Outlook for 2011-12

The president, Yahya Jammeh, and the ruling party, the Alliance for Patriotic Reorientation and Construction (APRC), are expected to retain a firm grip on power through a combination of patronage and repression. The opposition is extremely unlikely to win a significant share of the vote in the presidential and parliamentary elections in late 2011 and early 2012 respectively, as the APRC continues to co-opt popular opposition members with lucrative job offers while also harassing the more outspoken leaders and intimidating opposition supporters. Following a recent spate of arrests, almost everyone with the influence and financial backing to orchestrate a coup is in jail or in exile. However, recent events have highlighted the possibility of unexpected changes on this front, and there is a small chance that a coup will take place over the forecast period. Real GDP growth is forecast to slow from an estimated 5.6% in 2010 to 5.3% in 2011, before picking up to 5.5% in 2012, as growth in agriculture remains strong but the recovery in tourism is held back by a dip in growth in the EU-the main market for tourism to The Gambia. The fiscal deficit is forecast to moderate to 1.5% in 2011 and 1% in 2012 as the government balances the impetus to raise spending ahead of the elections with pressure from the IMF to shift the budget into surplus.

The political scene

The Gambia has cut diplomatic relations with Iran, a former ally. The decision seems to have been linked to the seizure of an arms shipment originating in Iran and destined for The Gambia. Rumours that the president wants to become king have persisted. The ruling party won a local government by-election in October. Corruption remains rampant, according to Transparency International.

Economic policy

An IMF mission noted that fiscal performance has improved in the second half of 2010. This should pave the way for the release of the final tranche under the extended credit facility (ECF; 2007-11). The draft budget for 2011 envisages a deficit of 1.4% of GDP in 2011, which will further boost public debt.

The domestic economy

The Gambia's position in the World Bank's Ease of Doing Business rankings has slipped as business reforms have stagnated. Nigeria's Oranto Petroleum has been given the exploration rights to an onshore block in western Gambia.

Foreign trade and payments

Five loan and grant agreements, worth a total of US$45m, have been signed with the Islamic Development Bank. These include funds for the National Water and Electricity Company.

Land area

11,295 sq km

Population

1.8m (2010 UN estimate)

Population by city

Population (2010 World Gazetteer estimates)

Serrekunda: 391,096

Brikama: 94,838

Bakau: 64,518

Lamin: 34,930

Banjul (capital): 32,921

Nema Kunku: 32,213

Farafenni: 28,874

Brufut: 28,303

Basse: 17,463

Sukuta: 17,094

Climate

Tropical

Weather in Banjul (altitude 27 metres)

Hottest month, June, 23-32°C; coldest month, January, 15-23°C. Driest months, March, April, 1 mm average rainfall; wettest month, August, 500 mm average rainfall

Languages

English, Mandinka, Wolof, Fula and other local dialects

Measures

UK imperial system, with increasing use of metric system

Currency

Dalasi (D); average exchange rate in 2009: D26.6:US$1;

Time

GMT

Public holidays

Fixed: January 1st (New Year's Day), February 18th (Independence Day), May 1st (Labour Day), July 22nd (coup anniversary), December 25th (Christmas Day)

Variable: Eid al-Adha, Prophet's Birthday, Good Friday, Easter Monday, Eid al-Fitr

Official name

Republic of The Gambia

Form of state

Unitary republic

Legal system

Based on English common law; some aspects of traditional law and sharia (Islamic law) also apply, although sharia does not apply to non-Muslims without their consent

National legislature

National Assembly, installed in February 2007; 53 members, 48 elected by universal suffrage, five nominated by the president; all serve a five-year term

National elections

September 2006 (presidential) and January 2007 (legislative); next elections due in the fourth quarter of 2011 (presidential) and the first quarter of 2012 (legislative)

Head of state

President, elected by universal suffrage for a five-year term; no term limit

National government

The president and cabinet; most recent cabinet reshuffle was in July 2010

Main political parties

The Alliance for Patriotic Reorientation and Construction (APRC), the ruling party, which has 47 seats in parliament; the People's Democratic Organisation for Independence and Socialism (PDOIS); the National Democratic Action Movement (NDAM); the United Democratic Party (UDP); the National Reconciliation Party (NRP); The Gambia Party for Democracy and Progress (GPDP); and The Gambia Moral Congress

