Journal Issue

The Gambia

International Monetary Fund
Published Date:
September 2010
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I. Background: Achieving Macroeconomic Stability, While Dealing with a Heavy Debt Burden

1. Following a period of instability during the early 2000’s, the Gambian economy improved with the implementation of sound macroeconomic policies and important structural reforms.1 Key sectors driving growth included construction, tourism, financial services, and telecommunications, as well as domestically oriented wholesale and retail trade, which all helped to overcome The Gambia’s diminishing role as a regional entrepôt. In more recent years, 2007-09, real GDP growth picked up to 6.0 percent a year on average, which outpaced growth in many countries in the region.2 Even during the global economic crisis, real GDP growth remained high (5.6 percent in 2009), as a continuing rebound in agriculture largely outweighed the impact of a sharp drop in tourism and remittances from Gambians working abroad—the latter being a leading source of financing for home building. Inflation has been kept at single-digit rates since 2004, averaging only 4.8 percent during 2007-09. Reflecting monetary restraint by the Central Bank of The Gambia (CBG) and steadier food prices, inflation fell to 2.8 percent in 2009. Also, regulated prices on electricity and fuel remained fixed during the year (Tables 1-7 and Figures 1-3).

Table 1.The Gambia: Selected Economic Indicators
Act.Act.Act.6th Rev.6th Rev.2Proj.Proj.Proj.Proj.Proj.Proj.
National account and prices(Percent change; unless otherwise indicated)
Nominal GDP (millions of dalasi)20,55622,97825,80521,47728,42528,42531,43434,72438,35642,37446818.9
Nominal GDP10.011.812.310.010.210.610.510.510.510.5
GDP at constant prices6.
GDP deflator3.
Consumer prices (average)
Consumer prices (end of period)
External sector
Exports, f.o.b.8.8-
Of which: domestic exports-27.9-0.2-13.311.312.
Imports, f.o.b.18.417.4-
Terms of trade (deterioration -)-6.1-16.2-
Nominal exchange rate change (depreciation -)17.68.1-13.3
Real effective exchange rate (depreciation -)19.67.5-10.2
Money and credit(Percent change; in beginning-of-year broad money)
Broad money6.718.419.410.912.512.
Net foreign assets-3.5-6.33.7-0.1-
Net domestic assets10.124.715.711.112.712.
Credit to the government (net)-
Credit to the private sector (net)
Other items (net)9.9-
Average treasury bill rate (in percent)111.911.812.0
Central government budget(In percent of GDP)
Domestic revenues16.915.215.120.515.514.314.614.714.815.015.0
Total expenditure and net lending17.718.022.026.920.319.519.419.119.018.818.9
Overall balance0.4-1.8-2.0-1.4-1.0-2.8-2.4-2.2-2.0-1.8-1.8
Basic balance3.0-0.6-1.8-0.1-0.1-
Net foreign financing0.
Net domestic financing-
Stock of domestic public debt22.119.919.722.717.120.720.119.717.916.615.8
External sector
Current account balance
Excluding official transfers-10.7-13.7-14.0-19.3-14.5-13.6-13.2-12.5-12.3-11.9-12.2
Including official transfers-9.7-12.7-10.5-14.3-10.8-11.1-10.8-10.3-10.2-9.8-9.1
Current account balance(Millions of U.S. dollars, unless otherwise indicated)
Excluding official transfers-88.1-142.0-135.4-155.1-141.1-146.6-148.3-155.9-161.8-182.2
Including official transfers-80.3-131.0-101.6-115.3-115.9-120.0-122.3-128.9-133.1-135.9
Overall balance of payments34.0-32.354.6-6.8-15.2-
Gross official reserves141.6115.6186.0178.2177.6177.6177.6185.0197.1212.8
in months of imports, c.i.f.
External public debt
Stock (percent of GDP)36.231.734.142.632.233.032.632.031.330.428.7
Use of Fund resources(Millions of SDRs)
Sources: Gambian authorities; and Fund staff estimates and projections.

Data for 2009 are the actuals as of March 2010, but still subject to revisions.

As per new GDP data, where relevant.

Sources: Gambian authorities; and Fund staff estimates and projections.

Data for 2009 are the actuals as of March 2010, but still subject to revisions.

As per new GDP data, where relevant.

Table 2.The Gambia: Fiscal Operations of the Central Government(In millions of local currency)
Act.Act.Act.6th RevProj.Proj.Proj.Proj.Proj.Proj.
Total revenue and grants3,6633,7454,7905,4744,7565,3425,8576,5017,2427,998
Tax revenue3,0373,1463,5193,9913,6204,1174,5695,0965,6846,459
Taxes on income, profits, and capital gains8841,1259741,1851,1021,2301,3731,5471,7432,005
Domestic taxes on goods and services1,3451,3131,3951,5721,5461,7501,9422,1632,4102,736
Taxes on international trade and transaction8087081,1481,2349731,1361,2551,3861,5311,718
Budget support2079189425797920000
Project grants174I66710636612673740814895985
Expenditures and net lending3,6354,1395,6835,7705,5556,1846,6977,3087,9798,762
Current expenditures2,5863,1863,6224,0143,8774,0494,3584,7395,1475,623
Wages and salaries6809831,1921,4991,4611,6621,8362,0282,2402,475
Other charges1,0911,4891,6891,7521,5951,5601,6681,8271,9952,204
Capital expenditure9738571,9241,6921,6792,0852,2892,5182,7823,089
Foreign financed7805051,3381,3271,2271,5761,6751,7801,8922,017
Gambia local fund (GLF)1923525863654525096137398901,072
Net lending76961386405050505050
Overall balance (excl. statistical discrepancy)28-394-894-296-799-842-840-807-737-764
Statistical discrepancy 148-113850000000
Overall balance76-405-509-296-799-842-840-807-737-764
External fnancing (net)15830129356271531523510494491
Domestic financing (net)-234375379-60528310317297243273
Net borrowing-514585370-90561310317297243273
Bank 2-681,044376-75362301308080182
Repayment of domestic debt-179-89-49-77-77-340000
Capital revenue240064000000
Change in arrears (- = decrease)-369-2100-33-3300000
Privatization proceeds626090000000
Memorandum items:
Basic balance 3614-133-455-30-263-1775159259263
Basic primary balance 41,4295802877325588119291,0441,1721,212
Gross domestic interest bearing debt4,5464,5715,0824,8725,9736,4866,9536,9537,1467,419
Stock of arrears 5192000000000
Stock of HIPC and MDRI debt relief
Of which: IMF336
Resources freed by debt relief108495585584599532553543472472
Interest payments7116126ll61191131071008787
Uses of resources feed by debt relief108495585584599532553543472472
Current expenditures0129131138138173178197189189
Capital expenditures0129220207207173178161157157
Expenditures financed by privatization receipts1593911070000000
Sources: Gambian authorities; and Fund staff estimates and projections.

The difference between financing and the overall balance of revenue and expenditures.

In 2010, includes bridge loan fom CBG for part of the shortfall in disbursements of budget support.

Domestic revenue - expenditure and net lending, excluding externally financed capital spending.

Domestic revenue - expenditure and net lending, excluding interest payments and externally financed capital spending.

Change in arrears for 2008 includes an additional D25 million for repayments to the National Water and Electricity Company (HAWEC).

Sources: Gambian authorities; and Fund staff estimates and projections.

The difference between financing and the overall balance of revenue and expenditures.

In 2010, includes bridge loan fom CBG for part of the shortfall in disbursements of budget support.

Domestic revenue - expenditure and net lending, excluding externally financed capital spending.

Domestic revenue - expenditure and net lending, excluding interest payments and externally financed capital spending.

Change in arrears for 2008 includes an additional D25 million for repayments to the National Water and Electricity Company (HAWEC).

Table 3.The Gambia: Fiscal Operations of the Central Government(In percent of GDP)
Act.Act.Act.6th Rev.6th Rev.6Proj.Proj.Proj.Proj.Proj.Proj.
Total revenue and grants17.816.318.625.519.316.717.016.916.917.117.1
Tax Revenue14.813.713.618.614.012.713.113.213.313.413.8
Budget support0 00.00.0
Project grants0.
Expenditures and net lending17.718.022.026.920.319.519.719.319.118.818.7
Current expenditures12.613.914.018.714.113.612.912.612.412.112.0
Wages and salaries3.
Other charges5.
Capital expenditure4.
Foreign financed3.
Domestic financed0.
Net lending0.
Overall balance (exci. statistical discrepancy)0.1-1.7-3.5-1.4-1.0-2.8-2.7-2.4-2.1-1.7-1.6
Statistical discrepancy
Overall balance0.4-1.8-2.0-1.4-1.0-2.8-2.7-2.4-2.1-1.7-1.6
External financing (net)
Domestic financing (net)-1.1l.61.5-0.3-
Net borrowing-
Bank 2-
Repayment ofdomestic debt-0.9-0.4-0.2-0.4-0.3-0.3-
Capital revenue0.
Change in arrears (- = decrease;-1.8-0.90.0-0.2-0.1-
Privatization proceeds3.
Memorandum items:
Basic balance 33.0-0.6-1.8-0.1-0.1-0.9-
Basic primary balance
Gross domestic interest bearing debt22.119.919.722.717.121.020.620.018.116.915.8
Stock of arrears
Stock of HIPC and MDRI debt relief
Of which: IMF1.6
Resources feed by debt relief0.
Interest payments0 00 50
Uses of resources feed by debt relief0.
Current expenditures0.
Capital expenditures0.
Expenditures financed by privatization receipts0.
Sources: Gambian authorities: and Fund staff estimates and projections.

