.2) Deficit financing 2,030 5,027 6,062 5,988 2.2 4.8 5.0 2.6 Net acquisition of financial assets −180 0 165 0 (0.2) — 0.1 0.0 Net incurrence of liabilities 1,595 5,092 5,828 5,988 1.7 4.9 4.8 2.6 Domestic 741 4,553 3,904 1,160 0.8 4.3 3.2 1.4 External 854 539 1,924 4,828 0.9 0.5 1.6 1.2 Statistical discrepancy 409 -65 69 78 0.4 (0.1) 0.1 0 Memorandum items: Nominal GDP (million) 93,330 104,812 120,240 142,968 Source: MOFEA; IMF; World Bank staff calculations. Chapter 1: The State of the Economy 17 GAMBIA | ECONOMIC UPDATE - SPRING 2024 1.2.  Outlook, risk and opportunities sector will be boosted by ongoing large infrastructure projects (urban and rural road construction, port expansion, energy The medium-term outlook is positive with a projects, etc.), sustained public and private construction, solid recovery driven by a commitment for improvement in the business environment (bolstered by the macro-fiscal stability and the implementation of vast judicial reform agenda, updated regulations to improve RF-NDP 2023–2027 and rebound in all sectors access to finance, upcoming digitalization of the business registration process, etc.), and the continuation of strong The macroeconomic outlook foresees consolidation of policies started after the democratic transition (targeting the recovery in the medium term. Real GDP growth is SOEs, governance, etc.). The issuance of regulations to projected to strengthen to around 5.6 percent in 2024–26 facilitate private sector participation in the energy sector (3.2 in percent per capita terms), driven by increased and the penetration of renewable energies should help activity across the economy (Figure 22 and Figure 23) boost energy production. The subsectors that are expected The agriculture sector is expected to continue to grow, to drive growth in industry are mainly: (i) construction, assuming favorable rainfall, alongside the continuation (ii) mining and quarrying, and (ii) electricity, gas, steam, of fertilizer subsidies and seeds improvement as well and air conditioning. as increased investment. More investment is expected Inflation pressures are predicted to persist in 2024, in projects supported by international partners, and The before gradually easing to converge to the CBG’s target Gambia aims to complete the construction of storage in the medium term. Inflation is projected to remain in facilities to reduce loss from spoilage and the new Gambia double digits in 2024, reflecting persistently high global Ground Corporation (GGC) factory in 2024 to increase supply conditions. In the context of restrictive monetary capacity. The agriculture sector should also be revitalized policy and easing global supply conditions, price pressures by the issuance of regulations aimed at reducing aflatoxin are expected to ease in the medium term, and inflation is exposure in the groundnut, maize, and rice value chains projected to decrease to 6.6 percent by 2026, close to the and reinforcing compliance with safety standards by oper- CBG’s target of 5 percent (Figure 24). ators in the food sector, all of which will boost agricultural exports. All agricultural subsectors are expected to grow, The fiscal deficit is expected to narrow thanks to fis- except for forestry and logging. cal consolidation efforts. The fiscal deficit is projected Services are expected to continue to grow, assuming to average 1.4 percent of GDP in 2024–26 (Figure 25), higher tourist arrivals. Tourism activity is set to grow supported by domestic revenue mobilization efforts and further in the medium term, thanks to the effects of the spending measures, which are also expected to lower the OIC conference scheduled to take place in The Gambia fiscal deficit excluding grants to 7.1 pent of GDP in 2026. in 2024 and the accelerated implementation of a World Revenue measures will concentrate on the digitization Bank-supported investment project. Induced by contin- of the tax administration and customs (deployment of ued tourism recovery, most service subsectors are expected ASYCUDA World and an integrated tax administration to grow, with higher growth rates in: (i) accommodation system, the latter of which is under preparation); imple- and food service activities; (ii) financial and insurance mentation of digital excise stamps for excisable products; activities; (iii) wholesale and retail trade; (iv) real estate activ- introduction of fuel marking; adoption of reforms to ities; and (v) information and communication. broaden the tax base (streamlining tax exemption and cleansing and maintaining accurate tax ledgers for large A recovery in private consumption and investment, taxpayers) and improve the tax environment; consolida- supported by more robust remittances and resilient tion of toll bridge collection; and adjustment of domestic public consumption and investment, is projected to fuel prices to reflect passthrough from international prices. support growth in the industry sector. The industry Furthermore, efforts are underway to collect additional 18 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 21. Selected public debt indicators under baseline and alternative scenarios, 2023–2033 PV of debt-to GDP ratio PV of debt-to-exports ratio 60 800 700 50 600 40 500 30 400 300 20 200 10 100 Most extreme shock is Combination Most extreme shock is Exports 0 0 2023 2025 2027 2029 2031 2033 2023 2025 2027 2029 2031 2033 Debt service-to-exports ratio Debt service-to-revenue 60 35 50 30 25 40 20 30 15 20 10 10 5 Most extreme shock is Exports Most extreme shock is 0 0 2023 2025 2027 2029 2031 2033 2023 2025 2027 2029 2031 2033 Source: Joint World Bank-IMF DSA December 2023. revenues, including through the privatization and the sale Public debt remains sustainable despite high risk of of stolen assets under the Janneh Commission.12 Spending external and overall debt distress. Public debt is projected measures include the completion of major infrastructure to average 68 percent of GDP in 2024–26, supported by projects related to the OIC conference; phasing out of economic growth and fiscal consolidation (Figure 27). spending related to Russia’s invasion and the COVID-19 However, The Gambia is expected to remain at high risk pandemic; and expansion of the investment prioritization of debt distress, although debt is deemed sustainable. The and selection tool by the Gambia Strategic Review Board expiration of the debt-service deferrals negotiated with to domestically financed and PPP projects, with the aim some creditors in 2024 will potentially lead to higher debt to enhance efficiency and contain spending. Furthermore, service payments due in those years and tighter liquidity. over the long term, the authorities intend to overhaul the The resumption of external debt servicing obligations is SOE sector to reduce their dependence on the budget expected to absorb significant resources from much-needed and turn them into income-generating assets. Finally, the social and infrastructure expenditures. The December 2023 authorities plan to expand the social registry and use it DSA shows that The Gambia remains at high risk of debt to design and roll out targeted support to the vulnerable distress, in terms of both external and overall public debt. population. Temporary breaches of the indicative thresholds for the 12 The Janneh Commission was initiated by President Adama Barrow in July 2017 and investigated the financial and other related activities of certain public bodies, enterprises, and offices in terms of their dealings with former President Yahya Jammeh and his close associates. Chapter 1: The State of the Economy 19 Figure 22. Services will continue to drive Figure 23. Private-sector demand will continue growth to support growth Supply -side contribution to growth, Demand-side contribution to growth, percentage change percentage change 8.0 8.0 6.0 4.0 6.0 2.0 0.0 4.0 –2.0 –4.0 2.0 –6.0 –8.0 0.0 –10.0 –12.0 –2.0 –14.0 –16.0 –4.0 2019 2020 2021 2022 2023 2024 2025 2026 2019 2020 2021 2022 2023 2024 2025 2026 Agriculture Industry Private consumption Public consumption Services Net taxes Private investment Public investment Real GDP growth Net exports Real GDP growth Figure 24. Inflation should gradually ease Figure 25. The CAD should remain under toward the CBG’s target beginning in 2026 control in the medium term Consummer price index Current Account Balance (percent of GDP) (yoy, average percentage change) 2020 2021 2022 2023 2024 2025 2026 0.0 18.0 –5.0 16.0 –1.0 14.0 –1.5 12.0 –2.0 10.0 –2.5 8.0 –3.0 6.0 –3.5 4.0 –4.0 2.0 –4.5 0.0 2020 2021 2022 2023 2024 2025 2026 –5.0 Figure 26. The fiscal deficit expected to narrow, leading to a primary balance surplus in the Figure 27. Public debt levels are expected to medium term decline Fiscal outlook, percent of GDP Public debt, percent of GDP 30.0 3.0 100 2.0 25.0 1.0 80 20.0 0.0 60 –1.0 15.0 –2.0 40 10.0 –3.0 –4.0 20 5.0 –5.0 0.0 –6.0 0 2020 2021 2022 2023 2024 2025 2026 2020 2021 2022 2023 2024 2025 2026 Revenue (LHS) Expenditure (LHS) Domestic debt External debt Fiscal balance (RHS) Primary balance Total public debt Source: World Bank staff; IMF; Gambian authorities. JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH present value (PV) of external debt-to-exports, external debt economic recovery, persistent external shocks related to service-to-exports, and external debt service-to-revenue Russia’s prolonged invasion of Ukraine, regional and global continue. Still, the PV of the overall debt-to-GDP ratio geopolitical tensions, debt vulnerabilities, reemerging forex remains on a downward sloping path and will drop below pressures, weather events, fiscal slippage, and continued its threshold by 2025, indicating that the public debt financial tightening are serious risks to the outlook. outlook remains sustainable (Figure 21). The breaches highlight The Gambia’s limited space for additional bor- Protracted regional and global geopolitical tensions rowing in the near term and emphasize the need to continue cloud medium–term growth prospects. The Gambia to build ample buffers to face the increased debt service depends heavily on imports of essential goods such as food,13 burden that lies ahead. fuel, fertilizer, and medicines. With the prolonged Russia’s invasion of Ukraine14 and the conflict in Gaza, along with Balance-of-payment pressures are expected to persist its subsequent consequences on trade through the red sea, in 2024, but the CAD is projected to improve in the persistent high global commodity prices will continue to medium term. Pressures on the balance of payments and undermine the country’s growth and fiscal and external forex are likely to continue in 2024 due to the fallout from balances, with a persistent high import bill fueling inflation the protracted war in Ukraine and regional and global and putting further pressure on forex reserves and exchange geopolitical tensions related to the uncertainty within rate policy. The Gambia is also dependent on Senegal and ECOWAS and the conflict in Gaza. The CAD is projected ECOWAS for some of its imports and food supplies, with to remain high at 4.4 percent of GDP in 2024, before Senegal and ECOWAS accounting for 6.8 percent and narrowing to an average 2.6 percent in 2025–26, as OIC- 39.6 percent, respectively, of The Gambia’s total imports related investment projects diminish, exports strengthen in 2022 (GBoS 2023). The intra-regional market therefore (especially in tourism and agriculture), and cross-border represents a development opportunity for The Gambia. The exports disruptions dissipate (Figure  25). Growth in region has also become an important source of tourists for remittances is likely to remain moderate due to subdued The Gambia, driving the recovery of the tourism sector after economic growth expected in advanced economies in the the COVID-19 pandemic.15 There is, however, uncertainty near term, which will continue to affect migrants’ incomes. around the political developments within ECOWAS. The The deficit will be financed through capital transfers announced withdrawal of Burkina Faso, Mali, and Niger (development aid), foreign investment, and public-sector from ECOWAS opens a period uncertainty and puts into debt financing. Forex reserves, in months of imports, are question the free movement of people, goods, and services projected to decline in the medium term, due partly to in the region, which could have repercussions on The the expiration of debt service deferrals, but remain at an Gambia’s growth prospects. Furthermore, The Gambia adequate level (around 4 months), supported by disburse- depends on remittances and tourist arrivals from advanced ments from development partners. economies, especially in Europe. Weaker-than-expected growth in Europe due to Russia’s prolonged invasion of Rising regional and domestic risks cloud Ukraine and global geopolitical tensions following the to the outlook conflict in Gaza, persistent inflationary pressures, and tighter financial conditions in international markets could The outlook continues to be clouded by significant undermine the recovery in the tourism sector and keep the downside risks. While the baseline projects a continued level of capital and remittances inflows low. 13 Over 50 percent of the food supply is imported. 14 Wheat imports from Ukraine represented 84 percent of The Gambia’s total wheat imports between 2018 and 2020 (FAO). 