President, commander in chief of the armed forces & minister of defence, agriculture & petroleum: Yahya Jammeh

Vice-president & minister for women's affairs: Isatou Njie Saidy

Key ministers

Agriculture: Khalifa Kambi

Basic & secondary education: Fatou Lamin-Faye

Culture & tourism: Fatou Jobe-Njie

Economic planning & industrial development: Mambury Njie

Energy: Ousman Jammeh

Finance: Abdou Kolley

Fisheries, water resources & National Assembly matters: Lamin Kaba Bajo

Foreign affairs & international cooperation: Mamadou Tangara

Forestry & the environment: Jato Sillah

Health & social welfare: Vacant

Information & communication infrastructure: Alhaji Abdoulie Cham

Interior & NGO affairs: Ousman Sonko

Justice & attorney-general: Edward Gomez

Local government & lands: Pierre Tamba

Secretary-general & head of civil service: Njogou Lamin Bah

Trade, employment & regional integration: Yusupha Kah

Youth & sports: Sheriff Gomez

Central Bank governor

Momodou Bamba Saho

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The president, Yahya Jammeh, and the ruling party, the Alliance for Patriotic Reorientation and Construction (APRC), are expected to retain a firm grip on power during the forecast period. Mr Jammeh has ruled the country since coming to power in a coup in 1994 and is almost certain to win the next in a series of flawed presidential elections in 2011. Previous landslide victories have largely reflected the APRC's powers of patronage and its repression of the opposition. This will remain the case in 2011-12. Mr Jammeh will continue to reshuffle his cabinet frequently to prevent potential rivals from building political support bases. Partly as a result, he will remain firmly in control of the APRC. The regime's censorship of the media will continue; journalists, publishers and activists who criticise the government will be detained, and critics of the president-from any corner of society-will not be tolerated. The weakened opposition will continue to lack a sufficient presence in either parliament or local government to influence policy. It may try to harness economic dissatisfaction to provoke social unrest, but any such effort would be thwarted by the dominance and repressiveness of the APRC.

With the opposition posing little threat to the president, the main prospect of a change in power is from a coup. The risk of a coup is low at present. However, recent events have indicated that unexpected changes could well occur on this front. In mid-2010 a former chief of the defence staff (the highest-ranking officer in the army), Lieutenant-General Lang Tombong Tamba, was sentenced to death for allegedly plotting a coup in 2009. A series of recent trials and arrests have meant that almost everyone with the political influence and financial backing to carry out a coup-including the former heads of the army, the navy and the national intelligence agency-is in jail or in exile. For the moment, therefore, a coup is unlikely. However, insofar as the accusations against General Tamba are true, they point to the potential fragility of Mr Jammeh's hold on power: the general was previously believed to be a loyal supporter of the president and, moreover, was promoted to the head of the armed forces because of his apparent loyalty to Mr Jammeh during another alleged coup attempt in 2006.

The next presidential election is scheduled for the fourth quarter of 2011. Mr Jammeh is almost certain to win re-election. This will be underpinned by the ruling party's powers of patronage; its success in co-opting popular opposition personalities into government with lucrative job offers; its harassment of the more outspoken and critical opposition leaders (who are sometimes charged with sedition and incitement); and its intimidation of the opposition's supporters. The two main opposition parties-the United Democratic Party (UDP) and the National Reconciliation Party-are likely to re-establish their electoral alliance, with the UDP's leader, Ousainou Darboe, standing as its presidential candidate. Nevertheless, in the face of the tactics used by the ruling party, their chances of success will be minimal. The presidential election will be followed by parliamentary elections in early 2012 and local government elections in early 2013. These are also likely to deliver clear majorities for the APRC, for similar reasons. In line with recent elections in the country, the voting process is likely to be credible (vote-rigging is not expected), but the pre-election environment will be marred by severe flaws. For example, Mr Jammeh has already reportedly threatened to cut government funding to areas that vote in favour of the opposition if the APRC is re-elected.