The difference between inancing and the overall balance of revenue and expenditures.

In 2010, includes bridge loan from CBG fer part ofthe shortfell in disbursements ofbudget support.

Domestic revenue -expenditure and net lending, excluding externally Inanced capital spending.

Domestic revenue -expenditure and net lending, excluding interest payments and externally inanced capital spending.

Change in arrears fer 2008 includes an additional D25- million for repayments to the National Water and E lectricrty Company (NAWEC).

As a percentage of new GDP data.

Sources: Gambian authorities: and Fund staff estimates and projections.

The difference between inancing and the overall balance of revenue and expenditures.

In 2010, includes bridge loan from CBG fer part ofthe shortfell in disbursements ofbudget support.

Domestic revenue -expenditure and net lending, excluding externally Inanced capital spending.

Domestic revenue -expenditure and net lending, excluding interest payments and externally inanced capital spending.

Change in arrears fer 2008 includes an additional D25- million for repayments to the National Water and E lectricrty Company (NAWEC).

As a percentage of new GDP data.

Table 4.The Gambia: Monetary Accounts 1/(In millions of local currency; unless otherwise indicated)
Act.Act.Act.6th Rev.Proj.Proj.Proj.Proj.Proj.Proj.
I. Depository Corporation Survey
Net foreign assets4,0223,5043,8694,0613,8523,8704,0824,5695,2946,018
Net domestic assets4,2526,2927,8268,5369,30710,88812,45413,96115,47817,275
Domestic credit4,2006,4367,4918,1189,08510,58012,15913,63715,12116,883
Claims on central government (net)1,1892,6613,0332,5783,5693,7993,9294,0094,0894,169
Claims on other public sector 2/2294287659251,2231,4681,6881,8572,0432,247
Claims on private sector2,7833,3473,6944,6154,2925,3136,5427,7728,99010,467
Other items (net) 3/51-144335418223308294324356392
Broad money8,2749,79611,69512,59713,16014,75816,53518,53020,77223,293
Currency outside banks1,6891,8332,0052,1312,2562,5302,8353,1763,5613,993
II. Central Bank
Net foreign assets3,0492,7423,1982,9672,9752,9853,0903,4584,0514,625
Foreign assets3,1923,0695,0104,9054,9275,1115,2805,6746,2396,605
Foreign liabilities-142-327-1,812-1,938-1,952-2,126-2,190-2,216-2,188-1,980
Net domestic assets-305160-264844888781,2161,3421,3031,347
Domestic credit-903157-29310573154184215245276
Claims on central government (net)-1,294-219-434-278-746366696126
Claims on banks (net)34451245151821242730
Claims on private sector22022945236475052555860
Claims on public enterprises13710385103858075706560
Other items (net) 3/59932663794147251,0321,1271,0571,071
Reserve money2,7452,9023,1713,4513,4633,8634,3064,8005,3545,973
Currency outside banks1,6891,8332,0052,1312,2562,5302,8353,1763,5613,993
Commercial bank deposits1,0551,0691,1671,3201,2071,3331,4711,6241,7931,980
Sources: Gambian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Sources: Gambian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Table 5.The Gambia: Monetary Accounts 1/
Act.Act.Act.6th Rev.Proj.Proj.Proj.Proj.Proj.Proj.
I. Monetary Survey
(Percent change; in beginning of period broad money)
Net foreign assets-3.5-6.33.7-0.1-
Net domestic assets10.124.715.711.112.712.
Domestic credit0.
Claims on central government (net)-
Claims on other public sector 2/-
Claims on private sector4.
Other items (net) 3/9.9-
Broad money6.718.419.410.912.512.
Currency outside banks-
II. Central Bank
(Percent change; in beginning of period monetary base)
Net foreign assets7.7-11.215.7-7.5-
Foreign assets-4.7-4.566.9-3.1-
Foreign liabilities12.4-6.7-51.2-4.4-4.4-5.0-1.7-
Net domestic assets-12.016.9-6.415.416.211.33.2-1.0-2.20.6
Domestic credit-23.238.6-15.56.311.
Claims on central government (net)-23.439.2-
Claims on banks (net)0.00.4-
Claims on private sector0.20.3-
Claims on public enterprises0.0-1.2-
Other items (net) 3/11.2-
Reserve money-
Currency outside banks-
Commercial bank deposits4.
Memorandum Items:
Growth of credit to the private sector15.420.310.323.216.223.819.116.815.617.1
Money Multiplier3.013.383.693.653.803.823.843.863.883.90
Sources: Gambian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Sources: Gambian authorities; and Fund staff estimates and projections.

End of period

Include public enterprises and the local government.

Including valuation.

Table 6.The Gambia: Balance of Payments(In millions of U.S. dollars; unless otherwise indicated)
Act.Act.Act.6th Rev.Proj.Proj.Proj.Proj.Proj.Proj.
1.Current account
A.Goods and services-105.3-158.4-144.8-170.2-156.2-166.3-174.2-184.4-196.8-221.1
Trade balance-171.5-221.3-202.5-214.6-216.8-232.1-247.8-265.9-284.8-313.3
Exports, f.o.b.91.487.494.889.299.5104.3109.4114.4119.5123.1
Of which: domestic exports7.
Imports, f.o.b-262.9-308.7-297.3-303.7-316.3-336.4-357.2-380.3-404.3-436.4
Of which: oil-28.5-38.7-30.7-35.9-35.3-34.5-33.9-32.9-31.7-30.8
Services (net)66.363.057.744.360.665.773.681.588.092.2
Of which: travel income81.283.074.778.478.482.392.2104.2116.7125.9
B.Income (net)-46.8-45.9-43.2-41.2-41.2-40.6-38.7-40.6-41.4-42.2
C.Current transfers71.873.386.496.181.686.990.596.1105.1127.4
Private transfers11.
Official transfers7.811.033.739.825.226.626.026.928.746.4
Current account (excl. official transfers)-88.1-142.0-135.4-155.1-141.1-146.6-148.3-155.9-161.8-182.2
Current account (incl. official transfers)-80.3-131.0-101.6-115.3-115.9-120.0-122.3-128.9-133.1-135.9
2.Capital and financial account
A.Capital account386.514.112.410.7-
B.Financial account-263.6114.3145.797.8103.3109.5115.8130.0146.1153.3
Foreign direct investment80.670.072.974.062.866.268.770.473.276.9
Portfolio investment-1.0-10.1-4.3-1.5-1.5-1.1-0.9-0.6-0.30.6
Other investment1-343.254.577.025.342.044.447.960.273.275.8
Of which: Official other investment (net)6.428.634.413.313.318.817.916.915.814.7
SDR Allocations0.
Capital and financial account122.9128.4158.1108.5100.7116.3122.6137.8148.4156.2
Errors and omissions-8.7-29.7-
Overall balance34.0-32.354.6-6.8-15.2-
Net international reserves (increase -)-34.032.3-54.66.815.23.7-0.3-8.9-15.3-20.3
Change in gross international reserves1-23.026.0-
Use of IMF resources (net)-11.06.315.
Memorandum items:
Gross International Reserves
US$ millions141.6115.6186.0178.2177.6177.6177.6185.0197.1212.8
Months of imports of goods (cif)
Months of imports of goods and services5.
National currency per US dollar (average)24.922.226.6
National currency per US dollar (end of period)22.526.826.9
Sources: Gambian authorities; and Fund staff estimates and projections.

Includes SDR allocation of approximately US$39 million in 2009.

Includes first disbursement (7.5 percent of quota, US$ 3.7 million) of the augmentation in 2010.

Sources: Gambian authorities; and Fund staff estimates and projections.

Includes SDR allocation of approximately US$39 million in 2009.

Includes first disbursement (7.5 percent of quota, US$ 3.7 million) of the augmentation in 2010.

Table 7.The Gambia: Balance of Payments(In percent of GDP)
Act.Act.Act.6th Rev.6th Rev.1Proj.Proj.Proj.Proj.Proj.Proj.
1.Current account
A.Goods and services-12.7-15.3-15.0-21.1-16.0-15.0-15.0-14.7-14.5-14.5-14.8
Trade balance-20.8-21.4-20.9-26.6-20.1-20.9-20.9-20.9-20.9-20.9-21.0
Exports, f.o.b.
Of which: other domestic goods0.
Imports, f.o.b-31.8-29.9-30.7-37.7-28.5-30.4-30.2-30.1-30.0-29.7-29.2
Of which: oil-3.5-3.7-3.2-4.5-3.4-3.4-3.1-2.9-2.6-2.3-2.1
Services (net)
Of which: travel9.
B.Income (net)-5.7-4.4-4.5-5.1-3.9-4.0-3.6-3.3-3.2-3.0-2.8
C.Current transfers8.77.18.911.
Private transfers1.
Official transfers0.
Current account (excl. official transfers)-10.7-13.7-14.0-19.3-14.5-13.6-13.2-12.5-12.3-11.9-12.2
Current account (incl. official transfers)-9.7-12.7-10.5-14.3-10.8-11.1-10.8-10.3-10.2-9.8-9.1
2.Capital and financial account
A.Capital account46.
B.Financial account-31.911.
Foreign direct investment9.
Portfolio investment-0.1-1.0-0.4-0.2-0.1-0.1-0.1-
Other investment-
Of which: Official other investment (net)
SDR Allocations0.
Capital and financial account14.912.416.313.510.29.710.510.310.910.910.5
Errors and omissions-1.0-2.9-
Overall balance4.1-3.15.6-0.8-0.6-1.5-
Net international reserves (increase -)-4.13.1-
Change in gross international reserves-2.82.5-
Use of IMF resources (net)-
Memorandum items:
Gross International Reserves
US$ millions141.6115.6186.0178.2178.2177.6177.6177.6185.0197.1212.8
Months of imports5.
National currency per US dollar24.922.226.6
Sources: Gambian authorities; and Fund staff estimates and projections.