15 The recovery of the tourism sector is driven by increased arrivals from non-traditional markets (Nigeria, Senegal, and other African countries with a large Gambian diaspora, as well as to a lesser extent Western countries such as the US and France), representing 63 percent of arrivals. The share of tourists from traditional markets (Scandinavian countries, Germany, Belgium, and Spain) declined from 71 to 37 percent of arrivals between 2019 and 2023. Chapter 1: The State of the Economy 21 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Fiscal risks could materialize in the short to medium Figure 28. Debt service spending is expected to term, weakening fiscal management and macroeconomic outpace social sector spending beginning in 2025 stability. These risks could come from internal and external Debt services payment compared with expenditure sources, worsening the fiscal deficit and public debt. in social sectors Internal fiscal risks include weaker-than-expected growth, 10.0 9.3 pressures to clear SOEs’ contingent liabilities with public 9.0 utilities, and a continued rise in the cost of domestic 7.9 8.0 7.4 debt service. Further increases in inflation and negative 6.8 real interest rate yields would compromise the profitability 7.0 5.8 of the banking sector and overall financial stability. External 6.0 fiscal risks include weaker-than-expected grants; higher 5.0 4.6 4.0 4.1 4.1 4.0 interest rates relative to previous external borrowing options 4.0 that would increase external debt servicing costs; the end of debt services deferral negotiated with some creditors in 3.0 2024; and other external price shocks. The resumption of 2.0 2022 2023 2024 2025 2026 external debt servicing obligations, following the end of the debt-service deferrals negotiated with bilateral credi- Debt service in percent of GDP tors, in 2024, is expected to absorb significant resources Spending in health and education in percent of GDP from much-needed social and infrastructure investment Source: IMF; World Bank staff estimates. expenditure. With the resumption of external debt service obligations, total debt service costs are expected to increase from 6.8 percent of GDP in 2024 to 7.9 percent in 2025 increased from 1.9 percent in May 2022 to 8.4 percent and 9.3 percent in 2026, which is about twice the level of in January 2023 for its 6-month Treasury bill, and from social expenditures expected in 2025 and 2026 (Figure 28).16 2.5 percent in May 2022 to 16.5 percent in May 2023 for Resource scarcity could trigger liquidity pressure and its 12-month Treasury bill. As a result, interest payments new financing needs, but The Gambia has limited space increased from GMD 2.6 billion (2.2 percent of GDP) in for additional borrowing in the near term. Heightened 2022 to GMD 3.0 billion (2.1 percent of GDP) in 2023, domestic government borrowing would further raise of which 75 percent were dedicated to domestic interest banks’ exposure to government debt, heighten the risk of payments. Domestic debt service expenditure reached public insolvency (as the country is at high risk of debt GMD 4.9 billion (3.5 percent of GDP) between January distress), further crowd out private sector credit, and jeop- and November 2023, an increase of 23 percent from ardize macroeconomic stability. GMD 3.9 billion (3.3 percent of GDP) in the same period of the previous year and 14 percent higher than planned Continued tightening of financial conditions poses an in the 2023 budget. The transition phase to higher yields additional threat to the outlook. Following monetary and, consequently, to higher domestic debt service could policy tightening, The Gambia’s Treasury bill yields have continue if inflation is not significantly reigned in, adding to rapidly and significantly risen, increasing fivefold, on already high macro-fiscal and financial risks (e.g., higher average, after a long period of low interest rates. Yields on debt levels and the country’s rating of high risk of debt the country’s 3-month Treasury bill rose from 2.1 percent distress, higher bank exposure to government debt, and in May 2022 to 9.2 percent in May 2023, while yields pressure on reserves). 16 Estimated expenditures for the Ministry of Basic and Secondary Education, Ministry of Health, and Ministry of Higher Education, Research, Science, and Technology in 2025 and 2026 were based on the assumption that they would increase nominally by 10 percent each year compared to 2024 expenditures. 22 Chapter 1: The State of the Economy JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Extreme whether events are a significant threat to the change vulnerability, as they affected over 15,000 individ- country’s growth prospects and long-term poverty uals and destroyed infrastructure and food stock. Most reduction. The Gambia is highly vulnerable to climate of the affected households had low capacity to cope with shocks. Reports of natural disasters increased from 6.3 per- and/or mitigate the impact of these events, increasing their cent in 2015 to 11.8 percent in 2020. Natural disasters risk of sliding back or falling deeper into poverty. have consistently been a key factor responsible for push- ing vulnerable households into poverty and keeping them Nevertheless, there are also upside risks. The main upside poor. The poor, women, and female-headed households risks to the country outlook include: (i) sustained donor are disproportionately affected by climatic shocks, as they support to the National Development Plan 2023–2027, are mostly involved in agriculture and livestock activities, with a program under implementation by the Millennium with limited or no access to protection mechanisms. The Challenge Corporation that supports the work of other floods of July 2022 were illustrative of the country’s climate partners; and (ii) higher-than-expected tourist arrivals. Chapter 1: The State of the Economy 23 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth GAMBIA | ECONOMIC UPDATE - SPRING 2024 2.1.  The Gambia’s economy has been 1994, combined with poor infrastructure and other struc- caught in a low and volatile growth trap tural constraints, all of which have resulted in negative long-term productivity growth. This section provides an analysis of The Gambia’s growth history and its drivers at both the micro and The Gambia’s economic growth is lagging both the macro level. Micro drivers decompose growth into capital, average of SSA and ECOWAS. Real GDP growth aver- labor, and total factor productivity (TFP), while macro aged 3.1 percent in 1990–2022—less than 0.5 percent drivers examine the extent to which growth can be traced to in per capita terms—lower than the SSA and ECOWAS structural factors (e.g., infrastructure, human capital, size average of 3.6 percent and 4.1 percent, respectively (Fig- of government, financial deepening, and trade openness), ure 30 . The growth path also displayed cyclical fluctu- stabilization policies (e.g., inflation and the exchange rate), ations (Figure 31), mainly reflecting frequent droughts and external conditions (e.g., terms of trade and export (World Bank 2019). Growth recovered in 2017–19, commodity prices). averaging 6.1 percent, mainly supported by externally financed public investment to support the democratic Growth in The Gambia has been low and volatile since transition. The Gambia’s per capita income has stagnated, independence in 1965, with a continuous downward barely increasing over the last three decades from US$667 trend decade after decade. Apart from a few years of in 1990 to US$682 in 2022 (constant 2015 US$) (Fig- record growth, which led to an average real GDP growth ure 32). The economy has been caught in a low and vola- rate of 5.7 percent over 1968–1978, economic growth tile growth trap for several decades. sub­sequently declined, falling below 4 percent over the following decades (Figure 29). Over the period 1968–2022, Following its democratic transition, The Gambia annual real GDP growth averaged 3.7 percent. Weak recorded resilient growth amid a sequence of global growth performance was due to the occurrence of droughts, shocks, suggesting that the country can grow faster. economic mismanagement, and weak governance during Thanks to relative improvements in macroeconomic and the 22 years of dictatorship following the coup d’état of fiscal management and stability as well as increased support Figure 29. The stop-start nature of The Gambia’s growth GDP growth in The Gambia (1968–2022) 1968–1978: 1979–1989: 1990–2000: 2001–2011: 2012–2022: 5.7% 3.5% 3.3% 2.5% 3.6% 15.0 10.0 5.0 0.0 –5.0 –10.0 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Source: World Bank. 26 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 30. Between 1992 and 2022, The Gambia’s growth rate was one of the lowest in SSA and ECOWAS Average real GDP growth in SSA: 1992–2022 8.0 7.0 SSA average 6.0 Percent (%) 5.0 4.0 3.0 2.0 1.0 0.0 Zimbabwe Burundi CAR DRC Republic of Congo Gabon Liberia Madagascar Guinea Conakry Lesotho Eswatini Sierra Leone Gambia (The) Mauritania Cameroon Cote d'Ivoire Namibia Togo Mauritius Senegal Kenya Eritrea Niger Angola Nigeria Malawi Zambia Guinea Benin Mali Sudan Tanzania Chad Ghana Burkina Faso Rwanda Cabo Verde Uganda Mozambique Average real GDP growth SSA ECOWAS Source: World Bank. Figure 31. Growth has been moderate and volatile, marked by periods of timid economic Figure 32. The Gambia’s GDP per capita growth and punctuated by deep downturns remains low Actual and potential growth GDP growth (percent), Real GDP per capita (Constant 2015 USD), 1992–2022 2000–2022 10.0 1,600 8.0 1,400 6.0 1,200 4.0 2.0 1,000 0.0 800 –2.0 600 –4.0 –6.0 400 –8.0 200 –10.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Chad Gambia, The Liberia Actual GDP Growth (%) Mali Myanmar Nepal Potential GDP Growth (HP, %) Togo Tanzania Uganda Source: WDI and authors calculations. Source: WDI. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 27 GAMBIA | ECONOMIC UPDATE - SPRING 2024 from development partners following 2017 democratic growth driver, alongside private consumption, but the transition, real annual GDP growth averaged 6.1 per- contribution from net exports remains negative. Gross cent from 2017 to 2019, higher than the SSA average of capital formation increased from 20.3 percent of GDP in 2.6 percent and the ECOWAS average of 5.1 percent. 2015 to 34 percent in 2022, driven by accelerated gov- The Gambia attracted large flows of official development ernment spending on infrastructure programs and private assistance, helping real GDP growth per capita grow by investment in construction activities. Private investment 3.3 percent, on average, per year. In 2020, the COVID-19 and consumption were supported by robust remittance pandemic caused a drastic drop in tourist flows and led to inflows, which rose from US$206 million (14 percent of a sharp growth deceleration, with real GDP growth at just GDP) in 2016 to US$712 million (33 percent of GDP) in 0.6 percent (−2 percent in per capita terms). The economy 2022. FDI inflows remained moderate, averaging 4.9 per- recovered in 2021, with real GDP growth of 5.3 percent cent of GDP over 2017–2022. Since the beginning of (2.7 percent in per capita terms). It has continued its the country’s democratic transition, public investment post-pandemic recovery, despite a moderate slowdown in has been supported by substantial support from devel- global economic growth following the spillovers of Russia’s opment partners, with grants averaging 7.1 percent of invasion of Ukraine, with real GDP growth of 4.9 percent GDP over 2017–2022, higher an average of 2.5 percent (2.4 percent per capita) in 2022. Growth accelerated to of GDP over 2010–2016. This helped economic growth an estimated 5.3 percent in 2023, continuing the post- reach an average of 4.8 percent in 2017–2022, despite pandemic recovery. Over the period 2017–2022, real the sharp deceleration due to the pandemic in 2020. annual GDP growth averaged 4.8 percent (2.2 percent The goods export base is narrow, averaging 5.5 percent in per capita terms). of GDP over 2017–2022, dominated by fish and crusta- ceans, groundnuts, cashews, and oil seeds (GBoS 2020). 2.2.  