The Gambia
2001 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Authorities of The Gambia

The Gambia showed mixed economic performance. Executive Directors expressed concern about slippages in fiscal policy, which stemmed from the efforts to resolve the Alimenta property dispute and also from shortfalls in customs revenue, and delays in implementing some structural reforms. They encouraged the authorities to implement governance-strengthening measures for enhancing transparency and accountability in public resource management. They welcomed the antimoney laundering law, noted the progress made in improving economic and financial data, and stressed the need to tighten monetary and fiscal policies, and strengthen the financial sector.


The Gambia showed mixed economic performance. Executive Directors expressed concern about slippages in fiscal policy, which stemmed from the efforts to resolve the Alimenta property dispute and also from shortfalls in customs revenue, and delays in implementing some structural reforms. They encouraged the authorities to implement governance-strengthening measures for enhancing transparency and accountability in public resource management. They welcomed the antimoney laundering law, noted the progress made in improving economic and financial data, and stressed the need to tighten monetary and fiscal policies, and strengthen the financial sector.

I. Introduction

1. Discussions for the 2001 Article IV consultation and the first review of the economic program supported by the third annual arrangement under the PRGF were held in Banjul during the period May 2-16, 2001.1 The Gambia’s request for a three-year arrangement under the PRGF, in an amount equivalent to SDR 20.6 million (66.3 percent of the new quota), together with the first annual arrangement thereunder, in an amount equivalent to SDR 6.87 million (22.1 percent of quota) were approved by the Executive Board on June 29, 1998 (EBS/98/102, sup. 1; 6/30/98). However, the first review under the first annual PRGF arrangement could not be completed because of slippages in implementing the budget and structural reforms. Moreover, there were governance problems arising from the government’s seizure of the property of the Gambia Groundnut Corporation (GGC)—a private marketing monopoly owned by Alimenta. Performance under the second annual PRGF arrangement—approved by the Executive Board on November 19, 1999—was satisfactory: the Board granted waivers for the nonobservance of three end-March 2000 quantitative performance criteria, while the authorities met all of the end-September 2000 quantitative performance criteria. The Executive Board approved the third annual arrangement on December 11, 2000 for the period October 1, 2000-September 30, 2001, in the amount of SDR 10.3 million (33.1 percent of quota).2 SDR 3.4 million was disbursed upon Board approval of the arrangement, and the second disbursement (SDR 3.4 million) will become available subject to the observance of the end-March 2001 quantitative performance criteria and the structural performance criterion for end-December 2000, and the completion of the first review. If the full amount under the third annual PRGF arrangement is disbursed, and taking into account scheduled repayments, The Gambia’s use of Fund resources would rise from 44.8 percent of quota at end-2000 to about 66.3 percent at end-2001 (Tables 1 and 2).

Table 1.

The Gambia: Second and Third Annual Arrangements Under the Existing PRGF Arrangement, 1999-2001

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In conjunction with the request for the third annual arrangement, the authorities have also requested an extension of the three-year commitment period through end-December 2001 to allow for the last disbursement.

Table 2.

The Gambia: Fund Position During the Period of the PRGF Arrangement, 2000-01

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Source: IMF, Treasurer’s Department.

2. In the attached letter to the Managing Director dated June 29, 2001 (Appendix 1), the government of The Gambia outlines economic and financial policies for the balance of 2001 and requests waivers for the nonobservance of the end-March 2001 quantitative performance criteria with respect to (a) net bank credit to the central government; (b) net domestic assets of the central bank; (c) the basic primary balance of the central government; and (d) the floor on the net official international reserves. A waiver is also being requested for the nonobservance of the end-December 2000 structural performance criterion to establish a comprehensive accounting framework to monitor poverty-reducing expenditure, including expenditure funded from debt relief under the enhanced HIPC Initiative.