As percentage of new GDP data.

Sources: Gambian authorities; and Fund staff estimates and projections.

As percentage of new GDP data.

Figure 1.The Gambia: Recent Economic Developments, 2006-2009

Sources: Gambian authorities; and Fund staff estimates and projections.

Figure 2.The Gambia: Recent Economic Developments, 2006-2009

Sources: Gambian authorities; and Fund staff estimates and projections.

Figure 3.The Gambia: Cross Country Comparison

Sources: Gambian authorities; and Fund staff estimates and projections.

2. The Gambia still faces a heavy debt burden, despite having received extensive debt relief under the Heavily Indebted Poor Countries and Multilateral Debt Relief Initiatives in late 2007.3 As of end-2009, external debt stood at 34 percent of GDP, while total public sector debt was 54 percent of GDP, reflecting significant—and costly—domestic borrowing. Interest on debt consumed nearly 20 percent of government revenues in 2009 (down from nearly 35 percent a few years earlier), of which just over three-fourths was paid on domestic debt. Moreover, domestic debt consists almost entirely of short-term T-bills, which poses high roll-over risks.

3. The banking sector has expanded at a rapid pace in recent years. Between 2007 and early 2010, the number of banks doubled (to 14), helping to fuel a deepening of financial intermediation. During this period, credit to the private sector and public enterprises relative to GDP grew by about 4½ percentage points, to nearly 17 percent of GDP. The new banks are mostly foreign-owned, which also generated substantial foreign direct investment. The situation, however, has strained the CBG’s capacity for banking supervision, while intense competition among the high number of banks in a relatively small market has contributed to increased risks to the banking system.

4. The Gambia has made good progress on improving the quality of life for the poor, but poverty is still widespread.4 Several Millennium Development Goals (MDGs) are expected to be met, mainly in the areas of education and health (Table 8). The incidence of poverty, however, fell only modestly to 58 percent in 2008, well above the MDG target. Although the authorities adopted a target that 25 percent of government revenues should be used for priority spending identified in The Gambia’s Second Poverty Reduction Strategy Paper (PRSP II), such expenditures have only accounted for about 20 percent of revenues in recent years.

Table 8.The Gambia: Millennium Development Goals, 1990-2008 1/
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%)73737272
Employment to population ratio, ages 15-24, total (%)59575555
Income share held by lowest 20%4.04.8
Malnutrition prevalence, weight for age (% of children under 5)15.416
Poverty headcount ratio at national poverty line (% of population)646758
Prevalence of undernourishment (% of population)20312929
Goal 2: Achieve universal primary education
Primary completion rate, total (% of relevant age group)42797379
School enrollment, primary (% net)727469
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%)82139
Ratio of female to male primary enrollment (%)767687104106
Ratio of female to male secondary enrollment (%)6694
Ratio of female to male tertiary enrollment (%)29
Share of women employed in the nonagricultural sector (% of total nonagricultural employment)21
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12-23 months)8691928991
Mortality rate, infant (per 1,000 live births)104102938380
Mortality rate, under-5 (per 1,000)153149131112106
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15-19)1189488
Births attended by skilled health staff (% of total)445557
Contraceptive prevalence (% of women ages 15-49)1210
Maternal mortality ratio (modeled estimate, per 100,000 live births)690
Pregnant women receiving prenatal care (%)9198
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever)5563
Incidence of tuberculosis (per 100,000 people)185204225253263
Prevalence of HIV, female (% ages 15-24)0.6
Prevalence of HIV, total (% of population ages 15-49)
Tuberculosis case detection rate (all forms)635554
Goal 7: Ehsure environmental sustainability
Annual freshwater withdrawals, total (% of internal resources)1.0
CO2 emissions (kg per PPP $ of GDP)
CO2 emissions (metric tons per capita)
Forest area (% of land area)4445464748
Improved sanitation facilities (% of population with access)474952
Improved water source (% of population with access)858686
Marine protected areas (% of total surface area)1.5
Terrestrial protected areas (% of total surface area)2.0
Goal 8: Develop a global partnership for development
Net ODA received per capita (current US$)10942384757
Total debt service (% of exports of goods, services and income)22.215.511.8
Internet users (per 100 people)
Mobile cellular subscriptions (per 100 people)
Telephone lines (per 100 people)
Fertility rate, total (births per woman)
GNI per capita, Atlas method (current US$)310350330290400
GNI, Atlas method (current bil US$)
Gross capital formation (% of GDP)22.320.217.428.425.1
Life expectancy at birth, total (years)5153545556
Population, total (millions)
Trade (% of GDP)1311221059779
Source: World Development Indicators database.

Figures in italics refer to periods other than those specified.

Source: World Development Indicators database.

Figures in italics refer to periods other than those specified.

II. Recent Economic Developments and Outlook: Weakening Fiscal Discipline Has Complicated Macroeconomic Policies

5. Since late 2008, fiscal discipline has deteriorated, reflecting both unanticipated spending and, more recently, revenue shortfalls. In 2009, excessive spending, including supplementary expenditures that were not financed by additional revenues or fiscal savings, was the principal reason for the poor fiscal performance.5 For the year as a whole, the basic fiscal balance—tax and nontax revenues less total expenditures, excluding foreign financed capital spending (projects)—was in deficit by 1.8 percent of GDP, compared with the budget target of a slight surplus (0.1 percent of GDP). During the first five months of 2010, although spending was roughly contained within budget limits, government revenues fell well short of expectations. In particular, rising world fuel prices eroded revenues from the fuel tax, which is the residual after suppliers’ costs and other taxes have been subtracted from fixed retail prices according to a set formula.

Revenue and Expenditure

Millions of Dalasi

6. Government’s domestic borrowing has had costs for both government and the economy. The short-term nature of the government’s outstanding domestic debt has meant that additional borrowing has also increased the roll-over costs of debt. Moreover, in the highly competitive banking sector, high T-bill yields have raised the cost to banks of attracting large depositors, which has cut into banks’ profitability and increased risks to the banking system. Government has also resorted to financing deficits through overdrafts from the CBG,6 which has resulted in substantial liquidity injections. As a result, the CBG has often reacted by suddenly having to mop up unanticipated excess liquidity—causing greater unpredictability in the money market and T-bill auctions. Overdrafts paying zero interest have also weakened the CBG’s balance sheet.

T-bills yields by maturity

(in percent)

Source: CBG data and Staff calculations.

Maturity profile of cumulative net issuance since 2007

(in GMD millions)

* Includes only April and May data.

Source: CBG data and Staff calculations.

7. Gross international reserves recovered to a comfortable level in 2009 (equivalent to 6 months of imported goods and services),7largely because of the Fund’s SDR allocation and budget support from the World Bank and African Development Bank (AfDB). At the same time, the dalasi traded in a tight range against the U.S. dollar (26-27 GMD/US$), with relatively little intervention by the CBG. In May 2010, the dalasi broke out of this range, depreciating to just over 29 GMD/US$ by the end of the month, even though the CBG sold a moderate amount (US$3 million) of foreign exchange. In real effective terms, the dalasi depreciated by about 10 percent during 2009.

8. During the last Article IV consultation, concluded in September 2008, there was broad agreement between the Gambian authorities and Fund staff on the policy agenda, leading to implementation of some key recommendations (Box 1).

9. Performance under the program supported by the Fund with an arrangement under the Extended Credit Facility (ECF) worsened beginning in late 2008, with the emergence of fiscal slippages. Waivers were required for these slippages in two of the last three semi-annual reviews of the ECF arrangement and the 7th ECF review, based on end-March 2010 performance criteria (PCs), has been postponed. As noted, spending overruns were mainly responsible for the fiscal slippages in 2009, while revenue shortfalls were the principal cause of slippages in 2010. In addition to shortfalls in revenues from fuel taxes,8 corporate income taxes and other taxes on international trade underperformed. Meanwhile, non-fiscal PCs were met and there has been good progress on structural benchmarks in the areas of public financial management (PFM), debt management, liquidity management, and financial sector development, although there were some delays.

Box 1.Implementing Recommendations from the 2008 Article IV Consultation

Fiscal Issues

Improve fiscal discipline, including budget planning and spending controls.

Reduce domestic debt to regain fiscal space.

Reform the fuel price mechanism to allow pass-through of international prices.

Fiscal discipline has deteriorated during 2009 and 2010.

There have been setbacks on the path for reducing the stock of domestic debt.

The authorities are considering a reform of the fuel pricing formula.
Financial Sector

Establish a credit reference bureau to support financial deepening.

Improve liquidity management.

Maintain restrained monetary policy and a floating exchange rate in aid of macroeconomic stability.

Aim for reserves of five months of import cover.

The credit reference bureau became operational in June 2009.

Improvements were made, but the recent deterioration in fiscal discipline has made liquidity forecasting more difficult.

Fully met. The authorities limited exchange rate interventions to attempts to smooth adjustments in the market determined rate.

In part due to the SDR allocation, reserves have exceeded the target since mid-2009.
Structural measures

Implement civil service reform to attract and retain qualified employees.