Weak foundation for structural Services exports are dominated by tourism, which is transformation highly seasonal. The contribution of net exports has been historically negative, with import growth systematically On the demand side, while its historical contribution outstripping export growth (Figure 33). As seen in the was marginal, investment has become a significant previous chapter, dependence on a few commodities Figure 33. Contribution to real GDP growth, 1990–2022 Contribution to real GDP growth, 1990–2022 (percent) 10.0 8.0 6.0 4.0 2.0 0.0 –2.0 –4.0 –6.0 1990–2022 1990–2000 2000–2005 2006–2010 2011–2016 2017–2022 Government consumption Private consumption Government investment Private investment Net exports GDP at market prices Source: Staff estimates based on WDI and GBoS data. 28 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH and sectors for exports, coupled with the highly seasonal been sluggish, reflecting the slow recovery of tourism due nature of tourism, poses risks to economic stability, which to global economic shocks. The tourism sector is a key are only partly mitigated by large amounts of remittances. growth driver, contributing 8.5 percent of GDP directly and 15.5 percent if induced and indirect effects are factored On the supply side, services have become the economy’s in (World Bank 2022a). Over the long term, the services largest sector. Agriculture’s contribution to GDP declined sector has been mainly driven by wholesale trade, repair, from 35 percent in 2010 to 21 percent in 2022. Between accommodation, and food-related services (which are also 2017 and 2022, growth in the agriculture sector aver- related to tourism), accounting for 33 percent of GDP in aged 3.6 percent and was volatile, influenced by climatic 2017–2022 (Figure 35). hazards. The sector contributed a modest 15 percent to growth over this period. The industry remains the smallest All the sectors of the economy face significant con- sector, although its share in the GDP has been increas- straints, hindering their performance. As highlighted ing, reaching 19 percent in 2022, up from 12 percent in above, agricultural productivity has been declining due to 2012. Moreover, between 2017 and 2022, industry con- several constraints related to equipment, finance, input sistently recorded significant growth, averaging 6.3 percent markets, extension services, storage and climate change per year, contributing about one-fifth to growth. Industry and land degradation and scale (World Bank 2023d). is mainly driven by the construction subsector, averaging The small share of industry in GDP is due to a lack of 67 percent of the industry sector. Services represent investment in the sector, which is hampered by limited a relatively large share of total output, accounting for access to finance, poor access to and unreliable electricity, 52 percent of GDP in 2022 and representing 54 ppts and several supply-side constraints. Although services of the 4.8 percent growth recorded in 2017–2022 (Fig- remain the largest sector in the economy, the share of ser- ure 34). More recently, growth in the services sector has vices in GDP has declined since its peak of 60 percent of Figure 34. Services continue to be the main Figure 35. . . . especially services related to growth driver trade, repair, accommodation, and food Sectors’ contribution to real GDP growth, 1990–2022 Services contribution to GDP, 2004–2022 (percent) (percent) 60 60 10.0 8.0 55 6.0 40 4.0 50 2.0 20 0.0 45 –2.0 –4.0 0 40 –6.0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 –8.0 –10.0 Other services 1990–2022 1990–2000 2000–2005 2006–2010 2011–2016 2017–2022 Public administration and defence Financial and insurance activities (banking) Real estate, renting and business activities Trade, repair, accommodation and food Agriculture Industry Services Transportation, storage and communication Net taxes Real GDP Services as share of GDP (rhs) Source: Staff estimates based on WDI and GBoS data. Source: Staff estimates based on the National Accounts Statistics Survey. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 29 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 36. Long-term productivity growth has been negative, with limited capital stock per worker Annual production, TFP and real capital stock per worker (percentage) 4.0 2.0 0.0 –2.0 –4.0 –6.0 –8.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Annual growth of output per worker Growth rate of real capital stock per worker Total factor productivity per worker Sources: Authors based on PWT 9.1 (Freensta, Inkaarand Timmer 2015). GDP in the early 2000s. This reflects several constraints, the main driver of growth. However, capital accumulation including deficiencies in infrastructure, need for a suffi- per worker has remained weak over the years, suggesting ciently large pool of skilled and well-trained workers to that investments have not translated into a proportionate meet labor market demand, and high dependence on a low increase in capital available per worker, possibly due to value-added tourism. The Gambia’s tourism industry relies high population growth or misallocation of capital (Fig- heavily on a few tour operators, and it is focused on the ure 36). The driving role of investment in growth does winter season and accommodation near the sea and Banjul not reflect strong capitalization of the economy. Instead, it airport. Moreover, visitors are primarily seeking relaxation partly reflects the constraints of the labor market, such as tourism, their length of stay is short, and there is relatively high underutilization of labor and low labor force partic- limited travel within the country (Ceesay 2020). ipation. While TFP’s contribution to GDP growth was positive from 2017 to 2019 (Figure 37), it was a negative The Gambia’s productivity growth has been low. Pro- between 2020 and 2022 (Figure 38). The reversal of pro- ductivity growth per worker was negative between 2000 ductivity gains since 2020 can be attributed to macro­ and 2022 , when labor accumulation and capital accu- economic headwinds due to global shocks, leading to a mulation accounted for 60 percent and 57 percent of weak national, regional, and global economic environment. GDP growth, while the contribution of TFP to growth This reflects the sensitivity of The Gambia’s productivity was negative (Figure 37 and Figure 38). Low productivity gains on external conditions, highlighting a fundamental growth per work, combined with low productive capacity challenge in The Gambia’s economic structure. utilization, which has resulted in rising potential output relative to actual output17 over the past decade, explains the Capital accumulation and productivity growth have moderate Gambia’s economic growth (Figure 31), lagging been consistently low for the past two decades. An behind SSA and ECOWAS (Figure 30 ). Gross capital analysis of the country’s performance since the beginning formation has increased over the last decade, becoming of the democratic transition reveals modest but positive 17 This translate into negative output gap, emphasizing that high inflation is essentially imported. 30 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 37. Growth has recently stemmed from increases in the capital stock, with productivity Figure 38. but productivity growth has been growth increasing in 2017–2019 falling since 2020 Factors contribution to growth up to 2019, Factors contribution to growth up to 2022, percentage points percentage points 14.00 14.00 12.00 12.00 10.00 10.00 8.00 8.00 6.00 6.00 4.00 4.00 2.00 2.00 0.00 0.00 –2.00 –2.00 –4.00 –4.00 2010–2022 2000–2016 2017–2019 2017–2022 2000–2016 2000–2022 Capital Stock Labor Capital Stock Labor Total Factor Productivity Real GDP Total Factor Productivity Real GDP Source: Authors based on WDI. Source: Authors based on WDI. productivity growth in 2017–2019, which was subsequently production machinery, limited access to credit, difficulties reversed, resulting in negative productivity growth between in procuring inputs and storing products, negative impact 2000 and 2022 (Figure 38). The reversal could be attributed of climate change and variability, and increasing soil salinity. to spillover effects of global economic shocks. More- In the absence of mechanisms to mitigate shocks and over, capital accumulation per worker has remained weak strengthen resilience, climate-related vulnerabilities reduce (Figure 36). agricultural production. As a ratio of GDP, budget allo- cation to the sector was limited at 0.2 percent in 2023, Agricultural productivity has been declining. The agri- with almost no spending on research and development culture sector plays a crucial role in terms of its share of (R&D). Increased public investment in R&D is key to overall output and the large proportion of the population supporting agricultural innovation and, in turn, is needed relying on it. The sector generates about 40 percent of to address the growing challenges facing the sector, foreign exchange earnings, provides 75 percent of house- such as climate change and air pollution (Beegle and hold earnings, employs 70 percent of the labor force, and Christiansen 2019). accounts for 21 percent of GDP (MOFEA 2022). There- fore, the productivity of the sector is crucial. However, Further analysis shows that structural rather than agricultural productivity declined during the last two external factors have hampered growth. This section decades, with value-added falling to US$1,562 per worker presents an analysis that examines the extent to which per (in constant 2015 dollars) in 2019, which is 44 percent capita growth can be traced to structural factors (infra- lower than the level in 2010 (Figure 40). The Gambia was structure, human capital, size of government, financial one of the SSA countries with the highest agricultural pro- deepening, and trade openness), stabilization policies ductivity in the early 1990s, but the level of productivity (inflation and real exchange rate), and external condi- has since declined (Figure 39). Significant constraints facing tions (terms of trade and export commodity prices). the agriculture sector include lack of irrigation facilities and It combines country-specific data with the results of a Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 31 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 39. Agricultural total factor productivity Figure 40. Agriculture value-added per worker index (2015 5 100) (constant 2015 $) 200 3,000 160 2,600 120 2,200 80 40 1,800 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1,400 Central African Republic Somalia Gambia Mauritania 1,000 Niger Senegal 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Malawi Source: United States Department of Agriculture. Source: WDI. Note: See Fuglie 2015 for more details on the United States Department of Agriculture methodology. cross-country regression model.18 The determinants of per by 1.35 ppts, likely reflecting a crowding-out effect of capita growth over 2003–2022 can be divided into three private sector investment (this also coincides with the subperiods: 2003–2009, 2010–2016, and 2017–2022. time when TFP growth was negative). During the period Per capita growth was negative over the 2003–2009 and 2003–2016, the trade deficit had a negative contribution to 2010–2016 periods, adversely affected by most structural GDP growth, while infrastructure development remained factors (Figure 42 and Figure 43). Increased government at the same level as in the late 2000’s, having no effect spending is reflected in the rising share of government on economic activity in 2010–2016. By contrast, human consumption in GDP, from an average of 7.25 percent in capital development had a positive impact on GDP growth, 2003–2009 to 8.7 percent in 2010–2016. According to the reflecting increased secondary school enrolment, while cross-country regression model, this kind of government stabilization policies and external factors had a slight behavior contributed to the average annual GDP reduction positive effect. 18 The empirical analysis mainly uses the cross-country growth regression model initially built to investigate structural growth in Latin America and the Caribbean (Brueckner, 2014). See also Moller and Wacker (2015), Araujo et al. (2014), and Haile (2016) for applications in the context of Ethiopia, Latin America, and Tanzania, respectively. This model explains GDP growth per capita as a function of several growth drivers (structural, stabilization, and external). The persistence effect captures the impact of previously undertaken measures and policies on the current economic performance. Structural factors encompass infrastructure, expressed as a composite infrastructure index based on the three indices capturing progress in power generation capacity (measured by electric production kWh per capita), roads (measured by km of road per 100 sq. km of land area), and phone lines (measured by fixed telephone subscriptions per 100 people and mobile cellular subscriptions per 100 people); human capital (measured by secondary school enrollment); government size (expressed as a share of government consumption in GDP); trade openness (approximate by trade to GDP ratio, whereas trade is calculated as a sum of exports and imports of a country); and financial development (measured by domestic credit to GDP ratio). Stabilization policies take into account inflation and real exchange rate movements. External factors are approximated by net barter terms of trade (calculated as the percentage ratio of the export unit value index to the import unit value index, measured relative to the base year 2000) and by country-specific commodity export price index (based on the international price of commodities and relative importance of the export of a specific commodity to a country’s GDP). 32 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH The Gambia trails far behind in human capital devel- Figure 41. The Gambia’s level of human opment. Human capital is a crucial determinant of eco- capital is low nomic development through its impact on production Human Capital Index in The Gambia and comparators and services output (Eggoh and Sossou 2015). The stock 0.80 and quality of human capital impacts growth and pro- 0.70 ductivity, both at the macro and firm level. According to 0.60 the World Bank’s Human Capital Index (HCI),19 which 0.50 0.40 measures countries’ contribution of health and education 0.30 to estimate the productivity of the next generation of their 0.20 workers, The Gambia scored 0.42 in 2020, which is rel- 0.10 0.00 atively low but slightly higher than that of some regional he ria i ya l ar go Ug d Ta da in a e e me e pa al ni Lo com m a peers such as Liberia, Mali, Chad, Uganda, and, Tanza- nm M be Ch an ,T To Hi nza Ne id inco co a Li in bi nia (no data available for Guinea Bissau) (Figure 41). It M gh w am dl G m indicates that, on average, children born in the country er w today will only be 42 percent as productive when they Lo grow up as they could be if they enjoyed complete educa- Source: World Bank (2020), Human Capital Project. tion and total health. The social protection system is still in its infancy (World Bank 2022c). Over 60 percent of Figure 42. Structural factors held back growth Figure 43. . . . while they contributed to growth in 2003–16 . . . in 2017–22 Key growth drivers in The Gambia, 2003–2022 Structural drivers of growth in The Gambia, 2003–2022 3.0% 2.5% Average annual GDP growth rate 2.0% 2017–2022 1.5% 1.0% 0.5% 2010–2016 0.0% –0.5% –1.0% 2003–2009 –1.5% –2.0% 2003–2009 2010–2016 2017–2022 –2.0% –1.0% 0.0% 1.0% 2.0% 3.0% Annualized growth contributions (in %) Residual (unexplained growth) Persistence External Stabilization Schooling Credit/GDP Trade/GDP Structural Per capita growth Gov Cons./GDP Infrastructure Source: Authors based on WDI data. Source: Authors based on WDI data. 19 The index tracks the future trajectory, from birth to adulthood, of a child born today. It quantifies the level of human capital that a child can expect to attain by the end of secondary school, given the risks of poor health and education at the time of the child’s birth. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 33 GAMBIA | ECONOMIC UPDATE - SPRING 2024 the Gambian workforce has no formal schooling, while CBG statistics show that loans to productive sectors as almost 50 percent of the adult population (aged 15 and share of total loans in 2022 accounted only for 6.5 percent above) is estimated to be illiterate (World Bank 2020c). In for agriculture, 10 percent for construction, 1.7 percent for 2023, budget allocation to education and health amounted manufacturing, 0.5 percent for energy, 1.4 percent for to 2.7 percent and 1.4 percent of GDP, respectively, with transport and 1.3  percent for tourism. The impact of most spending being recurrent. The country’s public expen- stabilization policies turned slightly negative, as the real diture on education and health is low compared to that of exchange rate adversely affected economic performance, peers, and it is highly inefficient. Despite very low teacher while external factors had a negligible effect on growth. salaries, the wage bill makes up three-fourths of school- related education expenditure. The execution of the non- The Gambia’s economy suffers from a lack of structural salary education budget is mainly focused on expenses change, despite an increase in productivity following unrelated to learning outcomes. The Gambia’s health expen- the country’s transition to democracy. Between 2000 diture is largely recurrent (95 percent) and concentrated on and 2016, the services sector was the country’s main goods and services. Budget allocations are skewed toward employer, despite recording negative productivity growth, tertiary and secondary care at the expense of primary care, while agriculture, with its negative productivity growth, contributing to inefficiency in health service delivery. The was the second-largest employer (Figure 44). Industry, which country’s efficiency score is an estimated 82 percent for is characterized by higher productivity, accounted for primary education and 72 percent for 11 health facilities, the lowest employment growth. While the beginning of which means that, on average, the same level of services the democratic transition in 2017 was accompanied by can be provided with 18 and 28 percent fewer resources in macroeconomic stabilization and a rise in productivity primary education level and health facilities, respectively across sectors, it failed to trigger an incipient structural (World Bank 2020b). change. There has been no shift in labor despite changes in sectors’ productivity levels. The services sector almost Improvements in GDP per capita growth over doubled its level of productivity, going from negative to 2017–2022 were mainly driven by structural rather positive productivity between the two subperiods, while its than external factors. GDP per capita growth averaged share of employment in the economy has remained virtu- 1.8 percent over 2017–2022, despite the deceleration of ally unchanged. Industry has almost doubled its level of economic growth in 2020 due to the COVID-19 pandemic. productivity since 2017, which was already positive in the The main growth drivers were structural factors, including previous subperiod, while keeping its share of employment reduced government consumption and increased trade virtually unchanged (Figure 45). Productivity in the agri- openness. Infrastructure development recorded improve- culture sector has also begun to enter positive territory, but ments across all observed indicators, and an increase in its share of employment has also remained unchanged. secondary education enrolment had a moderate but pos- itive effect on per capita GDP growth. Credit variables Per capita value-added growth in 2017–2019 was driven exerted a negative effect, which illustrates the lack of by increased productivity within sectors rather than a access to appropriate financing. The Gambia’s banks focus nascent structural change. The increase in productivity on financing consumer goods and tend not to engage in is corroborated by a Shapley decomposition20 that shows investment financing, which is a constraint for productivity. that value-added per capita grew by an average of 4 percent 20 The Shapley decomposition is a methodology that decomposes growth in GDP per capita in two consecutive periods, in its employment, productivity, demographic components and structural changes to disentangle the sources of output per worker growth. Static gains (or losses) in productivity occur due to labor shifts from below to above-average productivity level sectors (or vice versa), while dynamic gains (or losses) in productivity stem from relocation of workers from below- to above-average productivity growth sectors (or vice versa). The growth in value-added per worker can increase for various reasons, such as rising labor productivity within sectors (if each worker produces more), structural change (if workers move from low- to higher- productivity activities), demography (if the relative share of WAP rises), and employment (if a larger share of WAP is employed). 34 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 45. . . . but all sectors have experienced an increase in productivity since the Gambia’s Figure 44. Productivity remained negative democratic transition, although there has been over 2000–2016 period except in industry . . . no shift in labor to more productive sectors Correlation between changes in sectoral productivity Correlation between changes in sectoral productivity and employment share (percentage), 2003–2016 and employment share (percentage), 2017–2019 7.00 Annual change in productivity, percent 5.00 Annual change in productivity, percent 4.00 6.00 3.00 Industry Industry 5.00 2.00 1.00 4.00 0.00 Services 3.00 –1.00 –2.00 Agriculture 2.00 Services –3.00 1.00 Agriculture –4.00 –2.00 –1.50 –1.00 –0.50 0.00 0.50 1.00 1.50 2.00 0.00 –4.00 –2.00 0.00 2.00 4.00 Annual change in employment share, percent Annual change in employment share, percent 2000–2016 2017–2019 Source: Authors based on WDI data. Source: Authors based on WDI data. in 2017–2019, after having contracted over 2000–2016, (Figure 48). Lack of reallocation of resources from less with aggregate productivity contributing most of the productive to more productive firms can be explained growth (Figure 46). Productivity growth stemmed from by barriers such as obstacles to competition, red tape, labor shifts within sectors, with both a static and dynamic an overbearing presence of SOEs, and limited access reallocation of resources remaining marginal (Figure 47), to credit. While entering the market doesn’t seem too reflecting the absence of structural change.21 difficult, limited access to finance, unfair competition from the informal sector and SOEs, and several other Consistent with evidence for a lack of structural change, constraints on the business environment make it diffi- limited resources may have moved toward more pro- cult for new firms to perform well (Box 2.2). The lim- ductive firms. Productivity growth was driven by within- ited movement of employment to higher-productivity sector labor shifts in 2017–2019, which supported an sectors and firms has negatively impacted growth and increase in per capita value-added in the industry and ser- restricted job creation. Indeed, an economy grows and vices sectors and moderately in agriculture and accounted creates more jobs when the labor shifts to sectors with for 95 percent of per capita value-added growth. The higher levels or growth of productivity. The strong weak contribution of intersectoral growth suggests a lim- improvement in productivity within the service sector ited reallocation of resources to the most productive firms, is not attracting factors from agriculture, likely due to apart from a marginal movement in the services sector skills mismatches. 21 Structural change promotes static gains when sectors with above-average productivity levels increase their share in total employment, while dynamic gains occur if sectors with above-average productivity growth experience an increase in their employment share, irrespective of their initial productivity levels. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 35 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 46. The Gambia has experienced an Figure 47. . . . driven by within-sector productivity increase in productivity since 2017. . . in a context of weak resource reallocation Decomposition of per capita value added growth, Decomposition of per capita value added growth, percentage point percentage point 2017–2019 2017–2019 Total = 4% Total = 4% 2000–2016 2000–2016 Total = –1.1% Total = –1.1% 2000–2022 2000–2022 Total = –0.3% Total = –0.3% –5.00 –3.00 –1.00 1.00 3.00 5.00 –5.00 –3.00 –1.00 1.00 3.00 5.00 % Yearly contribution to growth % Yearly contribution to growth Within-sector productivity Static reallocation Productivity Employment rate Dynamic reallocation Employment rate Participation rate Demographic change Participation rate Demographic change Source: Staff estimates using WDI data. Source: Staff estimates using WDI data. Figure 48. Growth was driven by within-sector productivity in a context of limited intersectoral growth Annual contribution to per capita value added growth by major sectors, as a percentage 2017–2019 Total = 3.4% 2000–2016 Total = –1.2% –5.00 –4.00 –3.00 –2.00 –1.00 0.00 1.00 2.00 3.00 4.00 5.00 % Yearly contribution to growth Within, Agriculture Within, Industry Within, Services Inter-sectoral, Agriculture Inter-sectoral, Industry Inter-sectoral, Services Source: Staff estimates using WDI data. 36 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH 2.3. Economic growth has not been production (given favorable rains) and the continued recovery inclusive despite progress of the tourism sector. However, high inflation continues to dampen private demand—averaging 17 percent in This section examines to which extent growth has trans- 2023—driven by rising food prices, utility tariff increases, lated into improving the lives of people in The Gambia. currency depreciation, and fertilizer prices. It analyzes poverty trends, access to basic infrastructure ser- vices, and employment dynamics (employment per sector, Poverty (using the international poverty line of US$2.15 transition of labor, and productive employment). in 2017 PPP)22 increased from an estimated 16.4 per- cent in 2022 to 16.9 percent in 2023—equivalent to an increase of over 25,000 extreme poor people. The Poverty and inequality remain high despite increase in poverty was driven by high inflation despite recent resilient growth positive agricultural growth. The sharp increase in poverty (0.5 ppts increase in 2023, up from an increase of 0.3 ppts Prior to the pandemic-induced crisis, poverty was in 2022) reflects high prices that are eroding the pur- declining at a slow pace. The national poverty rate fell chasing power of households, especially the poor, who from 48.6 percent in 2015 to an estimated 45.8 percent spend a large share of their consumption basket on food. in 2019, due to low and volatile economic growth. Data Household survey data for 2020 show that poor house- collected in 2020 shows that national poverty increased to holds spent 65 percent on food in 2020—more than 53.4 percent, instead of declining to a projected 44.9 per- 10 ppts higher than what non-poor households spent. Food cent based on the pre-COVID-19 economic growth rate. prices spiked, averaging 22.2 percent in 2023 (up from This implies that about 1.1 million Gambians were poor 14.5 percent in 2022), higher than an average of 10.9 per- in 2020. cent (up from 8.6 percent in 2022) for non-food prices, exposing the poor to the risk of sliding deeper into poverty. Poverty rates are higher in rural areas, where the poor Rising food prices (especially of imported staples such as typically work in the agriculture sector, while the rice, oil, and sugar in a context where over 50 percent of the largest share of the poor in urban areas participate in food supply in The Gambia is imported) limit the ability the informal services sector. The poverty rate (based on of vulnerable households to increase their already weak per the national poverty line) in rural areas was an estimated capita income. Although more robust projected growth in 76 percent in 2020, much higher than 34 percent in urban agriculture and the expansion of cash transfers are expected areas. However, a high share of the poor lives in densely to have a positive effect on poverty reduction, these gains populated urban settlements such as Brikama, which is will be tempered by continued high food prices. home to over 300 thousand poor people, the highest number in the country. The increasing urban-rural divide also resulted in an increase in inequality, which increased The incidence of growth reveals significant from an estimated Gini index of 36 in 2015 to 39 in 2020. declines in per capita consumption growth Despite the post-pandemic recovery, additional shocks All households suffered reductions in per capita continue to undermine progress in poverty reduction. consumption growth between 2015 and 2020, with GDP per capita growth reached an estimated 2.7 percent in households in the bottom 20 percent of the income 2023—up from 2.4 percent in 2022—driven by agricultural distribution experiencing the most significant reduction. 