The Gambia's relations with Senegal are expected to stay largely amicable. This relationship is important because of The Gambia's location as an enclave surrounded by Senegal. Two issues have historically been a source of animosity between the two countries: crossborder trade (both transit trade through The Gambia and unregulated trade between the two) and Senegal's allegations that The Gambia supports a Casamance-based rebel group. These issues are dormant at present but could re-emerge as sources of tension over the forecast period. Despite this, a breakdown in relations is highly unlikely, as both countries have strong economic reasons to maintain ties. For The Gambia re-exports to Senegal account for the majority of its exports, and for Senegal transit trade through The Gambia is crucial to keeping down transport costs between its northern and southern regions.

Mr Jammeh will continue to cultivate closer relations with other anglophone countries in West Africa, particularly Nigeria. Relations with The Gambia's Western allies will remain strained because of the regime's human rights violations. However, these are likely to be largely overlooked, especially if Mr Jammeh is seen to remain compliant with Western efforts to tackle drug-trafficking through the region. Aid inflows could decline-ostensibly because of human rights concerns, but probably because of fiscal pressures in the West (human rights issues are long-standing)-but this will have limited implications, as grants typically fund only about 6% of the budget.

The broad direction of policy in The Gambia will remain market-orientated, and its implementation will continue to be hindered by inefficiency and corruption. The policy agenda will be underpinned in part by the forthcoming Programme for Accelerated Growth and Employment (PAGE), although the government has yet to confirm when this document will be finalised or the sectors that it will prioritise. The Gambia's extended credit facility with the IMF (2007-11) is due to expire early next year. The IMF has expressed concern about fiscal slippages, but other aspects of performance have been deemed satisfactory and the Fund's engagement with the government is likely to continue.

Political commitment to structural reform is expected to remain weak. The government has said that it will reform customs procedures to restore The Gambia's competitiveness as a route for transit traffic in the region. However, a clear timeline for implementation has yet to be announced, calling into question the government's commitment to the reforms. Measures to entrench the independence of the Central Bank of The Gambia (CBG) and reform parastatals (particularly the National Water and Electricity Corporation, which provides some of the most expensive electricity on the continent) are likely to take even longer to implement. The prospect of public spending reforms is similarly slim; public spending is likely to remain opaque, with substantial funds redirected at the whim of the president, frequently for political patronage. The outlook for agriculture and banking is less bleak; the government is likely to stay committed to raising output in the former and strengthening regulation in the latter.

Fiscal policy will be fairly tight in 2011-12 (expenditure is forecast to grow by 7.5% in 2011 and 6% in 2012) as the government balances the impetus to raise spending ahead of the elections with pressure from the IMF to shift the budget into surplus. Domestic revenue is forecast to grow by 7.5% in 2011, based on the government's modest expectations contained in its draft budget for 2011. This is forecast to rise to 9% in 2012, in line with our expectations of nominal GDP growth. Grants are expected to decline in real terms and will finance less than 10% of the budget over the forecast period. Overall, the fiscal deficit is expected to decline from an estimated 1.7% of GDP in 2010 to 1.5% of GDP in 2011 and 1% of GDP in 2012. Public debt will rise as the government takes on new borrowing to finance the deficits. However, this will be outpaced by GDP growth, and public debt as a share of GDP is expected to decline from 24.3% in 2010 to 21.7% in 2011-12. Despite this, interest payments will continue to consume more than 15% of fiscal revenue.

The authorities will strike a balance between keeping monetary policy tight to maintain price stability and cutting interest rates to encourage investment. The CBG targets reserve money as its main policy instrument but also uses interest rates to signal changes in policy. Over the forecast period the CBG is likely to cut the discount rate slightly as lower international commodity prices and strong domestic food production contain price pressures. This will filter through to commercial banks' lending rates, although-at 26.8%-lending rates will remain high, even by regional standards. Recent fiscal slippages have seen the CBG's independence compromised as statutory limits on direct lending to the government by the Central Bank have been repeatedly compromised. In 2011-12 this is unlikely to pose a major risk to price stability, as the fiscal deficit is expected to decline, reducing the impetus for, and the scale of, such breaches. However, in the event of large, unforeseen fiscal slippages, it could disrupt macroeconomic stability. The CBG will stay committed to a market-determined exchange rate, although it is likely to intervene occasionally in foreign-exchange markets for sterilisation purposes.

