The Gambia's economy is closely tied to its command of the Gambia river system, which gives it considerable potential in trade, depending on the level of development in the hinterland. At present, it is an economically disadvantaged country, hampered by its small size, geographical and climatic difficulties, lack of mineral or other natural resources, and rudimentary infrastructure . The economy is driven by agriculture (especially groundnut production) and tourism. Agriculture production suffered during the droughts of the last 2 decades, although the Gambia is less vulnerable than its Sahel (a semi-arid region just south of the Sahara desert) neighbors.
Tourism is the most important source of foreign exchange revenue. It suffered in the wake of an abortive coup in 1981 and again after the successful coup of 1994. It has since recovered and in 1996 and 1998 the number of tourist arrivals had overtaken pre-coup levels.
Foreign aid has been key to the development of infrastructure as well as general budgetary support. An economic recovery program, launched in August 1985, later renamed the Programme for Sustained Development, introduced austerity measures which controlled inflation and produced significant real GDP growth in the latter
The Gambian economy is strongly affected by the health of CFA franc because of its close relationship with Senegal. The Gambia has enjoyed a successful re-export trade, and the success of Banjul port has been the result of its ability to undercut the port charges of Dakar in Senegal . When the CFA franc was devalued by 50 percent in 1994, the position changed abruptly, affecting the Gambia-Senegal cross-border trade in groundnuts. Nuts grown in the Gambia were sold in Senegal because of the higher prices there, with Gambia losing on the processing and shipping revenues.
The Gambia had US$37.8 million of international debt in 1998, and this was 9.1 percent of GDP, and US$31 per head. Debt service took up 9.7 percent of the export earnings on goods and services. The levels of debt in relation to GDP and per person are significantly higher than the African average, but the debt servicing requirement from export earnings is lower.