The World Bank’s Gambia Economic Update report has indicated that creating scale-space will be important to support counter-cyclical policies in the face of external shocks.
The report that was launched recently further highlighted that the government can increase its scale capacity by expanding its tax revenues during good times, as the tax gap is estimated at 4-6% of GDP, adding nearly half of the country’s tax revenue comes from international trade.
“This leaves it particularly vulnerable to shocks that lead to disruptions in trade, such as the pandemic and war. It should therefore seek to diversify its revenue sources by improving its capacity to collect direct taxes such as income tax.”
“To further build scale resilience, The Gambia needs to reduce its debt burden to enable the Government to spend in response to crisis without forcing it to cut essential services. One way could be to review its existing pipeline of loans before contracting new debt.”
On domestic factors compounding inflationary pressures, the World Bank says transportation services by air and sea are critical for The Gambia as an import-dependent economy. It further highlighted that it has no stand-alone air cargo capacity: trade depends on tourist rights and relies heavily on the tourist season, rendering imports costly.
The report stated that the port of Banjul, managed by the Gambia Ports Authority (GPA), has limited capacity to handle current volumes, causing frequent delays and extra costs for importers and consumers, and feeding into inflation.
“Port congestion also limits access to foreign markets, thereby eroding the country’s competitiveness. In 2019, the GPA submitted a new master plan to develop the port to expand its container capacity. The upcoming port expansion project, one of the many in the plan, will need to be expedited to alleviate the long-standing structural challenges affecting the country’s growth and inflation dynamics.”
The report continued that major binding constraints will need to be addressed to unlock the country’s growth potential, saying these constraints are first, a history of low investment growth with low private investment, and public underinvestment (and malinvestment) in infrastructure and human capital, preventing the achievement of strong, enduring growth.
“Second, decades of low or negative productivity growth, due to both idiosyncratic and economy-wide constraints. Third, a poorly diversified economy and a narrow export base (agriculture and tourism) which help explain the stop-go nature of The Gambia’s growth. Sound scale stewardship will be needed to sustain business confidence and to create space for the productive public investments needed to crowd in private investment.”
It added that the government will also need to improve the overall business-enabling environment and address critical constraints, such as limited access to finance.