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Recent estimates from the IMF indicate that real GDP grew by around 5.6% in 2010. This was driven mainly by strong growth in agriculture, which accounts for about one-third of GDP. Agricultural growth is expected to remain robust in 2011-12 as the government sustains its recent efforts to support the sector. The potential here is enormous as a significant share of arable land is uncultivated and yields for most crops are well below their global averages. For example, yields for the country's main cash crop, groundnuts, are just over one-half of the world average, according to the UN Food and Agriculture Organisation.

Contrary to trends in agriculture, the recovery in tourism-which accounts for about 16% of GDP-will falter as economic growth in The Gambia's main market for tourism, the EU, dips from 1.7% in 2010 to 1.1% in 2011 and 1.5% in 2012. Manufacturing, which accounts for a tiny share of GDP, will remain small and uncompetitive, partly because of poor infrastructure. Overall, real GDP is forecast to grow by 5.3% in 2011 and 5.5% in 2012. There are two main risks to this forecast: growth in agriculture would decline if the rains were to fail (cultivation is mostly rain-fed); and tourist arrivals would fall dramatically in the event of a coup.

Inflation increased to an estimated average of 5.1% in 2010, partly because domestic fuel prices were increased for the first time in two years to align them more closely with international oil prices. Over the forecast period food inflation is expected to moderate as domestic food production stays strong and international rice prices decline. International oil prices are forecast to stay stable, so further increases in domestic fuel prices will not be necessary. On the other hand, imported inflation will rise as the dalasi depreciates slightly, and wage increases in the civil service will boost domestic demand, putting some pressure on prices. Overall, the effects of weaker food price inflation will dominate-food comprises 55% of the consumer price index-and inflation is forecast to fall to 4.7% in 2011 and 4.5% in 2012. Since food production is mostly rain-fed, inflation could rise sharply if the rains were to fail.

The dalasi is estimated to have depreciated by 2.1% to D28.1:US$1 in 2010 as the dollar strengthened and the current-account deficit widened substantially. Over the forecast period the current-account deficit is expected to fall marginally but to remain wide. Foreign direct investment (FDI) inflows are expected to stay weak as the prolonged downturn in the EU stifles the recovery in tourism-the main recipient of FDI. Overall, the dalasi is forecast to depreciate by 5.4% to D29.8:US$1 in 2011, and by 3.6% to D30.9:US$1 in 2012. A sharper depreciation could occur if political instability were to trigger a sharp drop in tourist arrivals or if the groundnut harvest were to fail.

Groundnut exports are expected to rise in 2011-12, in line with our forecast for agricultural growth. The volume of imports will continue to rise steadily, but growth in the import bill is nevertheless expected to decline as international oil and rice prices stabilise. Despite this, the already substantial trade deficit will widen further. Re-exports are expected to recover slowly as domestic demand in Senegal continues to rise, boosting income from transport and improving the services balance. Growth in tourism is expected to falter as economic growth in the EU dips once again. This will limit more substantial improvements in the services balance. Remittances will, similarly, recover only slowly. Overall the current-account deficit is forecast to narrow from an estimated 10.6% of GDP in 2010 to 9% of GDP in 2011 and 8.4% of GDP in 2012, underpinned primarily by slower import growth. The deficit is likely to be financed by a fairly even mix of FDI and external borrowing.

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The government has cut diplomatic relations with Iran and given its embassy staff 48 hours to leave the country in a move apparently linked to a mysterious arms seizure in Nigeria in October. Weapons, including artillery rockets, stored in 13 containers labelled "building supplies" were seized in the port of Lagos by the Nigerian authorities on October 6th. The shipment originated in Iran and was reportedly initially destined for a recipient in Nigeria. After sitting in the port for weeks, the containers was shipped to The Gambia (at the behest of the Iranian shipper), at which point the arms were discovered and seized. On November 22nd The Gambia cut relations with Iran, giving no explanation for the abrupt change in stance towards a previous ally, and denying that the seized weapons were behind the decision. The move took Iran by surprise, although it quickly looked to blame the US; the head of the Iran Foreign Policy parliamentary commission said that the US had put pressure on The Gambia over the decision because "Iran's growing ties with African countries had caused concern in the US".