3. In concluding the 2000 Article IV consultation discussions on July 19, 2000, Executive Directors noted the broadly encouraging results on the macroeconomic front, notwithstanding the request for waivers for the nonobservance of some of the end-March 2000 performance criteria. They urged the authorities to continue strengthening fiscal performance, improving governance, and implementing further structural reforms.

4. In November 2000, the Executive Boards of the World Bank and the Fund discussed the enhanced HIPC Initiative preliminary document for The Gambia (EBS/00/208; 10/25/00) and agreed that the country qualified for assistance under the Initiative. The Fund Executive Board discussed the enhanced HIPC Initiative decision point document (EBS/00/242; 11/28/00), the interim poverty reduction strategy paper (I-PRSP) (EBD/00/99; 11/28/00), and the joint staff assessment (JSA) of the I-PRSP (EBD/00/100; 11/28/00), concurrently with the request for the third annual PRGF arrangement.

5. In 1993, The Gambia accepted the obligations under Article VIII, Sections 2 (a), 3, and 4 of the Fund’s Articles of Agreement, and maintains an exchange system that is free of restrictions on payments and transfers for current transactions. Summaries of The Gambia’s relations with the Fund and the World Bank Group are contained in Appendices II and IV, respectively. Outstanding statistical issues are discussed in Appendix V.

II. Recent Economic Developments and Performance under the program3

6. During 2000, economic performance was mixed, with strong GDP growth and moderation of inflation; however, there were some slippages in the fiscal area. Preliminary data indicate that real GDP grew at 5¾ percent in 2000, as good rains boosted the production of groundnuts and other crops. The good harvest in 2000 contributed to a further moderation in inflation to about 1 percent (based on the low-income consumer price index—CPI) for the year (Figure 1 and Table 3).

Figure 1.
Figure 1.

The Gambia: Selected Economic Indicators, 1994/95 - 2003 1/2/

Citation: IMF Staff Country Reports 2001, 148; 10.5089/9781451815412.002.A001

Sources: The Gambian authorities; and Fund staff estimates and projections.1/ Until 1996/97, fiscal years (July-June); from 1997, calendar years.2/ Shaded areas represent projections.3/ In percent of broad money at the beginning of the period.
Table 3.

The Gambia: Selected Economic and Financial Indicators, 1998-2006

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

Excluding reexports and imports for reexport.

In percent of broad money at the beginning of the period.

Includes public enterprises.

On a commitment basis, excluding HIPC Initiative supported expenditure.

In 2001, the increase in debt service mainly reflects payments to Alimenta (the last payment will be in July 2001).

7. The overall fiscal deficit (excluding grants) was reduced to about 3.6 percent of GDP in 2000 from 4¾ percent in 1999. A shortfall in customs receipts, and a slight overrun in expenditure (mostly wages and other recurrent expenditures) were largely offset by shortfalls in capital expenditure because of lower external project financing. The resulting larger-than-programmed deficit (in dalasi terms), in addition to the overpayment of the first installment to Alimenta (see Box 1),4 contributed to an increase in net government domestic bank borrowing in excess of the program level. Government domestic debt increased to about 31 percent of GDP at end-2000, up from 27 percent at end-1999.

8. During the first quarter of 2001, there were slippages in the implementation of the budget. In February, the government paid D 64.5 million (1.1 percent of GDP) to three commercial banks for nonperforming loans that had financed the 2000 groundnut crop.5 In addition, the authorities also made an unscheduled payment to Alimenta in February 2001, which facilitated the company’s withdrawal of the dispute from arbitration.

9. During 2000, broad money grew by 35 percent, considerably above the program target, reflecting intervention by the CBG in the foreign exchange market (see para. 10 below). Reserve money, mainly currency outside banks, also exceeded the program target. The treasury bill rate declined from 12.5 percent in December 1999 to 12 percent by December 2000. Reflecting mainly the fiscal slippages, the quantitative performance criteria for end-March 2001 with respect to (a) net bank credit to the central government; (b) net domestic assets of the central bank; and (c) the basic primary balance of the central government were not observed (Appendix Table 1).

