Insights into Gambia's Macroeconomic Changes

Gambia Economic Outlook Recent Macroeconomic and Financial Developments

The Gambia’s economy demonstrated resilience in 2023, with real GDP growth increasing from 4.9% in 2022 (2.4% per capita) to 5.6% (3.1% per capita). This growth was driven by improvements in tourism, construction, and industry on the supply side, and by private investment and public spending on the demand side. However, inflation accelerated due to rising food and energy prices and a 9.9% depreciation of the exchange rate. In response, the central bank tightened monetary policy, raising the policy rate from 10% in March 2022 to 17% in September 2023.

The fiscal deficit improved, narrowing from 4.9% of GDP in 2022 to 3.5% in 2023, supported by expenditure restraint and higher customs revenues. Despite this progress, tax revenue remains low at 9.8% of GDP. Strong nominal GDP growth helped reduce the public debt-to-GDP ratio significantly, from 82.8% in 2022 to 71.8% in 2023. However, the current account deficit worsened, rising from 6.1% of GDP in 2022 to 7.6% in 2023, driven by weak agricultural exports and higher import prices for commodities. International reserves declined from 454.7million(5.3monthsofimportcover)in2022to454.7million(5.3monthsofimportcover)in2022to416.4 million (4.4 months) in 2023 due to increased import costs.

The financial sector remained stable, with nonperforming loans dropping from 4.6% of gross loans in 2022 to 3.5% in 2023, below the prudential requirement. The capital adequacy ratio stood at 24.6%, well above the regulatory minimum of 10%.

Despite these macroeconomic improvements, the cost-of-living crisis deepened, eroding household incomes and pushing the poverty rate up from 45.8% in 2019 to 53.4% in 2021. Unemployment remained high, estimated at 31.6% in 2023.

Outlook and Risks

Economic growth is projected to reach 6.1% in 2024, driven by agriculture, services, construction, and robust public infrastructure development. The ongoing $25 million threshold program is expected to further support growth. However, vulnerability to extreme weather events could slow growth to 5.8% in 2025.

Strong growth in 2024 is expected to reduce the fiscal deficit to 2.7% of GDP and the current account deficit to 7.2%. Public debt is projected to decline to 65.2% of GDP in 2024 and stabilize at 60.8% in 2025, supported by fiscal consolidation. Inflation is likely to ease to 12.5% in 2024 and 11% in 2025, reflecting restrictive monetary policies and declining global food and energy prices.

Key risks to growth include potential disruptions in global supply chains for oil and fertilizers, the impacts of climate change, and delays in budget support disbursements. Sustained growth will depend on fiscal consolidation, improved debt management, and economic diversification.

Reform of the Global Financial Architecture

Over the past decade, The Gambia’s economy has undergone significant structural changes. Agriculture’s share of GDP value added fell from 35% in 2010 to 23% in 2021, while industry’s share rose from 9% to 14%, and services increased from 54% to 62%. However, structural transformation has been slow. Labour has shifted from low-productivity agriculture (down from 30% in 2010 to 25% in 2021) directly into services (up from 52% to 59%), bypassing the higher-productivity industrial sector (down from 16% in 2010 to 14% in 2021).

To accelerate structural transformation, investments in infrastructure, technological innovation, and access to finance are critical. Addressing the $2.8 billion financing gap is essential for achieving this goal.

The Gambia has taken steps to unlock capital for infrastructure development, including signing a shareholder agreement with Africa50 to manage the Senegambia Bridge under the Asset Recycling Program. Additionally, the country secured 4.14millionin2020undertheG20DebtServiceSuspensionInitiativeand4.14millionin2020undertheG20DebtServiceSuspensionInitiativeand129 million in deferred payments from official bilateral creditors between 2020 and 2024.

To maximize the benefits of reforms in the global financial architecture, the government should prioritize highly concessional loans to strengthen debt sustainability. Promoting cross-border trade and infrastructure development will also be crucial for The Gambia to fully leverage the opportunities presented by the African Continental Free Trade Area.

Source: African Economic Outlook (AEO) 2024