It appears that the decision to end diplomatic relations with Iran was linked to the weapons haul. Initial speculation suggested that the weapons were being supplied to assist a coup attempt in The Gambia. However this was rebutted when the Reuters news agency reported that it had seen a shipping document that named the farm of The Gambian president, Yahya Jammeh, as the delivery address. Reuters also quoted a Senegalese security source who said that the weapons might have been destined ultimately for Senegalese rebels, whom The Gambia has been accused of backing. The Senegalese president, Abdoulaye Wade, said that he was "disturbed" by the issue. The Senegalese authorities have frequently accused The Gambia of providing sanctuary for Casamance separatist rebels (July 2007, The political scene), while The Gambian authorities have speculated that Senegal harbours Gambians plotting to topple the government in Banjul. The decision to cut ties will not be sufficient to distance the country from the weapons seized, but in this context could be seen as a sign of Mr Jammeh's disappointment at being found to be associated with the shipment. The accusations threaten to derail relations with Senegal, which had improved earlier this year (April 2010, The political scene).

The unpredictability of the Gambian political scene was highlighted again in recent months, with an increasing number of reports that the president wants to turn The Gambia into a monarchy, with himself as king. For some time traditional leaders around the country, particularly chiefs, have been calling for a change in Mr Jammeh's title to king. Little attention was paid until the president recently criticised the holding of elections, pointing to the violence surrounding recent polls in Guinea (although, in fairness, there has been no report that he has expressed a preference for a move to a monarchy). An opposition leader, Halifah Sallah, was spooked enough to point out in an interview with a local newspaper, Foroyaa, that, under the constitution, the National Assembly and the president do not have the power to move the country from a republic to a monarchy. The likelihood is that Mr Jammeh will continue with the pretence of a democratic republic in The Gambia and go through the motions of holding elections, as it avoids confrontation with some donors who favour giving aid to countries that hold elections. Reports that the president simply feels that it is time to add another title to his long list, which comprises Excellency, Sheikh, Professor, Alhaji and Dr, could not be confirmed at the time of going to press.

Political campaigning has been relatively quiet over the last quarter of 2010, even though the presidential election is less than a year away. Voter registration will start in the first quarter of 2011 and the presidential election will be held in the final quarter. The parliamentary election is scheduled for the first quarter of 2012 and the local government election for the first quarter of 2013. Meanwhile, in a local government by-election for a councillor position in the Sare Ngai ward in October, the candidate for the ruling Alliance for Patriotic Reorientation and Construction (APRC), Alkally Kebbeh, won with 1,817 votes, beating Mbenkeh Ebrima Barrow of the National Alliance for Democracy and Development (NADD; a coalition of five opposition parties), who received 827 votes. Yankuba Colley, the APRC national mobiliser, called the result a demonstration of what would happen on a national scale in the presidential election in 2011. His prediction will almost certainly prove correct. However, this will largely reflect the ruling party's powers of patronage and its repression of the opposition-as opposed to genuine support for Mr Jammeh-as has been the case with previous elections (October 2010, The political scene).

Following the disputed second-round run-off of the presidential election in Côte d'Ivoire on November 28th, 460 UN staff have been evacuated from Côte d'Ivoire to The Gambia. Prior to the second-round run-off, hardline supporters of both contenders-the incumbent, Laurent Gbagbo, and Alassane Ouattara-vowed that they would not accept their respective candidate's defeat. Positions hardened still further when the country's electoral commission and constitutional council ruled in favour of different candidates. Both candidates have declared themselves to be the winner and have been sworn in, in separate ceremonies. It is not clear how the confrontation will be resolved but it does not augur well for the stability of the country. The UN, which has a copy of all the results, has said that Mr Ouattara won a clear victory, defying the Constitutional Council's ruling. Fearing a violent response, it has cleared all non-essential staff to leave the country. By offering shelter to the evacuated staff, the Gambia has boosted its weak international reputation, profiting from its position as a relatively stable country in an unstable region.