10. In the external sector, preliminary data indicate that the current account deficit (excluding official transfers) increased to 12 percent of GDP in 2000 from 11½ percent in 1999, as imports recovered from the adverse impact of the preshipment inspection scheme (rescinded in July 2000) while reexports were slowed by cross-border difficulties. However, gross international reserves increased above the target for end-2000 because of central bank’s efforts to build up reserves ahead of the end-December payment to Alimenta, given the then uncertain receipt of the EU grant. This action contributed to a depreciation of the dalasi by 4.8 percent in real effective terms in 2000 (Figure 2); following a similar depreciation of 2 percent on average during 1998-99 in the last quarter of 1999, thus, continuing the recent trend toward enhanced external competitiveness of The Gambia. However, the end-March 2001 quantitative performance criterion with respect to the floor on the net official international reserves was not observed, as the CBG accelerated payments to Alimenta and sold a substantial amount of foreign exchange to address the buildup in demand. As of end-2000, the outstanding public external debt was SDR 321 million (100 percent of GDP).

Figure 2.
Figure 2.

The Gambia: Exchange Rate Developments, January 1985 - March 2001

(Indices, 1990=100)

Citation: IMF Staff Country Reports 2001, 148; 10.5089/9781451815412.002.A001

Source: IMF, Information Notice System.

Settlement of the Gambia Groundnut Corporation’s Dispute

In January 1999, the government seized the property of the Gambia Groundnut Corporation (GGC)—a private company that had a monopoly in processing and exporting groundnuts—without compensation. Alimenta—the GGC’s parent company—submitted the case to ICSID in July 1999, seeking compensation of US$32 million. However, at the government’s initiative, the two parties reached an out-of-court settlement in October 2000, under which The Gambia would pay a total of US$11.4 million to Alimenta by end-July 2001, as set out in the table below. The European Union (EU), the key donor supporting the groundnut sector, agreed with the government to use a grant of €5 million (originally expected in May 2000 but received in late December) to pay Alimenta instead of reducing domestic debt. Following the government’s payment to it of USS6.5 million through February 2001 and an arrangement for a bank guarantee for the balance, Alimenta withdrew the case from ICSID arbitration in March 2001.

The final payment to Alimenta is due by end-July 2001, and the government expects to receive another grant of about €4.5 million from the EU toward this payment. When Alimenta has been paid in full, its properties, comprising two groundnut-processing plants and a number of barges, will revert to the government. The government, in turn, plans to privatize these assets to different marketing firms in order to increase competition and benefit farmers as part of broader reforms to improve the groundnut sector.

Government Payments to Alimenta, 2000-01

(In millions of U.S. dollars)

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Sources: The Gambian authorities; and staff estimates.

Partly based on conversions from euro into U.S. dollars at the prevailing exchange rates. Total includes interest charges and other costs.

The excess payments in December 2000 and March 2001 amounted to D 18 million and D 49 million at the prevailing exchange rate, respectively.

11. The implementation of structural reforms was slower than expected, notably on account of a delay in completing the structural performance criterion for end-December 2000 to establish and begin to implement an accounting framework to track poverty reduction expenditure. However, the performance criterion was fulfilled by end-May 2001 and as expected, additional measures are being taken to improve the implementation of the framework. Meanwhile there have been delays in the provision of technical assistance by the United Nations Development Programme (UNDP), which slowed the implementation of structural benchmarks on measures to improve the compilation of the national accounts and the CPI. Fund technical assistance in April-May facilitated the planned implementation of structural benchmarks in the financial sector. The mission noted good progress in implementing the PRSP process (see below).