22 The International Poverty line is estimated by the World Bank and allows for cross-country comparison. The poverty estimates reported here are based on simulations using the 2020/21 his survey, sectoral GDP per capita growth rates, and food and non-food price data. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 37 GAMBIA | ECONOMIC UPDATE - SPRING 2024 According to an analysis of the growth incidence curve the middle class was also affected by the large (7 percent) between 2015 and 2020, annualized growth in consump- contraction of the services sector in 2020. tion per capita declined by about 3 percent per year for the poorest households (Figure 49). It rose by nearly 2 percent Poor households spend nearly 90 percent of their annually for households in the 80th to 95th percentile. budget on food, education, and housing and remain Moreover, consumption levels fell by about 1 percent per highly vulnerable to food price increases. Overall house- year for households at the very top of the distribution, hold expenditure is lower among rural than urban house- although growth at the top is difficult to accurately measure. holds, as well as among poorer than richer households (Figure 50). A closer look at the composition of household The more significant decline in per capita consumption expenditure shows that poorer households spend more on growth among the poor is linked to employment. The food than richer households and those in the urban areas. bottom 20 percent of households are mainly employed in However, the onset of the pandemic in the second quar- agriculture (55 percent), which only grew by 0.6 percent, ter of 2020 reduced the share of expenditure on housing on average, between 2015 and 2019, before increasing while increasing the share spent on food, suggesting that significantly in 2020, which mitigated the overall impact households spent more on food due to the associated of the pandemic on some poor households. Meanwhile, uncertainty of the pandemic and lockdown. Figure 49. Growth incidence curves, 2015–2020 National Urban Rural 2 2 2 0 0 0 –2 –2 –2 –4 –4 –4 –6 –6 –6 –8 –8 –8 0 20 40 60 80 100 0 20 40 60 80 100 0 20 40 60 80 100 Percentile Percentile Percentile Source: Integrated Household Surveys (IHS) 2015/20. Note: Y-axis plots the annualized consumption growth rate in percentage. 38 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 50. Consumption patterns 100 60000 Consumption per capita Share of consumption 80 20 7 10 50000 8 7 10 10 8 7 12 9 9 11 10 9 10 10 40000 9 12 10 (percent) 60 (GMD) 30000 40 63 69 66 60 62 20000 60 58 60 53 56 20 10000 0 0 Q1 Q2 Q3 Q4 Rural Urban Bottom Second Top Total 20 20 60 Quarter Area Poverty All Food at home Food outside home Education Housing Health Others Consumption per capita Source: Integrated Household Surveys (IHS) 2020. Social disparities prevail in access to facilities exist. Results from using small area estimation essential service23 techniques—combining survey data and geospatial data— to estimate distance to key facilities at the district level Most of the country still needs to be better connected show significant spatial variation in access to secondary by roads, and the distribution of cell towers is uneven schools and health facilities (Figure 52).24 (Figure 51). Outside of Banjul, there are only a few roads that connect the North and South Bank roads. Connec- Gambian children generally do not have to travel far tivity remains much better for households in urban areas. to attend primary school. While there is a clear differ- For instance, coastal areas near the capital appear to be well ence across districts in the distance to the nearest primary covered by both roads and cell towers, as indicated by rela- school, the highest average is only around 1.24km (Niani tively higher road density and lower distance to the nearest district). Moreover, some of the poorer areas—like the cell tower. While the areas with worse access have lower North Bank districts—show relatively good access to pri- population density, they are also poorer and more likely to mary schools, especially compared to other services, pos- be engaged in agriculture. In rural areas, where agriculture sible due to the recent government push to build primary is the primary source of livelihood, limited connectivity, schools in poorer areas of the country. both in terms of roads and cell towers, has potentially large effects on agricultural development, possibly restricting or There are, however, considerable spatial disparities in even preventing households’ access to markets. access to secondary school. While some peri-urban areas near Banjul and Kanifing have relatively high access to Despite recent improvements, significant spatial dis- secondary schools, the North Bank districts have notice- parities in access to secondary schools and health ably worse access (Figure 53). People living in the middle 23 The analysis relies on small area estimates. Estimates are population weighted allowing for the extrapolation from sample to population and hence capturing differences in population densities. Additionally, the small-area estimates combine survey and geospatial data (including population data) to allow for estimation at lower administrative units – such as districts. 24 District-level results are evaluated as sufficiently precise to present. The mean and median coefficients of variation are 0.116 and 0.112 for primary school, 0.092 and 0.086 for secondary school, 0.124 and 0.105 for health clinics, and 0.169 and 0.154 for hospitals. The highest 90th percentile CV is for hospitals, at 0.227, which is still below commonly accepted international standards of precision. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 39 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Figure 51. Road count density and distance to the poverty rate—whether absolute or extreme—and dis- nearest cell tower tance to the nearest facility (Figure 52). All households are generally located close to a primary school and, as such, Road count density (count per km2) the increase in distance with the poverty rate is smaller 13.8°N in magnitude. However, there are noticeable differences 13.6°N in access to secondary schools and health clinics based 13.4°N 13.2°N on estimated poverty rates. The relationship with extreme poverty shows that distance increases very rapidly at small 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W levels of poverty, before leveling off at higher rates. This relationship is even more pronounced with hospitals: only 0 5 10 15 individuals living in the least poor wards have decent Distance to nearest cell tower (km) access to tertiary care at hospitals. 13.8°N Across households, poorer households report longer 13.6°N distances to health and education facilities. Given that 13.4°N 13.2°N these facilities are important inputs for human capital— and, as such, outcomes later in life—this is suggestive evi- 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W dence that the poorest households do not just lack access to services that richer households have access to, they may 0 4 8 12 16 also face persistent disadvantages later in life due to this lack of access. Source: Road counts come from OpenStreetMap —information on cell towers provided by PURA. The Gambia’s labor market suffers from regions of the country appear to be located farthest from significant underutilization, low labor force secondary schools. participation, and high informal employment, with large gender disparities There are also significant spatial disparities in accessing health clinics and hospitals. People living in districts in The shrinking share of the working age population the middle regions are located particularly far from health (WAP) hampers income per capita growth. While clinics. By contrast, people living in the far eastern corner WAP increased from 0.5 million in 1990 to 1.3 million of the country, in the Upper River districts, are partic- in 2021, its share in the total population declined from ularly far from hospitals. Moreover, many households 56.1 percent in 1965 to 50.4 percent in 2000, before living in the eastern half of the country have poor access gradually rising to 53.7 percent in 2021. Growth in WAP to health services. Given the difficulties associated with can affect economic prosperity in several ways, notably by traveling long distances in rural areas, some households raising incomes, savings, investment, and productivity. have considerable distances to traverse to access health In the case of The Gambia, the lack of growth in the share services. In the east, the average person lives quite far from of WAP means that there has not been an increase in people the nearest tertiary care hospital. able to produce goods and services in the economy. This hinders the possibility of generating more income and Poorer wards live far from secondary schools, health savings as well as reducing poverty. The child dependency clinics, and hospitals. An analysis of the relationships ratio is persistently high, averaging 82 percent in 2021. between estimated absolute and extreme poverty rates and Furthermore, a large proportion of working-age youth distance to primary and secondary schools as well as clinics (aged 15–24) is left behind by the labor market. Only and hospitals shows a clear positive relationship between 38.9 percent of people in this age group were actively 40 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth Figure 52. Small area estimates of the average distance to the nearest education and health facility (district level) Distance to nearest primary school (km) Distance to nearest secondary school (km) 13.8°N 13.8°N 13.6°N 13.6°N 13.4°N 13.4°N 13.2°N 13.2°N 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W 0.50 0.75 1.00 1 2 3 4 Distance to nearest health clinic (km) Distance to nearest hospital (km) 13.8°N 13.8°N 13.6°N 13.6°N 13.4°N 13.4°N 13.2°N 13.2°N 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W 16.5°W 16.0°W 15.5°W 15.0°W 14.5°W 14.0°W 2 4 6 50 100 Source: Small area estimates based on 2020 HIS and geospatial indicators. Figure 53. Estimated poverty rates and distance to health and education facilities 5.0 5.0 Distance to schools and health clinics (log km) Distance to schools and health clinics (log km) 2.5 2.5 0.0 0.0 –2.5 –2.5 0.25 0.50 0.75 0.2 0.4 0.6 Absolute poverty rate Extreme poverty rate Health clinic Hospital Health clinic Hospital Type of facility Type of facility Primary school Secondary school Primary school Secondary school Note: The lines are smoothed means based on small area estimates. GAMBIA | ECONOMIC UPDATE - SPRING 2024 engaged in the labor market by working in 2021, far lower among the self-employed. Three out of four women of than 66.3 percent in early 1983. As a result, employment working age have no access to their own earnings, as opportunities have declined considerably in The Gambia opposed to nearly half of men. Women’s lack of economic over the years. empowerment weakens their position in both the house- hold and political life. Men are 2.3 times more likely to The labor market faces a low labor force participation be wage-employed and 42 percent more likely to run rate. According to the recently completed Gambia Labor their own businesses than women. By contrast, women Survey (GLFS 2022–23), the labor force participation rate are 3.7 times more likely to be unpaid family workers is 43.6 percent of WAP, divided between 47.9 percent for and 26 percent more likely to be engaged in subsistence men and only 39.6 percent for women (Figure 54). This agriculture. Moreover, self-employed women suffer worse means that 56.4 percent of WAP are outside the labor labor market outcomes and are much less likely to obtain market. Therefore, contribution of the labor force partic- financial assistance from friends and family than their male ipation rate in per capita value-added growth is marginal counterparts. On average, female-run business profits as highlighted by the growth accounting. are 60 percent of those of male-run businesses. While female businesses represent 44 percent of all businesses There are also many underemployed workers. The in The Gambia, they account for only 8 percent of busi- unemployment rate was 7.6 percent in 2022–23, while the nesses with paid employees. Compared to men, women labor underutilization rate—which combines unemploy- also have less access to financial services. Only 15 percent ment, time-related underemployment, and persons who of women have an account at a formal bank, which is half are outside the labor force but are considered as poten- the rate of men (World Bank 2022c). tial labor force—was 41.5 percent (50.5 percent among women and 31.8 percent among men) in the same period The combination of a low share of WAP, strong child (Figure 55). Underemployment translates into low pro- dependency, low youth employment, and low wage ductivity and low wages. employment has perpetuated low per capita income growth. In 2022, real per capita GDP growth reached Employment is mainly informal and unwaged in The 2.4 percent. This is insufficient to significantly raise per Gambia. The services sector employs most of the country’s capita GDP, which stood at US$798 in 2022 in nominal workforce (57.7 percent of workers), ahead of both industry terms and US$682 in real terms (in constant 2015 dollars). (21.2 percent) and agriculture (21 percent) (Figure 56). However, 79.4 percent of all workers are engaged in informal employment, ranging from 84.7 percent of female workers 2.4.  