The Gambia's ranking in the annual Corruption Perceptions Index (CPI) produced by a Berlin-based non-governmental organisation, Transparency International, has highlighted the high level of graft in the country. The CPI for 2010 measures the perceived levels of public-sector corruption in 178 countries on a scale from 10 (highly clean) to 0 (highly corrupt). The Gambia was ranked 91st out of 178 countries in 2010, with a score of 3.2. Although this score is an improvement on 2009 (when The Gambia was ranked 106th out of 180 countries), this improvement is a reflection of a change in methodology of the index rather than an improvement in perceptions of graft in the country.

In the past the organisation has referred to corruption as "rampant" in the country. This is a damning indictment of Mr Jammeh's "Operation No Compromise", a campaign against corruption that he launched in October 2003. Instead of fighting graft, the crackdown seemed designed to achieve three aims: to find scapegoats for the country's economic woes; to restore the government's credibility in the eyes of donors; and to cement Mr Jammeh's personal authority in the build-up to the presidential election in the first quarter of 2011. Unfortunately, the campaign seemed to have been successful on all three counts. The Economist Intelligence Unit's quality of life index also includes a corruption score, and our latest index ranked The Gambia 12th from bottom for Sub-Saharan African countries, ahead only of some of the worst performers, such as Guinea, Equatorial Guinea, Chad, the Democratic Republic of Congo and Congo (Brazzaville). No improvement in the country's corruption score has occurred in the ten years covered by the quality of life index.

The Economist Intelligence Unit's 2010 democracy index ranks The Gambia 129th out of 167 countries, down 18 places on its rank in 2008. The country's overall score (out of 10) has fallen from 4.19 in 2008 to 3.38 in 2010, shifting it from the "hybrid regime" to the "authoritarian" category. The basic nature of the regime has remained unchanged-the government uses a combination of patronage and repression to stay in power; the media is heavily censored; journalists and opposition members who are critical of the president are detained; and the legislature and judiciary are subordinated to the executive. The Gambia's score on the index has declined because of an increase in the frequency of such transgressions-detentions without trial have become more common; the president has made increasing use of cabinet reshuffles to entrench his control; and judicial independence has been eroded further. The largest decline has been in the score for political participation, which has fallen from 4.44 in 2008 to 2.22 in 2010, as the repression of the opposition has worsened the climate of fear in the country and deterred engagement.

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Unsavoury tactics are used to secure election victories

The Gambia's lowest score is for electoral process and pluralism. Although opposition parties are allowed to contest elections and vote-rigging is uncommon, elections are rendered meaningless by severe flaws in the pre-election environment. Public resources are routinely used by the incumbent to campaign and win support; the president has issued multiple threats not to provide government services to areas that vote for the opposition; and opposition parties are regularly harassed. For example, in June 2010, just as campaigning for the 2011 election began, the campaign manager of the largest opposition party was imprisoned for assembling a crowd without a licence. These tactics make an opposition victory virtually impossible.

Power is concentrated in the president's office

The president, Yahya Jammeh, has ruled The Gambia since seizing power in a coup in 1994. Power is heavily concentrated in his office. Mr Jammeh reshuffles his cabinet as often as once every two months to prevent potential rivals from building support bases. This creates discontinuity and undermines policymaking. Parliament is dominated by his party, the Alliance for Patriotic Reorientation and Construction (APRC). Furthermore, the APRC's parliamentary faction is controlled by the president-he has the power to expel members of parliament (MPs), and MPs who change parties constitutionally have to re-stand for election, so MPs rely on him for their positions. The judiciary lacks independence. This was demonstrated in June 2009 when the president sacked the chief justice, without explanation, despite objections that this was unconstitutional. As a result, The Gambia's score on the functioning of government category has continued to deteriorate.

The media's freedom is severely restricted

Civil liberties are generally not respected and this is most visible in the president's attitude towards the media. A number of journalists who have written articles criticising the government have been arrested and put on trial. Self-censorship and harsh libel laws limit press coverage, and much of the media is used for government propaganda.

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A global heatmap showing regime types and a free white paper containing the full index and detailed methodology can be found at www.eiu.com/DemocracyIndex.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indexes.