12. Governance and political issues, including the delay in local elections, the dismissal of some key officials, and proposals to amend the constitution, have caused concern among donors, who have postponed the roundtable meeting (originally scheduled for mid-2001 as part of the PRSP process) until after the elections which are slated for October 2001 and early 2002. In response to letters from the authorities in April on governance issues, including Alimenta, the Managing Director commended the authorities on progress in addressing the Alimenta dispute and urged them to redouble their efforts in addressing the outstanding issues. The UN sent a mission to Banjul and has prepared an Integrated Preventive Strategy to assist in strengthening governance in The Gambia (see Box 2).

III. Policy Discussions and Program for the Balance of 20016

13. The discussions took place against the background of (a) the tension in policies between efforts to complete payments to Alimenta and containing the large domestic debt. In particular, the authorities were concerned by the implications of the donors’ postponement of a roundtable meeting to close an estimated financing gap (SDR 5.9 million) in 2001; (b) an urgent need for the authorities to strengthen institutional capacity in support of the PRSP and HIPC Initiative process; and (c) a need to address governance issues, particularly the pending groundnut marketing reforms—including the proposed privatization of the Alimenta assets—and timely preparation for local and national elections by early 2002. Thus, the discussions, which focused on assessing recent economic and financial developments, took these issues into account in framing macroeconomic and structural policies for the remainder of 2001 broadly consistent with the objectives set out in the memorandum on economic and financial policies for 2000-01 (EBS/00/241, App. 1; 11/28/00) and the I-PRSP.

14. For 2001, real GDP growth is projected at 5¾ percent, owing to expected continued improvement in agricultural production, particularly groundnuts, through the expected marketing reforms. Reexport trade and tourism are also expected to continue recovering from adverse developments in 2000. Measured inflation is projected to increase to 3½ percent by end-2001, reflecting the continued depreciation of the dalasi and the increase in domestic petroleum product prices (see below).

A. Fiscal Policy

15. The fiscal program for 2001 was revised to take account of recent developments, resulting in a higher overall deficit (excluding grants) of 3.9 percent of GDP (3½ percent in the original program). However, the deficit (including grants) is virtually unchanged at about 1 percent of GDP. With the incorporation of expenditure expected to be funded from HIPC Initiative debt relief, the deficit (excluding grants) will reach 5 percent of GDP (see below). To finance the deficit, the government will make further recourse to domestic bank and nonbank financing, although domestic debt will decline to 27.8 percent of GDP by end-2001, compared with the 24.6 percent envisaged earlier. The authorities explained that they had no choice but to address the unfortunate developments related to the seizure of the Alimenta property and crop financing that had delayed their strategy to substantially reduce domestic debt. They expressed confidence that they would be moving forward with reforms to prevent a recurrence of direct government involvement in the groundnut sector. The staff stressed that it was critical that the proposed reforms be implemented fully and expeditiously.

16. In March 2001, revenue measures implemented to address the weaker-than- envisaged customs receipts, comprised higher gasoline (an increase of 9 percent) and diesel and kerosene prices (15 percent each), the curtailment of customs duty exemptions, and the collection of tax arrears. Other revenue will increase as a result of better performance by income tax receipts, and the recovery of funds (from the EU compensation and exporters) related to 1999/2000 crop financing operations, and the budget would benefit from increased grants. Measures were also taken to implement the delayed automated system of customs data (ASYCUDA). Further strengthening of the revenue departments, including the implementation of ASYCUDA II (which will provide computer links among the port, the airport, and regional posts in order to improve tax administration and data compilation), will be supported by the proposed World Bank Capacity-Building and Economic Management Project.

