VZCZCXRO3107
RR RUEHMA RUEHPA
DE RUEHJL #0668/01 3011906
ZNR UUUUU ZZH
R 281906Z OCT 06
FM AMEMBASSY BANJUL
TO RUEHC/SECSTATE WASHDC 7088
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

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