The category indexes are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regimes:

• full democracies-scores of 8 to 10;
• flawed democracies-score of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

A mission from the IMF visited The Gambia at the end of October to assess performance for the seventh review under the extended credit facility (ECF) programme. A three-year ECF was approved in 2007, and in early 2010 it was extended and augmented; it is now worth a total of SDR24.9m (US$38.5m) and will expire in February 2011. Performance under the ECF weakened in the first half of 2010 but appears to be back on track. The IMF mission that visited the country in May postponed the seventh review owing to fiscal slippage. The fiscal deficit was 1.8% of GDP in 2009, compared with a budgeted surplus of 0.1%, and performance remained weak in the first half of 2010 as revenue fell short of the official target (October 2010, Economic policy). The government announced measures to tackle this and in June it raised the fuel price for the first time in two years and lowered spending plans. It also discussed long-term reforms with the IMF, such as widening the tax base and introducing a value-added tax by 2013. Helped along by decent economic growth, the short-term measures have led to an improvement in the public finances; the government ran a surplus in the third quarter of 2010 and is on track to maintain this in the fourth quarter. The improved performance means that the IMF Executive Board is now likely to pass the seventh review in early 2011, releasing the final tranche under the ECF.

The minister of finance, Abdou Kolley presented a draft budget for 2011 to parliament on December 1st. The headline figures were covered in the local media but the underlying assumptions have not yet been released. Revenue is budgeted to increase by 2.7%, from an approved D5.5bn (US$195.5m) in 2010 to D5.65bn in 2011. However, the actual revenue outturn has fallen short of the budgeted amount in 2010; based on the Economist Intelligence Unit's estimates of actual revenue collection, the draft budget implies revenue growth of about 6.8% (compared with an average increase of 9.3% over the last five years). This is much lower than nominal GDP growth, which is expected to be in double digits. The budget therefore represents a sharp reduction in the size of government as a share of the economy.

Expenditure is expected to grow by 7.4%, from D5.7bn in 2010 to D6.1bn in 2011, and the budget is expected to remain firmly in deficit. The public debt stock will therefore continue to rise, boosting interest payments from an estimated D762.4m (13.9% of total fiscal revenue) in 2010 to D918.5m (16.3% of revenue) in 2011. This is likely to upset the IMF, which has been pushing the government to reduce its debt in order to reduce the large sums of money that it spends on servicing debt. The only way to achieve this is to run successive fiscal surpluses, something that continues to elude the government. In the meantime, the IMF is putting pressure on the government to limit domestic borrowing. This would lower interest on domestic debt (which accounts for about 80% of total interest payments) by reducing Treasury-bill yields, which currently stand at 13.2% on one-year T-bills and 9.7% on 91-day T-bills.

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The Gambia has much to do to tackle the constraints on its private sector, according to an annual World Bank report. The Doing Business 2011 report ranks 183 countries around the world in nine areas that examine the regulatory environment and give an indication of the ease of doing business. The Gambia has fallen five places in the rankings, to 146th, from 141st in the past year. While its poor showing ranks it in the bottom quarter globally, it fares better than most of its West African neighbours. Unsurprisingly, it ranks ahead of the unstable duo, Guinea Bissau (176th) and Guinea (179th), as well as Senegal (152nd), but has lost ground to Sierra Leone (143rd) and the regional powerhouse, Nigeria (137th). The country lags badly behind the leading African countries-Mauritius (20th), South Africa (34th) and Botswana (52nd)-and is placed 21st out of the 46 Sub-Saharan African countries surveyed.

No major reforms to the business environment have been carried out in The Gambia since the previous survey was done a year ago, according to the World Bank. It takes eight procedures and 27 days to open a business in The Gambia, but the cost is prohibitive for most, equivalent to 200% of income per head, excluding costs associated with bribes. The country scored reasonably in three categories: dealing with construction permits (17 procedures and 146 days on average), trading across borders (US$831 to export a container); and enforcing contracts (434 days). However, it scored dismally on protecting investors (strength of investor protection was scored at 2.7 out of 10, compared with the African average of 4.4 and the OECD average of 6.0) and paying taxes (tax on commercial profit averages 41.4%). The discretion of the president also casts a long shadow over the investment environment, adding to worries on investor protection, as the state likes to be involved in most major business ventures in the country. The lack of progress in business reforms in 2010 reflects poorly on the authorities, particularly at a time when the public finances are in need of a boost, and could benefit greatly from the increase in tax revenue that new investment would bring.