17. On the expenditure side, the 2001 budget was modified to include (a) higher domestic interest payments of about D 60 million (1 percent of GDP); (b) funding of D 8.4 million, for the local and presidential elections likely in October 2001 and for the parliamentary elections likely in January 2002; (c) government payments to the three commercial banks; and (d) the 2001 contingency budget funded from the US$4.4 million (D 68 million) provided by the Fund, the World Bank, and the African Development Fund/Bank as interim debt relief under the enhanced HIPC Initiative, which was submitted to parliament on June 14, 2001 as a program prior action (see Table 5b). Parliament approved the budget—as a supplementary appropriation—on June 25. Moreover, the budget, as before, reflects the final payment to Alimenta. Overall, recurrent expenditure in 2001 will increase by 3.3 percent of GDP, compared with the original program, but this will be partly offset by lower development expenditure now estimated at about 5 percent of GDP compared with about 4½ percent recorded in 2000 (Table 5).

Table 4.

The Gambia: Selected National Accounts Indicators, 1998-2003

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Sources: The Gambian authorities; and staff projections.
Table 5.

The Gambia: Central Government Financial Operations, 1998-2003

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

In February 2001, the government paid D64.5 million to commercial banks arising from debts owed by groundnut operators from the 1999/2000 crop season. However, this amount will be partly offset by D 12.42 million from the European Union (EU) stabilization fund and D 9.1 million from the recovery of collateral and pending export proceeds.

Includes D 4.2 million from the U.K. Department for International Development and D 1.5 million from the EU for elections scheduled for late 2001 and early 2002.

Includes HPC Initiative supported expenditure.

Domestic revenue minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.

Current spending only (wages and other charges).

The Gambia. Table 5a: Supplementary Budget for Allocation of HIPC Initiative Interim Debt Relief, 2001

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Source: The Gambian authorities

Governance Issues in The Gambia

The deteriorating state of governance in The Gambia has continued to draw the attention of the international donor community during 2000-01. In early 2001, several donors made representations to the authorities on a number of governance issues. Moreover, in November 2000, the UN sent a mission to Banjul to evaluate the governance issues and regional instability.

The UN mission noted with concern the current risk level in The Gambia, which had the potential for a sudden and sharp deterioration in the political situation, and highlighted the following: (a) The Gambia, being relatively stable in a subregion with ever-widening armed conflict had taken a disproportionate share of immigrants (15,000 registered refugees and about 500,000 nonregistered migrants); (b) instability among the youth (below age 25), who account for over 60 percent of the total population—against the background of deepening poverty, declining foreign assistance, and limited opportunities for higher studies—was contributing to high youth unemployment as some of the youth had turned to a disruptive life of criminal behavior, including serving as mercenaries in regional conflicts, as drug and arms traffickers, and many were susceptible to HIV/AIDS; (c) intolerance was growing as segments of society blamed the country’s economic misfortunes on foreigners, including refugees; and (d) regional instability added to internal pressures, not only from the high number of migrants and refugees that The Gambia harbored, but also from the increased risk of a spillover of violence and the uncontrolled circulation of small arms and illicit drugs.

Against this background, the UN has proposed to implement an Integrated Preventive Strategy to enable The Gambia to respond better to the multiple and interrelated nature of the challenges the country faces. The multisectoral strategy, to be implemented in close partnership with The Gambia and interested members of the international community, seeks to address a number of areas: poverty alleviation, sustainable development and the role of women; governance—including through electoral support; the combating of corruption; refugee and human rights issues; youth employment; environmental and health issues; and capacity building.

In response to the UN’s request for inputs into the Integrated Preventive Strategy, the Fund recommended that economic support under the strategy should be integrated into the PRSP process. It also proposed a series of donor roundtable meetings that could include a special session on technical assistance to help build the institutional capacity in The Gambia. The Fund committed itself to continuing to play a significant role through the PRGF-supported program in helping The Gambia consolidate the achievements it had made so far, in fiscal, financial, and exchange and trade rate policies, as well as in structural reforms, all within the context of the PRSP process.