Civil service reform is ongoing. There were some delays in raising wages due to fiscal pressures.
Governance issues

Accelerate PFM reform and improve debt management.

Improve macroeconomic data to allow timelier and better informed decision-making.

Major progress has been achieved in both areas.

Some progress on data quality was achieved with the publication of quarterly balance of payments statistics; national accounts data remain weak.

Outlook and Risks

10. The outlook for the Gambian economy is generally positive for both the near and medium terms. In 2010, real GDP growth is projected to be just over 5 percent, while inflation, which edged up in early 2010, is expected to remain low (at about 5 percent), despite some pressures arising from increased fuel prices and the recent depreciation of the dalasi against the U.S. dollar. Sectors affected by the global slowdown have stabilized, but their growth is expected to recover only gradually. The external current account deficit, excluding grants, is projected to narrow modestly relative to GDP in 2010, while the overall balance of payments is expected to slip into deficit, mainly reflecting a substantial shortfall in grants arising from delays in budget support from the European Union (EU). Gross international reserves are projected to fall to US$178 million by the end of the year (equivalent to 5.8 months of imports).

11. In the baseline medium-term scenario, real GDP growth is projected to pick up to nearly 5½ percent a year, while annual inflation would remain at about 5 percent. Projections for GDP growth are driven by the gradual strengthening in the tourism and construction sectors, as well as continued solid growth in major sectors, such as agriculture and wholesale and retail trade. The underlying policy framework is anchored upon achieving small surpluses in the basic fiscal balance (see Table 3) and a prudent monetary stance. Improved fiscal discipline would allow a gradual reduction in domestic debt (relative to GDP) by about 5 percentage points to just under 16 percent of GDP by end-2015. The external current account deficit, excluding grants, is projected to narrow gradually to about 12 percent of GDP and would be financed by slightly rising private capital inflows (foreign direct and other investment) and fairly steady grants and net official lending (about 3½ percent of GDP a year). To maintain gross international reserves at a minimum of 5 months of import cover, the CBG would need to start accumulating reserves beginning in 2013.

12. As a small open economy, The Gambia is vulnerable to external shocks; but at the same time some of the major risks to the economy are domestic in origin. Shocks to The Gambia’s terms of trade or demand for its exports of goods and services significantly impact the economy. In addition, shortfalls in private remittances and official transfers can create financing problems. Adverse weather conditions also pose a risk to The Gambia’s predominantly rain-fed agriculture. Weak fiscal discipline remains a serious risk to macroeconomic stability, especially as spending pressures build during the run-up to elections in 2011.

III. Policy Discussions: Strengthening Foundations for Sustainable Economic Growth and Poverty Reduction

13. Discussions centered around core macroeconomic policies to support high sustainable rates of economic growth and a substantial reduction in poverty, as outlined in the authorities’ revised PRSP II. The issues included:

  • Achieving greater fiscal discipline to anchor macroeconomic stability;

  • Reforming the tax system to raise and stabilize revenues and to improve the business environment;

  • Improving public financial management to maximize the effectiveness of government spending;

  • Strengthening prudential supervision to ensure a sound financial sector; and

  • Maintaining an appropriate exchange rate policy and level of international reserves to guard against external shocks.

To address the high incidence of poverty, the authorities intend to shift the focus of their poverty reduction strategy toward increasing economic growth and employment, including through a stepping up of infrastructure investment. They have initiated preparations of the Program for Accelerated Growth and Employment (PAGE), which would succeed PRSP II in 2012. Although quite preliminary—the first draft of PAGE is scheduled to be completed in early 2011—the mission discussed concerns about debt sustainability of the new strategy.

A. Macroeconomic Policies

14. Fund staff emphasized the key role of fiscal policy in a sound macroeconomic framework to provide a stable foundation for private-sector led growth in The Gambia. In particular, by reducing the stock of debt and easing pressure on T-bill yields, the government would reduce the risk of instability inherent in its large rollover requirement of short-term debt, while also generating substantial fiscal savings, which could be used to help finance priority government programs. Moreover, consistent implementation of a moderately tight fiscal policy would facilitate liquidity management and enhance monetary policy. Indeed, by contributing to a more predictable low-inflation environment, monetary policy could further ease pressure on T-bill yields, and interest rates more generally in support of greater financial intermediation.

15. Improving fiscal operations depends upon achieving a reliable stream of government revenues, together with firm expenditure control. In this regard, revenue increasing measures and tax reform and PFM reform are critical elements of the macroeconomic policy agenda. Continuing to improve The Gambia’s track record on PFM reform, including debt management, could eventually lead to greater access to foreign financing and grants. PFM reform would also lead to increased value-for-money on government spending, which regardless of foreign assistance is critical for a resource constrained government.

The authorities’ response

16. The authorities were in agreement with this broad approach in principle, as evidenced by the policy framework for 2010, although the implementation was derailed by shortfalls in tax revenue.9 The government’s budget approved in December 2009, targeted a near-zero basic fiscal balance for the year, which would have led to a small nominal decrease in the stock of domestic debt. The authorities also agreed that improvements to monetary and foreign exchange operations could help reduce T-bill yields further, and initiated efforts to improve liquidity forecasting and management. In another step to avoid excessive T-bill issuances, the policy framework called for a “spend and absorb” approach to using donor budget support, whereby liquidity generated by donor financed government spending would be sterilized by CBG sales of the corresponding foreign exchange receipts. Finally, over the next couple of years, the authorities shared the view that the CBG could take steps to enhance competition in the T-bill auction, which would also tend to drive up prices and push down yields.

Fiscal Policy: Restoring Fiscal Discipline

17. The mission emphasized that positive results from the envisaged macroeconomic framework hinge upon consistent implementation of a moderately tight budget. The mission proposed strong corrective actions, including immediate revenue measures, to get the basic fiscal balance back on track with the broad objectives of the 2010 budget over the second half of the year. That is, even though the basic fiscal balance for the year as a whole would slip to a deficit of nearly 1 percent of GDP, over the second half, spending would be aligned with revenues so that the basic balance during this period would have a small surplus. During the second half, the government would curb its domestic borrowing needs, helping to ease pressure on T-bill yields going forward. If in the end, revenue measures are insufficient to fully recover the recent shortfalls, spending restraint would be necessary to achieve this objective. In addition, the mission cautioned that the periodic deterioration of fiscal discipline, typically after the passing of a program test date, would weaken credibility and the positive effects of a tighter fiscal stance.

18. The mission encouraged the authorities to pursue a comprehensive tax reform over the medium term (Box 2).

Box 2.Fund Staff’s Proposals on Tax Reform

The Gambia’s tax system undermines the business climate, yet revenue is volatile and remains below the regional average. The Gambia Revenue Authority (GRA) became operational in 2007 and has made major progress in improving the efficiency and effectiveness of tax collection. Nonetheless, domestic revenues account for only about 15 percent of GDP. Revenue has also been volatile, partly because of fixed retail fuel prices (so tax revenues absorb changing import prices) and varying tax collection priorities. Poor scores on tax compliance and tax payer services are an important reason for the low ranking of Gambia’s business climate.

The mission urged the authorities to pursue a comprehensive tax reform, centered on the introduction of value added tax (VAT) by 2013. A broad based VAT has proven to be a reliable revenue source in many countries throughout the world, including sub-Saharan Africa. Moreover a shift toward a more consumption based tax system with improved tax payer services could form the cornerstone to a more enabling environment for business and investment. Preparing for a successful launch of VAT, however, requires that existing systems and policies are improved. This includes an overhaul of the small business tax, further roll-out of self-assessment, the establishment of a tax refund system, and improvements in taxpayer services. Additional steps include the widening the base of the current sales tax and enforcement of excise taxes on domestically produced goods. Capacity constraints in tax administration will guide policy choices to ensure that a new tax system can be run efficiently within the resource constraints faced by the GRA. Also, revenue estimates to be prepared by the GRA will guide policy decisions on questions such as tax rates and exemptions.

Complementary measures are needed to make the tax system efficient and friendlier to tax payers. Several “nuisance” taxes—taxes with low revenue potential but high administrative and compliance costs—could be abolished. This would free resources at the GRA to pursue more revenue-relevant activities and improve the tax environment for the private sector. Tax payer services could be improved by the establishment of a tax and customs tribunal.

The authorities’ response

19. Reflecting their desire to get back on track with fiscal objectives, particularly with the goal of generating fiscal savings from lower interest costs, the authorities implemented significant revenue measures following the mission. In June, the authorities raised fuel prices for the first time in two years to increase the government’s revenue from the embedded residual tax. The authorities are also considering a revision to the fuel pricing formula, which would preserve tax revenues, while allowing flexibility in retail prices to reflect the pass-through of changes in world prices. The authorities were also prepared to apply strict limits on spending for the remainder of 2010, but due to the severity of the slippage, it appeared unlikely that original budget targets for the year could be met.

20. The authorities agreed that the tax system is in need of reform. They also clearly stated their commitment to the introduction of a VAT in the context of their membership in ECOWAS (Economic Community of West African States). However, they have yet to decide on the timing of the preparatory intermediate steps to be taken. In particular, they did not commit to broadening the general sales tax in 2011. They did note that the GRA is in the process of implementing the collection of excise taxes on domestically produced goods, both as a revenue measure and to meet WTO commitments. They also stressed their long-term goal of reducing corporate income tax to enhance the competitiveness of The Gambia within the ECOWAS region.