With few major natural resources (unless oil exploration eventually yields some results) and a small domestic market, the authorities would be well advised to pursue reforms that would improve the country's competitiveness in external trade. With The Gambia being well positioned on the edge of West Africa for global trade, and a crucial import-export hub for Senegal, re-export trade is extremely important to the economy; at end-2008 re-exports accounted for 86% of export earnings. However, regional tax harmonisation, along with improvements in the port operations of other West African countries in recent years, has reduced The Gambia's advantages. In response, the president announced plans in his state of the nation address in mid-2010 to create an investment and export promotion agency and to modernise customs procedures (July 2010, Economic policy). The country's fall in the World Bank rankings has highlighted the urgency of these plans; in an increasingly globalised and competitive world The Gambia needs to run just to stand still.

In early November the government signed a deal giving Oranto Petroleum, a little-known Nigerian company, the exploration rights for an onshore block in western Gambia, know as Block Lower River. No oil is currently produced in The Gambia, although in June 2004 the president, Yahya Jammeh, claimed that "large quantities" had been discovered offshore. Details of the offshore find have not been released, and experts are sceptical of its existence. The chairman of Oranto is a Nigerian millionaire, Prince Arthur Eze, and the company is reported to have exploration rights in Equatorial Guinea, Ghana and Liberia. The company carried out a preliminary review in The Gambia in mid-2008 and eventually signed a deal with the president, who is also minister of petroleum, almost two-and-a-half years later. The long delay suggests that prospects for the block are not highly significant. At the ceremony to sign the contract, the Gambian leader said that his government was very transparent and that the agreement must also be transparent. No details of the deal have been released, to the knowledge of the Economist Intelligence Unit. Elsewhere in the nascent oil sector the deputy minister of petroleum and mineral resources, Teneng Ba-Jaiteh, said that a seismic data survey of offshore blocks was being carried out by the Nigerian-based African Petroleum at a cost of US$12m and that there was interest in the remaining four offshore blocks, with negotiations at an advanced stage for two of them.

The government has signed five agreements with the Islamic Development Bank (IDB) worth a total of US$45m. The agreements were signed by the minister of finance, Abdou Kolley, in Saudi Arabia in October. The IDB is a multilateral institution with 56 member countries. It lends money in keeping with Islamic usury principles, which forbids it from charging interest. Most of its loans are for infrastructure projects in predominantly Muslim countries. The projects are as follows:

• a US$15.6m loan for the development of the University of The Gambia;
• a US$15.9m loan for community-based infrastructure and a livelihood improvement project;
• a US$400,000 technical assistance grant for community-based infrastructure and livelihood improvement;
• US$8m for heavy and light fuel products for the National Water and Electricity Company (Nawec); and
• US$5m for electricity- and water-metering equipment, and spare parts for Nawec.

It is unclear how much of the US$45m represents new financing and how much is just a repackaging of deals previously announced. For example, the loan for the university was revealed in mid-2010 (July 2010, Foreign trade and payments). Nevertheless, at US$45m, the size of the agreements is significant for a small country like The Gambia and shows that, despite revoking ties with Iran, its diplomatic relations with the Islamic world will remain a key source of finance.

In addition to these commitments, the IDB is reportedly funding the construction of a new power station by Nawec in Brikama. Baba Fatajo, the director of power generation at Nawec, said that the project sought to improve rural electrification beyond the Greater Banjul area to the West Coast region. The new power plant was initially designed to provide 30 mw of power, but this has been cut to 9 mw owing to funding constraints. Despite this, its contribution will be notable; it is equivalent to about 15% of total installed capacity at present. Mr Fatajo told local reporters that an engineering, procurement and construction contract worth EUR11.5m (US$15.2m) had been awarded to an unnamed Finnish company. It is unclear when the power station is expected to be completed. An improvement in electricity supply is badly needed; around 80% of the country's energy needs are met by wood and charcoal, and the electricity grid remains concentrated in the Banjul area, and even there there are frequent power cuts owing to insufficient capacity.