The Gambia has made significant progress in reforming State-Owned Enterprises (SOEs), but major efforts are still required to establish a sound, efficient and financially sustainable SOE sector, according to a new World Bank report released today.
The Gambia Integrated State-Owned Enterprises Framework (iSOEF) report applies the new World Bank iSOEF methodology to assess The Gambia´s SOE sector and its current reform trends. It is one of the first comprehensive applications in Africa and provides first, a landscape of SOEs in The Gambia, and then addresses key aspects for assessing SOEs, namely: “Effects on Markets”; “Fiscal Impact”; and “Corporate Governance and Accountability Mechanisms”. The report assessed 12 non-financial SOEs identified as the SOE portfolio.
According to the report, SOEs are facing a wide range of issues, from insolvency, weak accounting systems, and the overstatement of assets to conflicting commercial and socio-economic objectives, and corporate governance issues. As a result, SOEs made a minor contribution to the government revenue in recent years but required significant budget support and pose sizable fiscal risks, as the portfolio lacks financial viability. The report further identifies that SOEs may be subject to a different set of market rules vis-à-vis private competitors, which creates market distortions and crowds-out private investment. The lack of a level playing field is translating into high prices, poor service delivery, and bottlenecks to improved competitiveness.
“This report provides a complete assessment of the SOE sector”, stated Feyi Boroffice, World Bank Resident Representative for The Gambia. “The recommendations are aligned with our upcoming Country Partnership Framework for The Gambia (FY22-26) and will inform and support our ongoing efforts to ensure the country’s transition out of fragility and the Government’s vision of sustainable, resilient, and inclusive growth.”
The iSOEF assessment identifies key reforms to help the SOE sector improve on governance and performance, while limiting their fiscal costs and risks. To achieve these, the government must strengthen institutional arrangements for SOE financial oversight as a priority. The report further recommends that the financial relationships between the Government and SOEs be fully transparent, so that the magnitude of these transactions can be properly recorded in the budget, and that the annual audited financial statements and annual SOE aggregate reports be published on MOFEA´s website regularly.
The report notes that SOEs should separate commercial and non-commercial functions to prevent distortions in pricing and cross-subsidization. It also recommends the introduction of competitive neutrality principles in the Competition Act and the elimination of regulatory provisions that allow the preferential access to credit, essential facilities and key inputs to SOEs below market prices.
“These reforms are necessary to strengthen the performance and corporate governance of SOEs which are a core element of the Gambian economy as well as improve service delivery and competitiveness. With public debt levels above 80 percent of GDP and in the face of many macroeconomic shocks such as the pandemic, Ukraine war, a projected fiscal cost of SOEs estimated at 5.0 percent of GDP over 2021-2030, in a no reform scenario, is simply too large not to merit urgent and substantial action,” said Mehwish Ashraf, World Bank Country Economist and lead author of the report.