Governance issues have been on the authorities’ priority agenda since the government adopted the Governance Policy in 1999, which with the assistance of UNDP—initiated a number of reforms aimed at establishing an overall policy framework for governance. It provides a comprehensive national program for establishing and strengthening democratic and administrative institutions and processes in The Gambia, and for enhancing public participation. The good governance and public administrative reform program (which is one of the program pillars in the interim PRSP) includes (a) reforming parliamentary structures and processes; (b) reviewing of constitutional and electoral processes to improve supervision of government activities; (c) promoting civic education to strengthen the capacity of local civic organizations; (d) reforming legal and judicial processes to introduce flexible mechanisms for ensuring access to justice; (e) decentralizing the local government system to promote community participation and improve the delivery of development services to communities; and (f) reforming public management and administration.

The UN Integrated Preventive Strategy, which calls for electoral support and institutional capacity building, among other objectives, would enhance the government’s efforts in implementing the governance program, which has hitherto moved slowly. Accordingly, resource mobilization through a well-promoted series of strategically placed donor roundtable meetings—devoted also to technical assistance issues and the PRSP process—could help to address the multiple problems faced by The Gambia and help reduce the high risk levels.

18. The Gambia has been identified as one of the HIPC Initiative countries in need of a substantial upgrading of the system for tracking poverty-reducing expenditure. Accordingly, the discussions on fiscal reforms focused on the broader issues of budget formulation and implementation. The authorities expressed their appreciation for Fund technical assistance in supporting budget reforms. They hope to continue relying on the resident Fund budget advisor to improve accounting practices and move toward a comprehensive reporting and control of government expenditure, especially on the below-the-line (BTL) accounts.7 The advisor has also assisted in closing the government accounts for 1992-97 and as a follow-up, the Accountant and Auditor General’s Offices are collaborating to complete the delayed audit of those accounts and expedite the auditing of future public accounts. The capacity-building project will also assist with (a) the computerization of the Accountant General’s Office; (b) strengthening of the macroeconomic unit in DOSFEA; and (c), in conjunction with DFID, preparation of the public expenditure reviews (PERs) in three of the key sectors targeted in the I-PRSP (agriculture, education, and health), which also serve as a first step toward a medium-term expenditure framework (MTEF). As detailed in the letter of intent, the fiscal program for 2001 also incorporates the full repayment of civil service salary advances and the elimination of cross arrears between the government and the public enterprises by end-2001. The mission noted the ambitious scope of these reforms and urged perseverance and close coordination with the providers of technical assistance in implementing the entire package.

B. Monetary Policy and Financial Sector Reforms

19. Monetary policy during 2001 will seek to keep period-average inflation below 4 percent and maintain external reserves equivalent to about 5.3 months of imports. This will be underpinned by the prudent fiscal policies described above, which will permit a tight overall monetary policy while providing adequate credit to the private sector. Following slippages through early 2001 partly associated with accelerated payments to Alimenta and crop financing, the authorities have taken measures to tighten monetary policies in the remainder of 2001, contributing to an increase in velocity to 2.8. Broad money growth has already been reduced to 14 percent for the 12-month period ended March 2001, through central bank sales of foreign exchange and stepped up sales of securities toward the end of the quarter; the latter contributed to an increase in the treasury bill rate to 12.5 percent. The central bank will seek to moderate the growth of broad money from an estimated 35 percent during 2000 to 8 percent by end-2001 with the planned sales of securities. Consistent with the strategy outlined in the I-PRSP to give a substantial role to the private sector, credit for the latter is programmed to increase by about 23 percent for 2001. This expansion will support increased private sector activity in the planned privatization of a number of public enterprises, crop financing during the 2001/02 season, and an improved investor climate following the resolution of the Alimenta dispute.

20. With regard to the foreign exchange market, the central bank encouraged commercial banks to deal directly with the foreign exchange bureaus (the parallel market that transacts mainly in cash) and in the process helped to integrate the two markets. Moreover, during the first quarter of 2001, the CBG attempted to meet the pent-up demand for foreign exchange in the interbank market using competitive bids.8 As a result, the spread between the interbank and parallel rates declined from 14 percent in September 2000 to an average of 0.4 percent during the first quarter of 2001 (Figure 3). Complementary reforms to broaden the market and reduce foreign exchange transactions costs through the introduction of foreign currency deposits are discussed in Box 3.