Other structural constraints have to 74.7 percent of male workers (Figure 57). Moreover, impaired The Gambia’s growth dynamics employment is concentrated in low or non-wage-paid agriculture. In 2019, only 27.9 percent of workers had Structural constraints impair The Gambia from expand- waged jobs, ranging from 15.7 percent of female workers ing its productive base and diversifying its economy. to 35.7 percent of male workers. These findings are highlighted in The Gambia’s 2020 Systematic Country Diagnostic (World Bank 2020a) and Wide gender gaps in labor market outcomes are notably the 2022 Country Partnership Framework (World Bank attributed to wide gaps in educational attainment. 2022d). Low revenue collection hinders the provision of Large gender gaps remain in educational attainment and public goods and fiscal and debt sustainability. The weak access to land and productive inputs. Among adults business environment and governance as well as institu- aged 15–64 in 2018, 46 percent of women did not complete tional challenges limit private sector development, ham- elementary school, higher than 36 percent of men. Together pering efforts to attract investment and accelerate job with traditional gender norms, this contributes to sig- creation. An overreliance on agriculture, which suffers from nificant gender gaps in labor market outcomes, including declining productivity, and increasing environmental 42 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 54. The Gambia faces low labor force participation . . . Figure 55. . . . and high underemployment Labor force participation, employment to population Labor underutilization (percent) and unemployment (percent) 60 60 50.5 47.9 50 50 44.1 44.2 39.6 40.3 41.5 40 36.7 40 30 31.8 30 20 7.6 7.8 7.2 20 10 0 10 Labor force Employment to Unemployment participation population 0 Gambia, The Male Female Gambia, The Male Female Figure 56. Employment is concentrated in services . . . Figure 57. . . . but is mainly informal Employment distribution by sector (percent) Share of informal employment 70 86 84.7 63.6 60 57.7 84 52.5 82 50 79.4 80 40 34.5 30.1 78 30 21 21.2 76 74.7 20 12.9 74 10 6.1 72 0 70 Agriculture Industry Services 68 Gambia, The Male Female Gambia, The Male Female Source: The Gambia Bureau of Statistics 2023. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 43 GAMBIA | ECONOMIC UPDATE - SPRING 2024 degradation and climate vulnerability contribute to food administration include launching the Single Window, insecurity. These challenges are compounded by low levels setting up electronic excise stamps for key manufacturing of infrastructure and limited human capital development, businesses and importers, creating the fuel marking pro- all of which impede productivity growth, limit structural cess, and developing a telecom measurement system. transformation of the economy, and hinder poverty reduc- tion (World Bank 2023d). These constraints explain why Despite reform efforts, tax revenue mobilization remains growth has not been inclusive, with significant disparities inadequate to meet the country’s socioeconomic devel- and low levels of access to essential services, limited access opment needs. Tax revenue mobilization averaged an to quality jobs and poverty rates that remain high. estimated 10.1 percent of GDP over 2017–2023, below the SSA average of 18.9 percent and the average of many peer countries (Oxford Economics 2022) (Figure 58). Low revenue collection hampers the provision of Tax revenue collection is below the level needed to per- public goods and fiscal and debt sustainability form most basic state functions and finance development programs, as it is below the so-called ‘tipping point’ of a In recent years, efforts have been made to strengthen tax-to-GDP ratio of 15 percent, at which a country can tax policy reforms and tax administration. Reforms start making the critical investments needed to accelerate include the introduction of the value-added tax (VAT) growth (Vitor et al. 2016). Existing estimates show that in 2013, the introduction of reporting obligations in 2019 the overall tax gap is estimated at 4–6 percent of GDP, to enhance the transparency and administrability of the indicating that the government can increase its fiscal small taxpayer regime as well the informal sector tax regime, capacity by expanding its tax revenues (World Bank the adoption of a series of tax reforms in 2021,25 and the 2020b). The tax gap is due to generous tax incentives introduction of revenue measures in the 2023 budget.26 (which narrow the corporate tax base), the proliferation There are also ongoing reform efforts at the Gambia of VAT exemptions, difficulties in taxing government Revenue Authority (GRA) to strengthen the tax adminis- institutions, and the prevalence of zero-rated goods. tration, including isolating the tax agency from political interference to help reduce corruption and establishing Revenue and fiscal outturns are increasingly depen- the Commission of Inquiry into Tax Evasion and other dent on external financing. Since the country started its Corrupt Practices to investigate tax evasion and identify democratic transition, grant support has increased signifi- those who owe back taxes. The GRA upgraded its cus- cantly, from an annual average of 1.7 percent of GDP in toms management system to ASYCUDA World in June 2013–2016 to 7.1 percent in 2017–2023. This increase 2022 to ease the payment of import and export duties. in development assistance reflects the willingness of devel- In addition, a customs and inland border control policy opment partners to accompany the transition and help was adopted for all border stations in 2023 to standardize The Gambia reach its development objectives. However, border clearance procedures and establish a new risk revenues and overall fiscal outturn have become depen- management system for all border and in-land control dent on grant support, which averaged 31 percent of total posts. Recent reform efforts adopted in 2023 in customs revenue over the past six years (Figure 59). The country’s 25 Effective January 1, 2021, The Gambia introduced various tax reforms, including: increasing the capital gains tax threshold; reducing the fringe benefits tax rate; repealing the environmental tax payable by employees and the air transport levy; increasing the threshold for voluntary VAT registration; and introducing the requirement for large taxpayers to submit audited financial statements with their annual tax returns. 26 Revenue measures introduced in 2023 included: increasing the excise tax on tobacco; revising the immigration fees of non-Gambians in line with regional benchmarks; introducing an ad-valorem tax on used tires; revising duty waiver application fees; introducing an environmental tax on second-hand goods that do not currently attract an environmental tax and security levy on all insurance premiums (funds will be collected by insurance companies); allowing for deduction of rental income tax at source for all commercial rental properties; and increasing the Expatriate Quota tax for non-ECOWAS residents. 44 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 59. Revenues are increasingly dependent Figure 58. Tax-to-GDP ratio, 2020 (percent) on external financing DRC Revenue and grants, 2010–2023 Nigeria 100% 25.0 Total revenue and grants, % of GDP Chad Equatorial Guinea Composition of revenue, % Congo Republic 80% 20.0 Niger Cameroon 60% 15.0 Mauritania The Gambia 40% 10.0 Ghana Côte d'Ivoire 20% 5.0 Burkina Faso Mali 0% 0.0 Burundi 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Senegal Togo Cabo Verde Grants Non tax revenue 0 5 10 15 20 25 Tax revenue Total revenue and grants Source: International Financial Statistics. Source: MOFEA; IMF; World Bank staff calculations. dependence on grants is a challenge to implementing better than the SSA average (48 percent), lack of access development programs and ensuring debt and fiscal sus- to reliable, low-cost, and sustainable energy has been an tainability. Therefore, the authorities need to accelerate enduring challenge in The Gambia. The electricity sector reforms to strengthen domestic revenue collection. has historically suffered from a lack of financial viability. Plagued by poor financial performance, the National Water and Electricity Company (NAWEC) has been unable Poor and inadequate infrastructure is a major to adequately maintain and expand energy infrastructure, barrier to private sector-led growth making it challenging to increase access, which has con- strained growth and the country’s competitiveness (World The private sector in The Gambia faces a wide array Bank 2022c). of constraints. As seen previously, most households are faced with large disparities in access to essential infra- Digital infrastructure remains underdeveloped despite structure. The country suffers from an infrastructure gap, high cell phone penetration. Mobile phone penetration particularly in the energy, transport, and information and communication technologies (ICT) sectors. Poor coverage Table 4. Access to electricity in The Gambia and low-quality infrastructure increases costs in terms and SSA, 2020 (percent) of both time and resources, which lower the return on The Gambia SSA capital and work, discourage domestic and foreign invest- ment, and constrain economic growth. Population with access to electricity 62 48 (% of population) Deficiencies in the country’s electricity infrastructure Population with access to electricity, 32 29 are a crucial barrier to private sector-led growth. Only rural (% of rural population) 62 percent of Gambians had an electricity connection in 2020, although people in urban areas had much better Population with access to electricity, 81 78 access (81 percent) than their rural counterparts (32 per- urban (% of urban population) cent) (Table 4). Even though the electricity access rate is Source: World Development Indicators (WDI). Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 45 GAMBIA | ECONOMIC UPDATE - SPRING 2024 is high, with mobile-cellular subscriptions per 100 inhab- of access to formal financial services in SSA (World Bank itants averaging 111 percent in 2020, almost 30 ppts 2023a). According to the 2021 Global Findex Database, higher than the SSA average, ranking The Gambia 7th on only 29 percent of Gambian adults are served by the formal the continent in mobile tele-density (Figure 60). However, and informal financial sector, while almost 70 percent the country’s digital infrastructure still encounters several of adults are financially excluded. Financial inclusion is constraints. The internet usage rate is low at 37 percent much lower in The Gambia than in peer countries such (although higher than the SSA average of 30 percent). as Togo (45 percent), Benin (43 percent), and Burkina Mobile internet penetration is also relatively low, and Faso (40 percent) as well as the average of LICs (35 per- most coverage is low bandwidth. While the number of cent) and SSA (43 percent) (Figure 61 and Figure 62). active sim cards per 100 inhabitants is beyond 100 percent, The share of Gambian adults excluded from the financial only 66.5 percent of mobile phone users use mobile internet. sector is more pronounced in rural areas (75 percent) and Similarly, 88 percent of the population has access to 3G+ among youth (77 percent) and women (64 percent). This broadband, but only 36.5 percent of them are using broad- hampers The Gambia’s socioeconomic development, as band services. This internet usage gap highlights underlying it affects a large proportion of WAP in a country where the factors other than coverage, such as broadband affordability adult population (aged 15 and over) is 52 percent female, and quality on the supply side and literacy and digital skills 64 percent young, and 57 percent rural. While high on the demand side. Digital infrastructure is also hampered mobile penetration would be expected to spur mobile- by weaknesses in the regulatory environment (World Bank based financial solutions, the adoption and usage of digital 2020c). The uptake of 4G cellular data services is deficient, financial services (DFS) remains low, with only 2 percent with 4G subscribers accounting for only 4.5 percent of of Gambian adults using these services. all data subscribers. Access to fixed broadband remains well below 0.19 per 100 inhabitants, and the distribution The Gambia’s transport and planning sectors are under- of cell towers is uneven. performing (World Bank 2023b). While road infrastructure