21. Delays and uncertainty in budget support grants from the EU (€25 million over 3 years or about 1½ percent of GDP a year) further complicate fiscal operations. In the absence of the initial disbursement, which was expected in May, the authorities are arranging a bridge loan from the CBG to cover a portion of the shortfall. However, should the delay be extended further, the authorities agreed that a corresponding fiscal adjustment would be necessary to maintain macroeconomic stability. The authorities’ dialogue with the EU—mainly on political and human rights issues—is ongoing.

PFM reform

22. The budget process and expenditure control continue to pose major challenges for the government. Although the authorities have made significant progress with PFM reforms, and going forward they have embraced a new and comprehensive strategy (adopted by cabinet in February 2010), budget planning for many ministries is still weak. Substantial expenditure needs are often not incorporated in the annual budget and sizeable supplementary budgets during the year have become typical, often putting additional strain on the fiscal balance. The mission encouraged the authorities to continue progress on the PFM reform, particularly in the area of expanding the coverage of the budget and strengthening the budget process, while in the near-term adhering to strict spending limits.10 The mission also emphasized the need to strengthen the IFMIS for budget monitoring and execution and internal and external audit procedures. In particular, in line with the next phase of the Integrated Financial Management and Information System (IFMIS) project, the mission supported the emphasis to develop the interface for the CBG by end-2011, which strengthens the tools available for maintaining strict compliance with spending ceilings.

The authorities’ response

23. The authorities agreed that expenditure control needed to be strengthened. They recently announced tight spending limits in an effort to generate basic balance surpluses each month. The authorities also welcomed Fund technical assistance on PFM issues, notably on helping to set priorities for the new reform strategy and to strengthen the budget process. The authorities are keen to pilot a medium-term expenditure framework (MTEF) based on the successful case of the Ministry of Basic and Secondary Education. With support from the World Bank and other donors, the authorities are making good progress expanding the coverage of IFMIS and advances have been made with both internal and external audits of government expenditures. The authorities aim to have the IFMIS interface for the CBG implemented by the end of 2011.

Monetary policy and liquidity management

24. Monetary policy has been effective in helping to control inflation. Targeting broad money as the intermediate instrument and reserve money as the operational instrument has generally worked well. The mission, however, encouraged a greater focus on average reserve money each month, which has a stronger correspondence to broader monetary aggregates than does the end-period figure. The mission encouraged the authorities to introduce a high degree of predictability and transparency in liquidity management. For example, a desirable goal would be the CBG to eventually announce the size of T-bill auctions well in advance, which would enable banks to better plan ahead and reduce the excess reserves they typically carry. The mission also highlighted the need to project demand patterns for liquidity, as well as the supply side, again, to ensure stability in the money market. In addition, the mission suggested that the authorities explore ways to increase competition in the T-bill auction, such as eventually shifting to a fortnightly auction. But much preparation would be necessary for these longer-term objectives. To lengthen the period between T-bill auctions, it would be necessary for the CBG to develop new short-term instruments, such as REPOs.

25. Through an analysis on the optimal level of official international reserves for The Gambia, the mission advised the authorities, that the CBG could forego accumulating additional foreign reserve assets for the remainder of this year (Appendix 1). In particular, by explicitly assigning a cost to holding and accumulating reserves and simulating shocks that reserves would typically be used to guard against, policy makers could make more informed decisions on holding international reserves. However, given a considerable margin of error in the model, the mission recommends a cautious approach to adjustments in reserve levels.

26. To preserve the CBG’s independence and capacity for conducting monetary and foreign exchange operations, there was broad agreement that a reconciliation of the government’s accounts in the CBG is in order. The prolonged period of government’s resorting to advances and overdrafts from the CBG for financing—well beyond the statutory limit—had compromised the CBG’s balance sheet. As a corrective action, the Ministry of Finance agreed to securitize its net obligation to the CBG with a fixed-term instrument, consistent with the rules for such assets under the CBG Act, paying a positive real rate of return (exact terms are being negotiated between CBG and the Ministry of Finance). Staff suggested that it would be desirable if at least a portion of the claim on government could be met with marketable T-bills, which would facilitate the CBG’s introduction of REPO instruments.

The authorities’ response

27. The authorities were in broad agreement with the mission’s proposals. They noted that information on fiscal operations from the Ministry of Finance was now available through the new interagency committee and they expect improvements to liquidity forecasting. It is hoped that during 2011, the CBG would be in position to announce the size and distribution of T-bill auctions one month in advance. The authorities agreed that the CBG’s stock of international reserves is currently at a comfortable level, and that the optimization model offers valuable insights. Nevertheless, they too favored a cautious approach to adjusting reserve levels as opposed to an active sell-off. They pointed out that T-bill purchases, instead of more reserve accumulation, would also facilitate the CBGs introduction of REPO instruments.

28. The authorities welcomed a reconciliation of the government’s accounts at the CBG and emphasized that transactions with the government going forward should be in strict compliance with the CBG Act. In particular, any bridge loan to offset delays in budget support must meet this standard.

B. Financial Sector Policies

29. As a result of strong competition and a challenging macroeconomic environment, risks to financial stability have increased.11 With the entry of seven new banks since 2007, competition for deposits, loans, and qualified staff has intensified significantly. In 2009 and early 2010, this led to a sharp rise in the cost of funds, provisions, and staff remuneration, respectively. In addition, the adverse effects of the global crisis on the tourist and real estate sectors (the latter is largely funded by remittances) amplified the pressures on banks’ earnings and credit quality. Earnings for the banking sector as a whole turned negative in 2009, partially driven by increased provisioning for loan losses, although the latter failed to keep pace with the increase in non-performing loans (NPLs: see Table 1 in Appendix 2). The weakening in earnings and credit quality put pressure on bank capitalization. With a capital adequacy ratio of 19 percent, the banking sector at large is still adequately capitalized, but the aggregate number masks a wide dispersion across banks while NPLs are likely to increase further.

30. Staff commended the authorities for taking steps to mitigate emerging risks, but urged them to take further steps. Policy measures introduced by the CBG include: (i) raising the capital requirement in two steps from GMD 60 million now to GMD 150 million by end-2010 and to GMD 200 million by end-2012; (ii) introducing a PCA framework, effective January 2010; and (iii) establishing a Credit Reference Bureau in July 2009. However, additional steps are needed to strengthen banking supervision. In the short-term, the CBG needs to: (i) step up its micro-prudential surveillance capacity by addressing resource constraints (e.g., staffing, IT) and using the PCA framework as a dynamic instrument for allocating supervisory attention; (ii) step up its macro-prudential surveillance capacity to identify emerging systemic risks early on and take prompt preventive action accordingly; (iii) closely monitor banks’ capital raising efforts to ensure that they meet the end-year minimum and that parent banks abide to commitments made; (iv) resolve weaknesses in the regulatory framework (see Appendix 2); and (v) resolve start-up problems of the CRB.

The authorities’ response

31. The authorities agreed with the need for additional steps to enhance the resilience of the financial system and strengthen banking supervision. Earlier this year, banks were required to submit plans on how they would raise the resources to meet the first increase in the capital requirement by the end-2010. The authorities agreed with the mission that requiring banks to meet a portion of the increase by end-September would provide a meaningful signal on whether the banks are indeed able and willing to meet their obligations. By identifying troubled cases in advance, the CBG would have an opportunity to help resolve problems prior to the end-December action. Furthermore, the CBG is actively seeking new staff to meet critical shortages in the banking supervision department. Finally, subject to available financing, the CBG intends to upgrade its IT infrastructure to free-up staff time that is currently lost on manually entering and processing data.

C. Exchange Rate Assessment and International Competitiveness

32. A floating exchange rate policy has served The Gambia well by absorbing part of the shock during periods of adjustment. The CBG has intervened to smooth adjustments to changes in market conditions, without a predetermined path for the exchange rate, ultimately allowing the rate to be fully market determined. Since September 2009, the CBG has remained largely out of the foreign exchange market, entering only to purchase a modest amount of foreign exchange (about US$2 million) in March 2010 to meet a predetermined reserve target and to sell modest amounts (about US$1 million and US$3 million, respectively) in April and May for sterilization purposes. The mission encouraged the authorities to make a clear distinction between foreign exchange sales for sterilization purposes and those for interventions, where the former becomes a very predictable process. An analysis by Fund staff suggests that the dalasi was slightly overvalued during 2009 (Appendix 3).

33. Developments in the REER as well as survey indicators suggest a modest gain in competitiveness for The Gambia in 2009. The real effective exchange rate depreciated by about 10 percent in 2009 reflecting modest depreciation of the nominal exchange rate as well as a favorable inflation differential between the Gambia and its major trading partners. In comparison to comparator countries12 with the West African sub-region, the Gambia’s REER has also fallen significantly against these countries suggesting a relative gain in competitiveness for The Gambia. In terms of survey-based indicators, The Gambia slipped maintained its relative global ranking in the World Bank’s Doing Business Index Survey for 2009 and is only behind Ghana and Nigeria among the countries of the West African Monetary Zone (WAMZ). Similarly, The World Economic Forum’s Global Competitiveness Index for 2009 indicates a slight improvement in The Gambia’s competitiveness as compared to 2008. Although these survey indicators do not necessarily reflect developments in the real exchange rate, they are useful indicators of inherent structural weaknesses that may undermine external stability in the future.

The Gambia: REER Developments in Comparator Countries


The authorities’ response

34. The authorities agreed with the mission’s assessment. They agreed that systematically using foreign exchange sales to sterilize liquidity generated by government expenditures financed by donors budget support—that is, a “spend and absorb” approach to aid—is appropriate for The Gambia, but they have yet to develop a separate transparent procedure for sterilization operations. On the assessment of the dalasi’s alignment with economic fundamentals, they appreciated the insights obtained from the variety of approaches used, but noted that the exchange rate is market determined.

