The fragile but promising democracy of The Gambia has been given a boosted after the European Union announced that it would provide the country with €225 million of investment. The EU’s Commissioner for International Development and Cooperation Neven Mimica has said that “there is no time to lose” and that the money will “make sure that the new Gambian state can deliver as it should… that it can deliver up to the high expectations of its people”. Considering the dire situation of The Gambia’s public finances, the country needs all the help it can get, but there are certain things that must be kept out of negotiations.
The Gambia is not a rich country. The country’s GDP is just over $1 billion and its public debt is around 100% of annual GDP. In 2014 the country had an unemployment rate of nearly 30%, with current levels of youth unemployment at approximately 40%. To make matters worse, before outgoing President Yahya Jammeh fled to Equatorial Guinea he withdrew $11.4 million from Gambian banks, thus reducing the liquidity of banks and private businesses.
The Gambian government needs money and in order to address any of the problems the country faces, the state needs an injection of money. A tax rise wouldn’t be sufficient as the country has a population of less than 2 million people, and many have fled the country because of the brutal practices of Yahya Jammeh. As such capital will be needed from foreign sources, at least for the time being.
What are the problems that The Gambia faces? According to the CIA 44.5% of people in The Gambia are illiterate, the country has the 18th highest infant mortality rate in the world, and the country has a high risk of infection from diseases like dengue fever, typhoid, and malaria. These are serious problems that need to be addressed, but this cannot happen without a steady flow of capital.
There are however some caveats that need to be mentioned. Neoliberal organisations like the European Union have a history of providing funds to poorer countries on the condition that they restructure their economies. This often involves the liberalisation of labour markets, the privatisation of public services, and the reorientation of the recipient country’s economy towards exports. This cannot be allowed to happen in the case of The Gambia. It extracts the wealth of these countries and makes them dependent on international trade, and thus restricts their ability to make policy decisions in future.
In his book Developmental Planning economist W. Arthur Lewis makes the following important distinction between long-term and short-term aid:
“Long-term money is hard to find; short-term money is over-abundant. The capital cities of new states are full of foreign financiers offering to lend millions of dollars ar 6 or 7 per cent for five years to finance imports of industrial equipment. A number of Governments have fallen for this, and have loaded themselves up with such obligations. Unless one hopes to borrow from Peter to pay Paul, a loan which has to be repaid in five years is of small help to developmental planning. On the one side is the advantage of having more money at the start of the Plan; on the other, the disadvantage of having 20 per cent less (the interest and handling charges) five years later”.