in terms of coverage (road density of 34.7 km/100 km2) Financial inclusion and access to digital financial ser- is above the average of most SSA countries, there is a big vices remain low. The Gambia has one of the lowest levels challenge in terms of infrastructure quality, especially in rural areas, where 95 percent of classified networks are Figure 60. ICT usage in The Gambia and SSA, categorized as being in poor or very poor condition. In 2000–2020 (percent) addition, the distribution of roads is uneven, with only 40 140 a few roads that connect the North and South Bank 120 regions. The deplorable conditions of the secondary and 30 100 the rural feeder road networks constrain rural access to 80 20 agricultural inputs, extension services, markets, economic 60 opportunities, and social services. Urban transport is also 40 10 underperforming in the face of rapid urbanization. As for 20 maritime transport, the Port of Banjul, which accounts 0 0 for over 90 percent of The Gambia’s international trade, 2010 2012 2014 2016 2018 2000 2002 2004 2006 2008 2020 suffers from inefficiency and capacity limitations. Those The Gambia's percentage of individuals using internet deficiencies have led to large volumes of goods being SSA percentage of individuals using internet transited through Dakar and limited re-exports, reducing The Gambia's mobile-cellular subscriptions per 100 foreign exchange earnings and contributing to currency inhabitants (RHS) depreciation and inflation. Regarding air transport, the SSA mobile-cellular subscriptions per 100 inhabitants (RHS) current capacity at Banjul International Airport is only Source: WDI. optimally utilized during the tourist season (November 46 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 61. Financial inclusion in The Gambia Figure 62. Mobile money usage in The Gambia and SSA and SSA 60% 35% 50% 30% 40% 25% 30% 20% 20% 15% 10% 10% 0% 5% The Gambia SSA (excluding high income countries) 0% The Gambia SSA (excluding high income countries) Account (% age 15+) Financial institution account (% age 15+) Mobile money account (% age 15+) Source: Findex data 2017 (last year of available data) for The Gambia Source: 2019 Finscope Consumer Survey for The Gambia and 2021 and 2021 for SSA. Findex data for SSA. to April). In addition, The Gambia’s logistics sector is The Gambia Enterprise Survey 2023, The Gambia is limited in size due to the small overall local demand for doing well in the areas of tax administration (thanks to logistics services. The performance of the logistics sector the upgraded customs management software), customs is reflected in low scores and rankings in the Logistics clearance, and exports. However, the country is faced with Performance Index in 2020, with The Gambia ranking significant challenges related to accessing electricity con- 125th out of 140 economies, with an overall score of 2.3. nections, quality of transportation infrastructure, access to finance, corruption in the public sector, weak spending The Gambia’s business environment remains uncon- on research and development, and lack of quality certi- ducive to private sector development. According to fications (World Bank, 2023) (Box 2.2). Moreover, Tha Box 2.1. Ongoing projects contributing to narrowing the infrastructure gap Certain ongoing projects are expected to help reduce the infrastructure gap that has affected the business environment and have had harmful effects on firm-level productivity and competitiveness. In the energy sector, The Gambia could achieve universal access at end-2024 thanks to a series of ongoing investment projects: (i) The Gambia Electricity Restoration and Modernization Project (GERMP), co-funded by World Bank and European Union; (ii) the Electricity Expansion Project (EEP), funded by India Exim Bank; (iii) the Gambia Electricity Access Project (GEAP), funded by the African Development Bank (AfDB); (iv) the ECOWAS Regional Electricity Access Project, funded by the World Bank; (v) The OMVG Regional Interconnection Project that will connect The Gambia to the West Africa Power Pool (WAPP); and (vi)The Solar Development in SSA Project supporting the development of a regional solar park in The Gambia. On transport infrastructure, as part of the preparation of the OIC conference, the government plans to expand the Bertil Harding Highway, which stretches from the airport to Sting Corner, to a dual carriage of six lanes. It also involves building 20 new urban roads of a single carriage of two lanes. The roads are expected to improve traffic circulation and improve mobility. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 47 GAMBIA | ECONOMIC UPDATE - SPRING 2024 Box 2.2. Some key features of the business environment in The Gambia According to The Gambia Enterprise Survey 2023, The Gambia is doing well in the areas of tax administration (thanks to the upgraded customs management software) and custom clearance, and exports. Percent of firms identifying tax adminis- tration as a major constraint stands at 9.6 percent against 26.7 percent as average in SSA. Clearing imports from customs requires five days compared to 16.6 days as average in SSA. Firms exporting directly or indirectly (at least 10 percent of total sales) reach 18.6 percent of survey firms in The Gambia compared to 13.8 percent as average in SSA. Contrarily, the country faces challenges related to accessing finance and infrastructure, corruption in the public sector, unfair competition from a large informal sector, cost of licensing, among key constraints. Lack of adequate financing of investments is identified as a top constraint. Only 4 percent of firms rely on bank loans to finance investments. Investments are heavily dependent on firms’ internal sources at 71 percent, which reflects inefficient financial intermediation. The rest of investments are financed by credit supplier (17 percent), equity (7 percent) and other sources (1 percent). Deficiency of electricity supply generates costs and disrupt of production, with 87 percent of firms experiencing elec- trical outages. Unfair competition from a large informal sector and SOEs. The informal commonly does not abide rules and regulations, constrains the private sector development. A large number of firms are subject to incidence of informality in the private sector with 70.5 percent of firms competing with informal firms. In addition, as highlighted by the Integrated SOE Frame- work report (WB, 2022), SOEs are not subject to similar market rules as the private peers. There is no legal requirement or systematic separation between commercial and non-commercial activities of SOEs. This means that some SOEs are in ing ‘public service’ obligations for which they get a compensation from the government, while they operate charge of provid­ simultaneously in commercial activities under market conditions (World Bank 2022e). Costs related to delays to get business licensing and permits weigh heavily on operations of Gambia firms. The number of days to get an import license stands at 33 in The Gambia, against 17 in SSA. Corruption by public officials is a major burden on Gambian firms, with 20 percent of them experiencing at least one bribe payment request to get different transactions done including paying taxes, obtaining permits or licenses, and obtaining utility connections. The top ten business environment constraints affecting the private sector include access to finance; corruption; tax rates; practices of informal sector; electricity; transportation; labor regulations; access to land; customs and trade and crime, theft, and disorder. Gambia suffers from the lack of a robust competition antimonopoly policy are significantly less developed in policy framework. While the Competition Act 2007 con- The Gambia than in regional peers. In the World Eco- tinues to be implemented by the Ministry of Trade and nomic Forum’s Global Competitiveness Index 2019, the Commerce, there is need for effective implementation of country ranked 48th out of 141 countries on the extent of this critical legal reform to ensure the proper function- market dominance. Recent IMF research on SSA found ing of the competition policy framework. According to that an improvement in domestic competition is asso- the latest Bertelsmann Stiftung’s Transformation Index ciated with a significant increase in real GDP per capita (BTI), the fundamentals of market-based competition and growth. This would mainly be achieved through higher 48 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Figure 63. The Gambia underperforms regional peers on governance effectiveness Governance indicators, 2021 (percentile rank) (ranges from 0 (lowest) to 100 (highest) Control of Corruption Rule of Law Regulatory Quality Government E ectiveness Political Stability and Absence of Violence/Terrorism Voice and Accountability 10 20 30 40 50 60 70 80 Rwanda Ghana Senegal The Gambia Source: WDI 2021. export competitiveness and productivity growth, lower price of administrative capacity, limited digitization, and per- levels (including of essential items), an increase in firms’ sistent weaknesses in the legal framework, all of which investment levels, and a rise in labor’s share in output. foster corruption and hamper the delivery of quality public An effective competition policy framework requires the services.27 Poor governance undermines investor confi- development of antitrust laws, independent and well- dence in the public administration and efforts to ensure functioning enforcement agencies (with adequate financial ease of doing business. resources and suitably qualified staff to pursue anti- competition investigations), independent regulatory bodies, and judicial support (Cherif et al. 2020). 2.5.  Policy options for laying the foundation for higher and more The quality of governance effectiveness has improved, but inclusive growth The Gambia still underperforms the best-performing countries in the region. Since the democratic transition The government needs to strengthen macroeconomic in 2017, the country has made progress on most of the policy buffers and fast-track structural reforms to build Worldwide Governance Indicators, although its scores resilience and support its inclusive growth agenda, remain low, ranking behind the region’s best performers as stated in the 2023–2027 National Development Plan. such as Ghana, Rwanda, and Senegal (Figure 63). A gov- This section summarizes the key policy measures around ernance diagnostic mission conducted by the IMF in macroeconomic policies and structural reforms that can January 2023 commended the Gambian authorities on support the country’s national development agenda. progress made in implementing governance reforms while They aim to address the structural constraints facing The noting that significant challenges remain, including lack Gambia by strengthening domestic revenue mobilization, 27 Reforms achieved include the adoption of new laws aligned with best practices (e.g., Central Bank Act, Access to Information Law, and Public Procurement Act). Additional measures relate to efforts to develop an e-procurement platform and bring the banking sector regulatory and supervisory framework closer to international standards. Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 49 GAMBIA | ECONOMIC UPDATE - SPRING 2024 accelerating capital accumulation and productivity growth, Assessment in areas such as macroeconomic policy improving governance and the business environment, and public sector governance. The authorities need to sustaining investments in human capital development, urgently focus on developing a comprehensive national and supporting increasing agricultural productivity. The strategy for good governance, addressing governance policy options are primarily focused on the short term and corruption vulnerabilities, and implementing a solid with practical recommendations, given the urgency of competition policy framework. This would require reform, but they will need to be complemented by broader the development of antitrust laws, an independent and medium- to long-term reforms. well-functioning enforcement agency, independent regulatory bodies, and judicial support (Cherif et al. The Gambia could consider: 2020). • Strengthening domestic revenue mobilization to • Sustaining investments in human capital to ensure improve the provision of public goods and fiscal that labor growth translates into output growth and and debt stability. These efforts would include reducing higher incomes per capita that benefit all Gambians. tax incentives and exemptions; streamlining subsidies The Gambia will need to spend more and better on by targeting the most vulnerable rather than generalized health, education, and social protection to boost human subsidies through the deployment of the social registry; capital and accelerate growth. However, these efforts streamlining duty waivers; accelerating digitization of face financing challenges, including a budget skewed tax and customs administrations to permit electronic tax toward recurrent expenditures at the expense of devel- registration (electronic filing and electronic payments); opment expenditures, which undermines education and reducing budget allocations to SOEs as part of their and health outcomes, with considerable efficiency losses. reforms. Electronic tax registration requires accompa- Short-term reforms would target improving service nying policy, legislative, and administrative reforms delivery through increased investment spending on and the availability