D. Accelerating Growth

35. The mission focused its attention on the implications for debt sustainability of the authorities’ plans for financing large scale public investments. Given that the Gambia’s debt burden remains high, the mission urged the authorities to adhere with its commitment in the country’s recently-adopted Medium-Term Debt Strategy (MTDS) to maintain debt sustainability by seeking grants and highly concessional loans to finance these investments. The mission also underscored the point that such new borrowing be channeled toward highly-productive investments with strong growth potentials, which should be verified through in-depth project evaluations. The mission cautioned the authorities, however, that further work is needed on the MTDS. In particular, questionable assumptions underlying the strategy create a bias in favor of domestic borrowing, which is already quite costly. While the mission agreed with the need to establish longer-term maturities for domestic debt, it noted that interest on these bonds is very high in real terms.13 The mission urged the authorities to first make progress on easing the pressure on T-bill yields by curbing new borrowing, before issuing significant amounts of longer-term bonds. Indeed, it will be important to establish greater credibility that the government aims to reduce its domestic debt over a sustained period to achieve lower yields on government bonds.

36. The mission encouraged the authorities to explore private sector participation as an alternative form of financing. However, many public-private partnerships require a well developed institutional framework and caution is warranted. Others, such as a joint public-private telecommunications venture into an international gateway that opens the door to competition can be more immediately viable.

The authorities’ response

37. The Ministry of Economy, National Planning, and Industrial Development was established in February 2010, with the main objective of developing and implementing PAGE. The authorities plan to have a number of stakeholders meetings during the drafting process. The first draft of the PAGE is expected to be completed by early 2011, with the aim of having a final draft ready for cabinet approval toward the end of the year and implementation beginning in 2012. The authorities explained that an important element in the PAGE will be a major stepping-up of infrastructure investment to address the country’s severe shortcomings and to help create a more enabling business environment. The Ministry will coordinate departmental investment plans and carry out cost/benefit analysis on all large investment projects. At present, implementation capacity and institutional details remain to be developed.

38. The authorities placed much emphasis on maintaining debt sustainability. They will continue to seek grants or loans on concessional terms to finance designated projects that pass a thorough cost-benefit analysis. The authorities are open to private sector participation in infrastructure investment. Indeed, they recently initiated negotiations with the private telecom companies to help finance GAMTEL’s connection to a new international submarine fiber-optic cable expected to be completed in 2012.

39. The authorities acknowledged the need to exercise caution when issuing longer-term government bonds, given the high cost. They are seeking technical assistance to help update the MTDS with more realistic assumptions and risk analysis.

IV. Economic Statistics

40. Economic data has shortcomings but are broadly adequate for surveillance. Although substantial technical assistance efforts in recent years led to some improvements, data accuracy, timeliness and coverage remain weak. The Gambia Bureau of Statistics (GBoS), with the mandate to compile national accounts and price data, suffers from capacity constraints and has yet to implement several recommendations from previous technical assistance missions in national accounts. Data compilation at the Ministry of Finance and the CBG, although stronger overall, also suffer from inadequate resources and technical bottlenecks. In addition, administrative bottlenecks on sharing information with the Fund has impaired analysis and policy discussions. As a result, data submissions have been late, incomplete, and require detailed scrutiny.

V. Staff Appraisal

41. The Gambian economy has performed well in recent years with strong economic growth and low inflation. Thanks to a rebound in agriculture, the economy was cushioned from the severe impact of the global crisis on tourism and remittances, which are now expected to recover gradually. The Gambia has made good progress on several MDGs, but poverty is still widespread. Staff encourages the authorities to strive to meet the targets for spending on PRSP II priorities.

42. The deterioration in fiscal discipline over the past year and a half, threatens The Gambia’s positive economic performance. The large roll-over of short-term debt implies that upward pressure on yields could sharply increase interest costs, which already consume one-fifth of government revenues. The mission welcomes recent measures to increase government revenues, but strong political will is also needed to ensure that spending is contained. By the same token, a credible program to reduce domestic borrowing through greater fiscal discipline could generate substantial fiscal savings.

43. Recent revenue measures, particularly the increase in fuel prices, would need to be bolstered to have a sustained positive impact. In the near-term, a new pricing formula for fuels, which preserves tax revenue and allows the pass-through of changes in world prices is called for. In addition, embracing a comprehensive tax reform, including intermediate steps to ensure smooth implementation of a VAT in 2013, would help to build much needed credibility in the government’s commitment to fiscal discipline over the longer term.

44. There has been good progress on public financial management in recent years, and the adoption of the new PFM reform strategy bodes well for further progress in the future. While it will take a couple of years to implement some of the far-reaching measures, such as the IFMIS interface for the CBG or piloting an MTEF and program budgeting, it will be important to implement effective nearer-term measures. In particular, to guard against spending overruns and large supplementary expenditures, the budget for 2011 would be need to fully cover all ministries and spending agencies from the start. Election year spending pressures, however, will create some risks for the budget.

45. Government’s past recourse to central bank overdrafts has weakened the CBG’s balance sheet. If it persists, it could impair monetary and foreign exchange operations. Reconciliation of the government’s accounts vis-à-vis the CBG is a positive step, but statutory limits would need to be observed going forward to safeguard economic stability. In this light, care is needed with the design of the CBG’s bridge loan to cover the shortfall in budget support from donors. Should the delay in budget support persist, the loan should be converted to an interest bearing instrument in line with the CBG Act.

46. Liquidity forecasting and management are set to improve substantially with the information sharing on fiscal operations provided by the recently formed interagency committee. Depending upon improved fiscal discipline, there is good potential for greater predictability and stability in money market conditions which would facilitate financial intermediation and could help lower interest rates.

47. The rapid expansion in the number of banks in recent years has created opportunities for deepening and access to financial services, but has also increased the risks to the banking system, especially under the intense competition among banks. The CBG has appropriately raised the minimum capital requirement, but vigilance and a strong effort to expand the capacity of banking supervision are also needed.

48. A floating exchange rate policy has served The Gambia well. Although the dalasi was deemed to be slightly overvalued in 2009, there has been some adjustment since. The Gambia has a comfortable stock of international reserves, thanks in part to the SDR allocation. The authorities’ cautious approach to maintaining reserves is also appropriate.

49. The authorities have highlighted The Gambia’s need for infrastructure, which is expected to be a central theme in the next strategy for reducing poverty. Staff welcomes the authorities’ commitment to maintain debt sustainability and to conduct careful project evaluations to make sure that investments are highly productive. Staff also welcomes the authorities’ considering private sector participation in infrastructure investment, particularly when competitive market situations can be created.

50. Staff recommends that the next Article IV consultation be held in accordance with the provisions of Decision No. 12794 of July 15, 2002, as amended, on consultation cycles. In the event a review is completed under a Fund arrangement within the next 15 months, the next Article IV consultation will take place within 24 months.

Appendix 1. Reserve Adequacy in The Gambia

The recent SDR allocation boosted the stock of international reserves in The Gambia to relatively comfortable levels. Analysis using both traditional indicators and optimization models suggests, however, the need for a prudent approach to reserve use, conditional on risks to the economic outlook.

At the end of 2009, gross international reserves covered 6 months of imports of goods and services, with net reserves covering about 5 months of imports. While elevated by historical standards, these levels are compatible with risks facing a small open economy, with significant import dependence and absence of export diversification. In addition, the Gambia lacks access to international capital markets and has relied on remittances, some FDI, and budget support to finance its current account deficit.

Optimization models complement standard metrics for international reserve coverage to yield a more complete picture of reserve adequacy.1 Indicators such as reserve coverage of imports place The Gambia relatively well within a regional sample of countries (figure). However, cost benefit analysis, where shocks to terms of trade and remittances are balanced against an opportunity cost of holding reserves mainly guided by the high domestic treasury bill yields, allows for more informed conclusions.

In particular, a baseline scenario including a likelihood of shocks to terms of trade based on historical probabilities together with a loss of aid/remittances suggests an optimal level of reserves coverage of 4.6 months of imports. However model results are sensitive to parameter calibration. For example, modifying the baseline by doubling the opportunity cost indicates a lower level of optimal reserves at 4.2 months of imports. If, in addition, the likelihood of terms of trade shock is increased (together with a faster recovery from the shock state), the resulting optimal level of reserves is 5.1 months of imports. Finally, a baseline scenario where real depreciation in the shock state is doubled to 20 percent suggests optimal reserve coverage of about 7 months of imports.

Notwithstanding model caveats (notably parameter sensitivity and data quality), the combination of traditional indicators of reserve coverage with model simulations indicates that the current level of international reserves is broadly aligned with macroeconomic risks faced by a small open economy like The Gambia.

International reserves

Reserve coverage in months of imports of goods and services in ECOWAS

Appendix 2. Banking Supervision in a Rapidly Expanding Banking Sector1

The entry of seven new banks since 2007 significantly changed the banking landscape. With 14 banks now active in the Gambia, the availability of finance is improving.2 Credit growth accelerated from late 2007 and easily outpaced GDP growth and deposit growth.3 As a result, credit to GDP rose from less than 10 percent at end-2005 to about 17 percent in the first quarter of 2010, while the loan-to-deposit ratio increased by 6 percentage points to 47 percent over the same period (still relatively low in regional comparison). Financial deepening may raise The Gambia’s growth potential by more effectively channeling savings into productive investments.4 Moreover, to the extent that the new banks exploit business opportunities in sectors that were credit constrained, the entry of new banks contribute to private sector development. Indeed, while coming from a low base, non-traditional sectors like manufacturing and construction seem to have benefited more from the credit boom than the more traditional growth sectors like agriculture and tourism (Figure 1).