Figure 3.
Figure 3.

The Gambia: Spread Between Parallel and Interbank Market Rates, January 2000-March 2001

(In percent); in terms of U.S. dollar per dalasi

Citation: IMF Staff Country Reports 2001, 148; 10.5089/9781451815412.002.A001

Sources: The Gambian authorities; and staff estimates.

21. Financial sector reforms are being pursued at the regional, national, and micro level in order to promote an efficient and competitive financial sector and a reduction in The Gambia’s deep-seated poverty by supporting income-generating activities for the poor. The Gambia is participating in the Accra Declaration to establish a West African Monetary Zone (WAMZ) by 2003 though it is too early, at this stage, to assess its implications for economic policy for the country. Reforms at the national and micro levels are summarized in Boxes 3 and 4, respectively.

C. Other Structural Reforms

22. As detailed in the attached letter of intent, the authorities are pursuing other structural reforms focused on (a) modernization of business-related legislation and regulation; (b) development of a competition policy; and (c) public enterprise divestiture. The latter reform will be aided by the recently approved Privatization Act. In 2001, up to D 20 million will be transferred from the divestiture account to reduce the government domestic debt.

23. The authorities indicated that agricultural reforms would focus on upgrading groundnut marketing, among other things, to prevent a recurrence of direct government intervention in crop financing. They commended the Fund and the EU for the support they had provided to expedite the resolution of the dispute with Alimenta, which could have dragged on and resulted in substantially larger costs. They expected to continue to work closely with the EU and the Agri-Business Service Plan Association (ASPA) and press on with the privatization of Alimenta’s assets to competing experienced operators, in order to promote private crop financing and higher producer prices. While welcoming the steps taken to date toward privatizing the Alimenta assets, the mission stressed the importance of full transparency in the privatization process. It also urged the authorities to follow up closely on the recovery (from exporters) of the remaining balances from the 1999/2000 groundnut marketing loans.

D. External Policies and Balance of Payments Outlook

24. The authorities felt that the recent significant further reduction and rationalization of the external tariff (from a maximum of 20 percent to 18 percent (the import-weighted average external tariff was reduced from 12 percent to 11.8 percent), along with the reduction of the number of tariff bands from ten to three, all effective August 2000)9 should benefit the economy. In the medium term, the external sector is also expected to gain momentum from increased production and quality of groundnuts and improved marketing arrangements. On the basis of these developments and the economic policies detailed above, the external current account deficit (excluding official transfers) is projected to narrow to about 11¾ percent of GDP in 2001. As detailed in the letter of intent, the key assumptions include export volume growth of 8 percent, import volume growth of 5 percent, and an improvement in the terms of trade of 6 percent, reflecting lower oil prices and higher groundnut prices. Additional external resources to close the financing gap for 2001 include HIPC Initiative interim debt relief of US$4.4 million10 and an additional EU grant of US$1.6 million. Moreover, the revised program incorporates a slightly lower gross official reserve target of SDR 80.9 million in 2001 equivalent to a level of about 5.3 months of import cover.

25. The medium-term outlook balance of payments through 2006 is projected to improve on the basis of the proposed prudent policies and structural reforms (Table 3). In particular, the fiscal outlook assumes that the overall deficit (excluding grants) would decline to 3.1 percent of GDP in 2002 and to 2.7 percent in 2003 taking into account the nonrecurring payments to Alimenta and the commercial banks in 2001 and the impact (especially starting from 2002) of the measures to strengthen customs receipts and the reforms to improve expenditure control. In the outer years the overall fiscal deficit is projected to level off to about 2.2 percent of GDP. This outcome will permit government domestic debt to decline gradually to about 20 percent of GDP by 2006. The improved fiscal outlook should help to contain the domestic interest payments and improve resource allocation to public investment from 4.9 percent of GDP projected in 2001 to about 7 percent by 2006. Gross investment is expected to increase from 17¼ percent of GDP in 2000 to 20¼ percent by 2004, supporting a projected increase in GDP growth in excess of 6 percent in the outer years.

