Tuesday, September 22, 2015

IMF Staff-monitored program is off track, more bad economic news despite bailout

Oyster women hard at work 
The International Monetary Fund (IMF) is reporting more bad economic news for the Gambia despite recent Rapid Credit Facility (RCF) or financial bailout extended to the cash-strapped regime of Yaya Jammeh.

In a news release announcing a recently-concluded mission to The Gambia, The Fund announced that the country continues to experience large balance of payments and fiscal imbalances.

Two reasons were cited for the deteriorating conditions of the economy, what the Fund described as persistent policy slippages in recent years and financial difficulties in public enterprises.  These same reasons have been persistently cited by the Fund in previous Fund mission reports as the main reasons for the continued downward spiral of an economy that has obviously gone out of control with inflation now threatening to be a structural or endemic phenomenon.  Just ask the person in the street.

Although The Gambia was Ebola-free, its consequences were felt well beyond the borders of the countries directly affected by the outbreak.  Gambian tourism was devastated as a result with up to 60% reduction in tourist visits, further exacerbating a dire economic environment.

The Fund also cited last year's delayed rains as contributing to the economic problems facing the country.  But the primary and fundamental reason for the mismanagement of the economy rests squarely on the shoulders of a regime that continues to display an incredible level of fiscal indiscipline, despite numerous warnings from the Fund - a warning that the Jammeh regime continues to ignore thus putting the lives of ordinary Gambians at risk.   The incidence of rural poverty continues to spin out of control, while urban poverty is also beginning to manifests itself more prominently.

The staff-monitored program put in place in March/April of this year is already off track and according to the IMF, "worsening the outlook considerably especially since budget support from donors will not be forthcoming.

The Fund laments at the fact that the Office of the President continues to interfere in the foreign exchange markets by issuing an Executive Order imposing an exchange rate that was 20% over-valued compared to the prevailing market rates at the time and which the Fund considered to be "broadly in equilibrium."  This presidential action came shortly after the conclusion of the negotiations of the RCF which led us to question government's sincerity and commitment to making the SMP work for the ordinary citizen. It is not as if the regime has been upfront about its promises to the Fund and other donors.

In June of 2014, a similar directive was issued by the Office of the President, setting foreign exchange rates in direct contravention of Gambian law, and the beginning of the instability due to lack of confidence in the forex market due to constant interference from State House.

Although late in coming, we are happy that the IMF has issued directive to the authorities in Banjul to rescind immediately the presidential directive that limits foreign exchange flexibility - an action we advocated for since June of 2014.  Perhaps the Fund is finally beginning to listen to the voices that are crying for sanity in the management of an economy that was once the pride of the sub-region.

The Central Bank's efforts must also be acknowledged despite working under the most difficult of circumstance and under a dictatorship whose insatiable appetite for domestic borrowing to finance highly dubious and non-productive projects (white elephants), especially in a near-election year is problematic.  We must also join the Fund in encouraging the CBG to continue its efforts in supervising the commercial banks, most of whose financial health continues to be suspect.