Figure 1.The Gambia: Recent Developments in the Banking Sector

Source: CBG data and IMF Staff calculations

The quantity effect is more pronounced than the price effect. While the amount of outstanding loans nearly doubled since end-2006, bank lending rates seem to have come down only marginally and remain at high levels (about 25 percent). With a shallow corporate loan segment, a small number of large firms has the bargaining power to negotiate lower lending rates. However, the majority of firms and households continue to be credit constrained as rising funding, provisioning, and operating costs prevented banks from significantly lowering rates. While increased competition narrowed banks’ interest margins, this primarily reflects rising deposit rates as new entrants in particular compete aggressively for time deposits in a market that is characteristically concentrated.5 For those banks that lack a core local deposit base, competitive biddings for large deposits have significantly driven up funding costs, occasionally to such extent that deposit rates exceeded T-bill and the CBG’s rediscount rate. As a result, the monetary policy transmission has been weakened, with virtually no pass-through of the December 2009 cut in the rediscount rate into lending rates.

Increased competition adds to the challenges for financial stability and supervision. Fierce competition for deposits, loans and qualified staff led to a sharp rise in the cost of funds, provisions, and staff remuneration, respectively. Combined with the deterioration in the operating environment stemming from the impact of the global crisis on key sectors like tourism and construction, this led to an erosion in banks’ earnings and capital adequacy (see figure 1). Moreover, new entrants cite a relatively lengthy licensing process as the culprit for incurring large losses in the first year of starting operations (e.g. restrictions on expanding branch networks and product range, including a six-month exemption from forex transactions). The following risk factors were identified as the key risks facing the Gambian banking sector:

  • 1. Credit risk: In a bid to increase market shares,6 banks seem to have relaxed credit standards at a time when credit quality was already weakening due to a deteriorating operating environment. This combined effect, is evidenced in a sharp rise in non-performing loan (NPL) ratios. With NPL growth outpacing credit growth and profitability entering negative territory in 2009, regulatory capital didn’t keep pace (see figure 1). Even though at 18.7 percent, the aggregate capital adequacy ratio (CAR) far exceeds the regulatory minimum of 8 percent, the facts that NPLs are likely to rise further and that provisions only cover 52 percent of NPLs call for vigilance.

  • 2. Liquidity risk: Given high degrees of deposit concentration and price elasticity for large deposits (from e.g. parastatals and large corporates), banks are vulnerable to a funding liquidity shock from aggressive, large depositors. Moreover, as most new entrants are subsidiaries of Nigerian banks, they are vulnerable to a parent bank funding shock should banking sector conditions in Nigeria deteriorate further. That said, market signals suggest that large depositors increasingly weigh rates against risks in allocating deposits, with some banks seeing tentative signs of a flight to quality.

  • 3. Operational risk: Competition for qualified staff significantly raises operational risk through: (i) rising overhead costs; (ii) a loss of expertise; and (iii) hiring falling short of asset growth (i.e., credit risk).

This is confirmed by a weakening of Gambia’s financial soundness indicators (FSIs) and prompt corrective action (PCA) ratings. Gambia’s FSIs deteriorated across the board (Table 1), with the period averages reported here showing a milder deterioration than end-of-period figures. The PCA framework that the CBG implemented in 2010 stipulates that supervision should be incrementally stepped up for higher PCA ratings, with banks that report a rating above three for any of the PCA components subjected to intensive supervision. In line with the deterioration in FSIs, the aggregate PCA ratings have worsened in 2009 and early 2010, which holds in particular for those for asset quality and earnings (see Table 1).

Table 1.The Gambia: Financial Soundness Indicators - All Banks(Period Average in Percent)
2007200820092010 1/
Capital Adequacy
Regulatory Capital to Risk Weighted Assets22.222.319.918.7
PCA Rating1122
Tier I Capital to Risk Weighted Assets23.523.720.819.8
Asset Quality
Non-Performing Loans to Total Loans14.211.711.716.9
PCA Rating5445
Loan Loss Provisions to Non-Performing Loans70.291.363.046.8
Earnings and Profitability
Return on Assets1.
PCA Rating3344
Return on Equity15.511.34.75.4
Net Interest Income to Gross Income43.434.434.634.2
Non-Interest Expense to Gross Income56.552.155.957.7
Liquid Assets to Total Assets43.643.739.737.0
PCA Rating2233
Liquid Assets to Total Deposits67.167.359.164.2
Liquid Assets to Short-Term Liabilities78.669.762.558.5
Net Open Position in Foreign Exchange to Capital38.85.95.5
PCA Rating511

Data for 2010 covers only the first quarter.

Source: Central Bank of The Gambia

Data for 2010 covers only the first quarter.

Source: Central Bank of The Gambia

The aggregate numbers mask vulnerabilities at the bank level. As risks tend to be concentrated in the tail of the distribution, focusing on aggregate FSIs and PCA ratings may not yield an accurate assessment of the soundness of the banking system. Indeed, Table 2 shows that aggregate FSIs (i.e., size-weighted averages) mask a wide dispersion of risks across banks. While the new banks tend to be highly capitalized, some of the oldest and largest banks have significantly lower CARs. For instance, the CAR of the top 7 banks that account for 86 percent of banking system assets averages 15.1 percent (ranging from 9.3 to 24.9 percent) against 36.4 percent for the bottom 7 banks (ranging from 17.6 to 51.9 percent). Hence, the shock absorption capacity of some of the largest banks is significantly lower than the headline CAR suggests. Similarly, the dispersion in NPL ratios shows that again the older and larger banks struggle more with loan quality issues than the new banks. However, given that they just opened shop, it is likely that new banks will face a weakening of their loan portfolio down the road. The opposite holds for banks’ earnings: 8 of the 14 banks are loss-making, most of which are new banks. As a result, the majority of banks perform worse than the aggregate ROA suggests.

Table 2.The Gambia: Dispersion of Financial Soundness Indicators Across Banks(End of Period in Percent)
Capital Adequacy
CAR 2010 Q118.79.319.926.551.9
CAR 2009 Q120.010.920.532.7102.6
Asset Quality
NPL 2010 Q116.90.015.712.947.1
NPL 2009 Q111.60.010.311.740.4
Earnings and Profitability
ROA 2010 Q10.3-35.4-1.7-4.23.1
ROA 2009 Q11.6-
LAR 2010 Q165.232.769.6106.6378.1
LAR 2009 Q163.930.467.394.8288.5
Source: Staff calculations based on Central Bank of The Gambia data
Source: Staff calculations based on Central Bank of The Gambia data

Looking at individual banks’ PCA rating over time confirms that asset quality and profitability deteriorated significantly in the past year (Figure 2). Moreover, it supports the view that credit risk is the key risk facing the Gambian banking system today. While the number of banks with a PCA rating for asset quality of 5 increased from 4 to 7 between 2009q1 and 2010q1, the percentage of system assets these banks represent jumped from 16 to 65 percent, meaning that nearly two-thirds of the system should be subjected to intense supervision.

Figure 2.The Gambia: Development in Banks’ PCA Ratings

Source: CBG data and IMF Staff Calculations.

Regulatory Loan Classification and Provisioning Rule 1/
Threshold (days)Provisioning RateClassification
Current< 901%General
Sub-Standard> 9020%Specific
Doubtful> 18050%Specific
Loss> 360100%Specific
Restructured 2/5%General

Exemption from asset classification regulation for small consumer loan (up to GMD 25,000)

Restructured loans are not classified as non-performing, nor as performing. Early restructuring is not allowed (CBG Guideline 5, Para 18 stipulates that they “… will have been classified as non-accrual credits”. Source: CBG

Exemption from asset classification regulation for small consumer loan (up to GMD 25,000)

Restructured loans are not classified as non-performing, nor as performing. Early restructuring is not allowed (CBG Guideline 5, Para 18 stipulates that they “… will have been classified as non-accrual credits”. Source: CBG

Moreover, risks may be underestimated by weaknesses in the regulatory framework. These include:

  • 1. Loan classification and provisioning rule: In line with international best practices (Basel Core Principle 9), regulation should ensure that asset quality is properly and transparently recorded, as well as provisioned for, in banks’ financial accounts.7 The Gambia’s asset classification and provisioning rule (see text table) shows weaknesses in three key areas. First, it relies primarily on the delinquency parameter, with forward-looking judgment on loan performance only marginally embedded in regulation.8 Second, it only includes four classification categories. Loans are classified as current up to 90 days of delinquency, with a corresponding provisioning rate of only one percent. The classification regime does not include a watch or special-mention category that typically captures loans that are delinquent up to 90 days, and require a provisioning rate of 5 percent. Third, the regulation governing restructured loans is too lenient and allows banks to provision for restructured loans at a rate of 5 percent only.9 As restructured loans are not recorded as non-performing, NPLs are understated and do not accurately reflect loan performance in bank books.

  • 2. Single-borrower limit: The limit is set at 25 percent of capital, but only applies to unsecured credit. This loophole in CBG regulation, flagged in recent Fund Technical Assistance (March 2010), allows banks to build up concentrated exposures beyond a level that is deemed sound. Moreover, given weaknesses in collateral registration and enforcement that reduce recovery rates on secured credit, this distinction is somewhat arbitrary. CBG’s limited capacity to monitor concentrated exposures was revealed recently by a large borrower defaulting on its debt that far exceeded the legal limit and hence left the bank concerned undercapitalized.

