BANJUL, The Gambia, March 18, 2021 — According to the World Bank’s first Economic Update on the Gambia, real GDP growth exceeded 6% two years in a row before COVID-19 struck, driven by rebounding confidence, investment, low interest rates, and growing tourism. While Tourism arrivals had started well at the beginning of 2020, they collapsed by about 50% in March 2020, as containment measures were put in place swiftly. GDP growth is expected to have stagnated in 2020, however, the economy is expected to gradually recover in 2021 as the pandemic recedes, conditional on political stability and normal weather conditions.
The report, Preserving the Gains, notes that the impact of the pandemic has also hindered poverty reduction and reversed some of the poverty reduction in 2020 with most households reporting declining income from agriculture and fishing, non-farm businesses, and salaried employment. Moreover, the closure of schools, during the lockdown, is expected to have resulted in learning losses, which could affect human development outcomes in the long term, while limited digital infrastructure hampered online learning.
“Prior to COVID-19, The Gambia’s economic prospects had been improving but the pandemic interrupted a promising start to 2020,” stated Mehwish Ashraf, World Bank Country Economist and lead author of the report. “That being said, the economy has weathered the pandemic better than anticipated and is expected to start recovering gradually in 2021, although the outlook remains uncertain.”
On a more positive note, the report highlights that official remittances grew at record pace in the second quarter of 2020, perhaps due to travel restrictions closing informal channels. As a result, international reserves continued to rise in 2020. The crisis has also put downward pressure on inflation, which had previously been increasing. Favorable rainfall, good access to inputs, and few pest outbreaks have resulted in a strong turnaround in agricultural output. The report appreciates Government’s early interventions to mitigate some of the pandemic’s impact. However, the report stresses on doing more for the service sector businesses and informal workers who risk falling into poverty as the pandemic endures and risks disrupting the tourism season.
This report also notes that The Gambia reinstated fiscal discipline in 2019. The country has registered an overall fiscal deficit of 2.5% of GDP in 2019 —the lowest level in a decade. The fiscal deficit, however, rose in the first half of 2020 to accommodate pandemic-related spending pressures, although tax revenue showed resilience in the face of the shock. Donor assistance and budget grants also supported government’s expanded spending.
The Government continues to make large transfers to state-owned enterprises, the fiscal burden of which is estimated to be around 6% of 2019 GDP. The report emphasizes on the need to broaden, deepen, and maintain the momentum of the state-owned enterprises legislative and regulatory reforms. Restructuring and performance improvement plans should be prepared and implemented for those enterprises with the most significant impact on the economy and on public finances in the first phase.
The report’s first special section focuses on promoting a more inclusive jobs agenda, as The Gambia is not yet fully exploiting the demographic dividend from its young population and growing labor force. The economy’s inability to create enough high-quality jobs could explain the underuse of the working-age population. An inclusive labor market will require job creation and wage growth, which depend on a successful transformation of the economy and higher productivity.
Given The Gambia’s high vulnerability to external shocks, the second special section discusses strengthening resilience to preserve macroeconomic stability and development gains. This will require improving spending efficiency and increasing tax revenues as well as reducing debt burden in the long term. Robust digital infrastructure will be crucial to build resilience in the face of shocks, including the pandemic. Equally important will be a robust electrical system and the water, sanitation, and hygiene infrastructure.
“The Gambia’s economy is highly vulnerable to external shocks, given its size and high concentration in agriculture and tourism, and the COVID-19 pandemic highlights the need for the country to develop resilience, particularly across three dimensions: climate, infrastructure, and fiscal resilience,” said Feyi Boroffice, World Bank Resident Representative.