of adequate digital connectivity. inputs and learning materials, rationalizing the alloca- Infrastructure investment needs to be prioritized to tion of the health budget in favor of primary care, and spur growth, along with improvements in expenditure tackling spending inefficiency in the health, education, efficiency. The implementation of these reforms could and social protection sectors. yield significant potential revenue gains. • Addressing the skills mismatches to support the • Accelerating capital accumulation and productivity. shift of labor towards more productive sectors. Skills Weak growth in capital accumulation per worker reflects mismatch is one reason why labor shift to more pro- subdued investment in infrastructure, machines, and ductive sectors did not happen following the produc- structures, while poor productivity growth in the long tivity growth in 2017–2019. A skills mismatch occurs term reflects persistent and growing constraints in when workers have either fewer or more skills than jobs technology access, institutions, and macroeconomic require. This discrepancy can occur at different levels, conditions. To increase capital accumulation, The including educational qualifications, technical exper- Gambia will need to boost infrastructure investments. tise, or soft skills. Several factors can contribute to skills An immediate reform could focus on addressing the mismatch, including (i) rapid technological advance- institutional and capacity constraints of the port of ments that render certain skills obsolete, (ii) educational Banjul to facilitate international trade and improve system if educational institutions fail to adapt their international connectivity. curricula to meet evolving industry needs; (iii) labor • Implementing governance and business environ- market information gaps, and (iv) economic down- ment reforms to accelerate economic and produc- turns and industry restructuring (ILO, 2020). For The tivity growth. The challenges in advancing policy and Gambia, the Human Capital Review highlighted most institutional reforms are reflected in The Gambia’s of the issues above, including: (i) a disparity between low score on the Country Policy and Institutional what is taught in schools and Technical and Vocational 50 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH Table 5. Potential gains from domestic revenue mobilization reforms Revenue gains Policy measure (% of GDP) Source Reduce tax incentives, 4–6 • A study by Oxford Economics Africa in 2022 on The Gambia’s tax exemptions, and duty expenditure found that the country had foregone potential revenue waivers in tax relief averaging 4.95 percent of GDP over 2028–2020 (6.96 percent in 2018, 3.98 percent in 2019, and 3.93 percent in 2020) through tax incentives for investment in priority sectors and aid-funded projects (Oxford Economics 2022). • The Gambia Public Expenditure Review 2020 found that tax revenues are about 4–6 percent lower than the country’s potential due to generous tax incentives, multiple tax rates, difficulties in taxing government institutions, and the prevalence of zero-rated goods (World Bank 2020b). Introduce electronic tax 1.6 The introduction of e-filing and e-payment would help streamline the registration (electronic filing tax process. It increases the share of on-time payments, reduces and electronic payments) tax compliance costs and, ultimately, increases tax revenue. Raising the adoption of e-filing by 50 percent of total tax filing in low-income countries could boost tax revenues by 1.6 percent of GDP (Manabu and Andualem 2023). In Burkina Faso, the adoption of tax e-filling and e-payment in 2020 helped increased the number of taxpaying firms and individuals recorded in the government’s taxpayer database by 76 percent over 5 years, from 95,515 in 2017 to 168,623 in July 2023 (World Bank 2023c). In The Gambia, the Integrated Tax Administration System is being prepared. However, the revenue administration has so far not enabled electronic filling for any of its core taxes or taxpayer segments. Improve expenditure 4.9 The Gambia Public Expenditure Review 2020 found that tackling efficiency spending efficiency in education, health, and security, which are among the sectors that account for the largest share of public spending, could potentially generate fiscal savings of about 4.9 percent of GDP (World Bank 2020b). Reduce budget allocations Government transfers to SOEs, which are unbudgeted, is estimated to SOEs at 5–6 percent of GDP (World Bank 2020d; World Bank 2021). Education and Training (TVET) centers and what the Government policies and initiatives are crucial to bridge labor market actually needs, (ii) the absence of labor the skills mismatch. These encompass several policy market intermediation services; (iii) lack of highly areas including: (i) education and training reforms to skilled personnel at the managerial level in the tourism equip individuals with the necessary skills for the evolv- sector; (iv) shortage of top-level employees with the ing job market, which includes revamping curricula requisite managerial competence to drive growth and to align with industry needs, and promoting vocational innovation in businesses (World Bank 2023f ). Skills education programs; (ii) labor market information mismatchs can lead to various negative consequences, systems to gather data on current and future skill such as unemployment, underemployment, and reduced demands; and (iii) public-private partnerships to develop productivity, all of which impede economic growth. industry-specific training programs, apprenticeships Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth 51 GAMBIA | ECONOMIC UPDATE - SPRING 2024 and internships. For The Gambia, the Human Capital for 39.6 percent of total imports in 2023, including Review identified selected policy measures to bridge 6.8 percent from Senegal, The Gambia’s intra-regional the gaps, including (i) diversifying and deepening exports remain low, with 11 percent of its total exports skills through quality TVET training designed to meet directed to ECOWAS in 2022 of which 6.6 percent to labor market demands, (ii) setting up labor-market Senegal. This calls upon to further develop The Gambia’s information systems and collecting data on graduates’ exports to the regional market from two perspectives. transition from school to work so as to improve the First, develop The Gambia’s role as a strategic hub for effectiveness of training programs, (iii) improving foun- re-export trade with Senegal, taking advantage of its dational learning and learning outcomes, (iv) improving geographical position. Re-exports are currently low at practical elements of learning to enable young graduates’ 3.6 percent of total exports in 2022 (GBOS 2023). employability; (v) connecting skills centers with the Second, take advantage of the opportunities offered private sector (World Bank 2023f ). The private sector by trade opening in the context of the trade liberal- has a role to play through collaboration with educa- ization within ECOWAS and the African Continental tional institutions and policymakers. Key strategies Free Trade Area (AfCFTA). The Gambia has imple- that employers can adopt include (a) investing in training mented since January 2017, the five-tiered ECOWAS and development programs to enhance employees’ Common External Tariff (CET). In August 2018, skills, and (b) collaborating with educational institu- The Gambia became the 14th West African country tions to ensure that the curriculum aligns with industry to have signed the region-to-region Economic Part- needs. As part of human capital development strategy, nership Agreement (EPA) with the European Union. the Government will need to work with the private In April 2019, The Gambia became the 22nd nation sector and education institutions to identify skills gaps to ratify the AfCFTA. Full implementation of the and develop appropriate policies and initiatives to AfCFTA will result in the creation of a single market bridge the gaps. for goods and services of about $1.3 billion people and • Increasing public financing on R&D to support a combined GDP of around $3.4 trillion. The World agricultural productivity growth. Boosting agricul- Bank estimates that lowering or removing tariffs and tural production will require improving agricultural non-tariff barriers on trade in goods and services has innovation and increasing the use of technology among the potential to raise the continent’s GDP by 9 percent farmers, which in turn would require significantly by 2035 and help lift about 68 million people out of increased public investment in R&D, along with extreme poverty (those living on less than $5.50 per increased market links and rural infrastructure (Beegle day – estimated at 70.7 percent for The Gambia), and Christiansen 2019). The Gambia devoted only mainly through expanding trade and employment crea­ 0.3 percent of GDP of government spending to the tion (World Bank 2020e). In view of its weak exports, agriculture sector in 2022, with almost zero spending on The Gambia will need to strengthen internal capacity R&D. Short-term reforms should focus on increasing to increase its trade performance and take advantage financing in R&D to support agricultural innovation of the potential offered by ECOWAS and AfCFTA. To needed to address the growing challenges facing the this end, the country will need to implement develop- sector (climate change, air pollution, etc.). ment and industrialization policies focusing on certain • Developing a re-export trade hub and strengthening targeted levers, which would at the same time address regional integration. The Gambia’s top export desti- certain constraints identified in the 2023 enterprise nations are China, India and Vietnam, accounting for survey: (i) increase FDI inflows to import technologies; more than 70 percent of Gambia’s exports in the fourth (ii) strengthen R&D to learn and assimilate imported quarter of 2023, with the bulk going to China totaling technologies; (iii) design policy for adequate financing of 61 percent. On the other hand, while ECOWAS rep- companies; (iv) overhaul education to developing human resents an important source of imports, accounting resources and industrial infrastructure; (v) develop a 52 Chapter 2: Spotlight on The Gambia’s Development Agenda: Jumpstarting Inclusive and Sustained Growth JUMPSTARTING INCLUSIVE AND SUSTAINED GROWTH favorable environment for SMEs promotion; (vi) invest with US$0.7 billion of available funding as of December in regional industrial value chains. 2023 out of total cost estimated at US$3.5 billion. • Complementing policy measures with medium- to Implementing the proposed policy options will thus long-term reforms to continue advancing the eco- require strengthening the link between policies with the nomic reform agenda. Increasing capital accumula- Medium-Term Expenditure Framework (MTEF) and tion will require continued efforts to reduce energy, annual budgets to ensure that development priorities transport, and digital infrastructure gaps. In addition are appropriately financed, and continuing revenue to implementing reforms aimed at improving gover- mobilization efforts including preparation of a domestic nance and macro-fiscal sustainability, The Gambia needs revenue mobilization strategy and an integrated national to continue improving the quality of fiscal policy and financing framework. Implementing reforms also poses debt management, including the performance of SOEs. a challenge in terms of institutional framework and In the business environment, there is a need to pursue public administration capacity for the coordination reforms that reduce supply-side constraints to private and monitoring. A reform monitoring committee has investment, including increasing access to finance, recently been set at the Ministry of Finance and Eco- improving regulations affecting factor markets, pro- nomic Affairs. The authorities will need to ensure that viding support to technology imports for productive this committee functions effectively, with adequate sectors, and expanding and protecting property rights. resources and back up at high level of State apparatus. Increased investment in human capital would need to Limited administrative capacity has been identified as be complemented by continued measures aimed at hampering the delivery of timely and quality public reducing child mortality and expanding access to family services. The authorities will need to pursue efforts in planning and women’s education. To spur agricultural strengthening the capacity of public administration in productivity growth, spending on R&D should be com- terms of processes and human resource qualifications. plemented by the development of competitive agricul- The implementations of the suggested policy options tural value chains focused on agribusiness. will also require strong political commitment to reforms. • Addressing financing needs as well as institutional This will need to be accompanied by the ability to preserve challenges and committing to reforms. The Gambia’s the momentum from development partners’ support, development financing poses significant financing needs engage national stakeholders including the private sector given the constrained domestic resource mobilization and civil society, and align adequate sectoral experts and the current gap in financing the NDP 2023–2027, within the different policy priorities. 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