Against this background, increasingly stretched supervisory resources are cause for concern. Based on the PCA thresholds, 13 out of the 14 banks should be subjected to intense supervision for at least one of the PCA components. As the CBG already faced difficulty in meeting the additional staffing needs for the expansion of the banking sector, the deterioration in banking sector conditions only adds to the CBG’s supervisory capacity constraints. With 17 full-time staff in CBG’s Financial Supervision Department (FSD), the number of supervisors per bank falls short of its targeted minimum of 3 supervisors per bank. That means that there is little room to step up the intensity of supervision or the frequency of on-site visits consistent with the PCA framework.10 To alleviate staffing pressures, CBG intends to hire 4 more staff and - subject to funding - introduce an IT platform to digitalize regulatory returns.

Appendix 3. Is the Dalasi Aligned with The Economy’s Fundamentals?

A number of complementary approaches were adopted to assess The Gambia’s exchange rate in order to provide best estimates for staff’s assessment. These alternative approaches, proposed by the IMF’s Consultative Group on Exchange Rate Issues (CGER), include the macroeconomic balance approach, the equilibrium exchange rate approach, and the external sustainability approach. In addition, staff also examined the sustainability of the current account deficit based on the evolution of key variables in the balance of payments. These alternative approaches, however, produce different results.

The macroeconomic balance approach suggests that the dalasi may be overvalued. This approach finds that the country’s current account deficit as of 2009 (14¼ percent of GDP) is higher that its economic fundamentals would suggest (11¾ percent of GDP). The underlying fundamental driving this result is the large fiscal deficit for 2009. With an estimated current account norm of about 4 percent, roughly in line with estimates in past assessments, a depreciation of 11¼ percent would be needed to restore sustainability.

Results from the equilibrium real exchange rate approach suggest an overvaluation of between 5 and 7 percent. Staff adopted a vector error correction mechanism (VECM) to estimate the REER because of the presence of Cointegration between the REER and its fundamentals. Given the relatively small sample size (1973—2009), staff also used an autoregressive distributed lag model (ADL) which is better for small samples. While the VECM indicates that the exchange rate may be overvalued by 7 percent, the ADL suggests a slightly lower overvaluation of about 5 percent. In both cases, government consumption was the most significant explanatory variable. To the extent that such consumption is more on non-tradables than tradables, the exchange rate is likely to appreciate and tend toward being overvalued.

With an underlying current account balance of 11¾ percent, the external sustainability approach indicates that the Gambia’s long-run NFA would be unsustainable at about 132 percent of GDP. In order to bring the NFA to sustainable levels of either 50 percent or 70 percent of GDP (associated with different assumptions on FDI flows); the exchange rate would require a depreciation of between 8 and 11 percent with corresponding current account deficits of 4½ percent and 6¼ percent of GDP.

On the basis of flows of key variables, the balance of payments seems sustainable. Although the average trade deficit has increased from about 6 percent (1997-2004) to about 15 percent (2005-09), this has been offset by a modest increase in the surplus on net services over the same period. More also, the associated deterioration in the current account balance (from 6 percent to 11½ percent) has been financed by non-debt creating flows in the capital account including grants, loans, FDI and inflows to commercial banks.

Taken together, these assessments suggest The Gambia’s exchange rate may be slightly overvalued. On average, our assessments indicate the Dalasi is overvalued by about 6½ percent. As in most low-income countries (LICs), data weaknesses and uncertainties regarding optimal methodology make it difficult to reach a conclusive assessment. However, in light of the consistent agreement of the results from various methodologies, we conclude that the Gambia’s exchange rate is slightly overvalued.

The Gambia: Results of Exchange Rate Assessments
MethodologyValuation (in percent): Over (+) or Under (-)
Macroeconomic Balance11.3
External Sustainability8 - 11
Balance of Payments Flows0.0
Equilibrium Real Exchange Rate:
VECM Model6.9
ADL Model4.8
Source: IMF staff calculations.
Source: IMF staff calculations.

The authorities’ policies were supported by a Fund staff monitored program during late 2005-mid 2006, and an arrangement under the Extended Credit Facility (ECF; formerly, Poverty Reduction and Growth Facility) during 2007-10. At the authorities’ request, the Fund’s Executive Directors approved a one-year extension and augmentation of the ECF arrangement in February 2010. All semi-annual program reviews under the ECF were completed in a timely manner, although the 7th review—the first under the extension—has been delayed because of fiscal slippages.

The Gambia Bureau of Statistics revised GDP data using 2004 as the base year. For 2009, the rebased GDP figure is 30 percent higher than the figure presented in the staff report for the 6th ECF review (Country Report No. 10/61).

Based on the most recent joint World Bank-IMF debt sustainability analysis (Country Report No. 10/61) completed in January 2010, The Gambia is classified as being at high risk of debt distress.

The June 2010 Millennium Development Goals Report Card produced by the U.K. Overseas Development Institute places The Gambia in the top five African countries making progress toward achieving the MDG targets.

See Country Report No. 10/61 for a description of some of the main items accounting for the spending overruns in 2009. To a large extent the overruns reflected insufficient coverage of the budget on items that later became political priorities or legal obligations, such as government’s buying back shares of GAMTEL after a failed privatization, and investment in a satellite link by the Gambia Radio and Television Service.

The statutory limit on direct lending to government by the CBG has been exceeded since November 2008. In January 2009, the limit was temporarily raised from 10 percent of the previous year’s government revenues to 20 percent, but this too has been continuously exceeded.

Without the SDR allocation (equivalent to US$39 million), the import coverage of gross reserves amounted to 4.7 months of imported goods and services at end-2009.

In April, world oil prices exceeded budget projections (based on projections by the Fund’s Research Department for the October 2009 World Economic Outlook) by just over 10 percent.

Discussions have continued to re-establish a path for fiscal policy that would lead to a gradual reduction in government’s domestic debt.

A technical assistance mission from the Fund’s Fiscal Affairs Department visited Banjul in June. Advice focused on strengthening the budget process, piloting MTEF, and setting priorities for the PFM reform strategy. Although coverage of the 2011 budget could be expanded, extensive preparations for more substantive reforms would take place during 2010-11 and phased-in beginning with the 2012 budget. The mission’s advice was well received by the authorities.

For a more in-depth analysis, see Appendix 2, “Banking Supervision in a Rapidly Expanding Banking Sector”.

Senegal is one of The Gambia’s most important trading partners and is similar in climate and thus has the potential to produce similar agricultural goods. Cape Verde is a strong competitor to The Gambia as a tourist destination for European travelers while Benin serves as a major re-exporter of goods to Nigeria and Togo whereas The Gambia is a major re-exporter of goods to Senegal and Guinea-Bissau

In February 2010, the government issued 3-year bonds for the first time, but demand was limited.

Eugen Tereanu “International Reserve Adequacy in The Gambia (forthcoming).

The author of this Background Note is Ruud Vermeulen.

One bank was granted approval-in-principle but withdrew its bank license application.

Credit growth averaged over 30 percent y/y between 2008q1 and 2010q1, relative to about 17 percent between 2005q1 and 2007q4. Deposit growth for the same time periods averaged 19 and 12 percent, respectively, while real (nominal) GDP growth averaged 5.5-6 (11-12) percent and 3.2 (5.8) percent.

In 2010, The Gambia ranks 135 out of 183 countries in the World Bank’s Ease of Doing Business indicator for getting credit (up from 131 in 2009). The Gambia scores particularly poorly (0 out of 6) in terms of the subcomponent measuring the depth of credit information (scope, access, and quality), See

For instance, the Social Security and Housing Finance Corporation alone accounted for close to 45 percent of total time deposits in 2009.

In the first quarter of 2010, the seven banks that entered since 2007 together accounted on average for nearly 25 percent of total loans, against 18.5 percent of total deposits and 22 percent of total assets. This reflects their aggressive build-up of market share, which is likely to have caused a weakening in credit standards across the board.

To this end, asset classification and provisioning rules need to be designed such that weakening asset quality can be detected at an early stage and is provisioned for in line with realistic repayment and recovery expectations. This typically entails an asset classification rule based on quantitative and more forward-looking qualitative parameters like delinquency, financial ratios, and business prospects. Assets are typically classified into five categories that allow assets to be upgraded or downgraded in a granular fashion depending on certain performance parameters. While no formal consensus on best practices exists, a prudent asset classification rule comprises: (i) standard/current (no delinquency); (ii) watch/special mention (1-90 days past due); (iii) substandard (90-180 days past due); (iv) doubtful (180-360 days past due); and (v) loss (> 360 days past due), with a provisioning rate of 1, 5, 20, 50, and 100 percent, respectively. For a more detailed discussion, see IMF (2006), Financial Soundness Indicators Compilation Guide, Washington D.C.

CBG Guideline Paragraph 7: “Non-accrual credits are defined as loans and advances on which interest is not being accrued due to the existence of reasonable doubt as to the ultimate collectability ofprincipal or interest”.

Prudent regulation governing the restructuring of problem assets should ensure that: (i) the debt service and repayment capacity of the counterparty is restored; (ii) any implicit (NPV) loss is written off; and (iii) the restructured asset can only be upgraded after debt service has been observed according to the restructured terms for a specified minimum amount of time and will be classified as non-performing until meeting that criteria.

Currently, on-site visits take place at an annual frequency, where CBG decides it to be a full-scale or follow-up visit based on off-site analysis.

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