Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Author: Adalbert Nshimyumuremyi
- Economic growth is still driven by a recovery in agriculture and by a strong start up to the tourist season.
- Incoherent macroeconomic policies have caused major disruptions to the Gambian foreign exchange market and created fiscal imbalances, increasing the country’s vulnerability to external shocks.
- Despite the Gambia’s significant progress in reducing the overall incidence of poverty, inequality and high unemployment, especially among the youth, remain a challenge.
Recovery in agriculture and healthy gains in tourism supported GDP growth in 2012 and 2013. Real GDP is estimated to have grown by 6.1% in 2012 and 5.6% in 2013 compared to a contraction of 4.3% in 2011. The outlook is optimistic as real GDP is projected to grow by 7.5% and 6.7% in 2014 and 2015, respectively. Inflation increased to 5.3% in December 2013 from 3.9% at end 2012, largely due to a weakening of the Gambian dalasi.
The fiscal deficit is projected to fall from an estimated 3.3% of GDP in 2013 to 2.5% in 2015. Tax revenues are projected to decline by 0.8% of GDP over the period despite value added tax (VAT)and other tax measures. On the expenditure side, a decline in interest payments on domestic debt, along with other factors, is expected to contribute to a decline in outlays from an estimated 17.9% of GDP in 2013 to 17.3% in 2015. The government needs to control domestic borrowing and provide for a consistent and appropriate macroeconomic framework. This will help to stabilise the economy and rebuild market confidence, as well as to diminish crowding out of private sector activity and to create space for development spending. The government should strive to maintain a flexible exchange rate policy and to tighten monetary and fiscal policies to ensure stability and preserve adequate foreign reserve levels.
The Gambia is connected to global value chains through two main sectors: tourism and nuts.Tourism and nut production are the main foreign exchange earners outside the re-exports sector. Though the country has achieved a relatively high multiplier effect from tourism, such returns are mainly limited to coastal areas. By promoting up-country eco and cultural tourism, the Gambia can expect greater benefits to the poor. In order to promote investment in such opportunities, an enabling environment needs to be created through land and river networks and information and communications technology (ICT) to increase accessibility. Furthermore, the economic environment of the Gambia is ideal for investing in cashew nuts. Currently, cashew processing in the Gambia is negligible. The Gambian cashew nuts value chain includes several different stages between the farmers and processors capable of delivering wealth creation opportunities.
Table 1: Macroeconomic indicators
|Real GDP growth||6.1||5.6||7.5||6.7|
|Real GDP per capita growth||2.9||2.4||4.3||3.5|
|Budget balance % GDP||-4.4||-3.3||-2.5||-2.5|
|Current account balance % GDP||-16.4||-16||-15.8||-14.7|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.