Financial Market Issues


There are six commercial banks in The Gambia. With technical assistance provided by the MAE, the CBG and the banks are undertaking reforms to deepen the treasury bill market, introduce foreign currency deposits (FCDs) and strengthen financial sector supervision.

Deepening treasury bill market

Currently, the CBG issues 91-day and 182-day treasury bills through biweekly auctions. The social security find and the commercial banks account for most of the bids. The interest rate has not been flexible—it remained at 12 percent from March 2000 to January 2001, rose to 12.5 percent in February 2001 and has remained at that level ever since. The secondary market is not active.

Fund missions have made several recommendations aimed at deepening the treasury bill market and promoting more flexible interest rates, of which the following will be implemented in 2001. First, a book-entry system reduces administrative costs and ensures faster settlement, which would promote the secondary market. The CBG has trained staff with the book-entry software supplied and customized by the Fund, and will test it in a working environment during the June-August period before the final launch in September. Second, to increase the maturity range and explore the demand for such instruments, a new treasury bill of 364 days will be introduced at the auctions starting at end-August. Initially, the CBG expects that these new bills will account for 20-25 percent of the amount to be floated. Third, noncompetitive bids of D100,000 or less will be introduced.

The CBG plans to explore the licensing of treasury bill brokers and the introduction of repurchase operations, in part to promote the secondary market.

Introducing FCDs

The commercial banks in The Gambia are on track to introduce FCDs by end-2001, aiming to remove the competitive disadvantage vis-à-vis banks in the subregion. The FCDs will also facilitate the future operation of the proposed export processing zone.

Of the six banks, two will be ready to offer FCDs by September. The CBG prepared an action plan and will issue guidelines on FCD operations in August and work with the remaining four banks so that they could launch FCDs by end-2001. The CBG also emphasized the need for an anti-money laundering law and better corporate governance of the banks.

Strengthening financial market regulation

The revised drafts of the Financial Institutions Bill, which improves earlier legislation and better conforms with Basel Core Principles, and the Insurance Bill, which empowers the CBG to regulate and supervise the insurance industry, have been submitted to the cabinet. The National Assembly is expected to enact both bills this year.

In supervising the commercial banks, the CBG applies primarily off-site analysis and, infrequently, on-site examination. The banks are generally sound. At end-March 2001, their risk-weighted capital adequacy ratios were greater than 12 percent, except for one bank, which had a ratio below 8 percent. Problem loans declined to 12.6 percent of total loans in 2000 (from 16.4 percent of loans in 1999). However, the D 65 million in loans to groundnut marketing firms would have been classified as nonperforming had the government not provided the guaranteed payments. Provisions against problem loans declined from 90 percent in 1999 to 81 percent in 2000. Reflecting the structure of the economy, nearly half of the loans are concentrated in distributive trades. Close monitoring is being undertaken to safeguard the commercial banks from adverse shocks in this sector.

Microfinance in The Gambia

Introduction. The formal financial sector has been shrinking over the past decade, with the collapse of the country’s largest banks—the Gambia Commercial and Development Bank and the Agricultural Development Bank in the late 1980s. Agricultural lending fell from about 35 percent of total bank lending in the 1980s to about 8 percent at end-1999, owing in part to the withdrawal of government guarantees and also to the collapse of the Gambia Cooperative Union. Furthermore, commercial banks have not expanded their activities in the rural areas: in 2001, they operated only three branches outside the greater Banjul area. Accordingly, most financial services in the rural areas are provided by microfinance institutions (MFIs). Because their services target the low-income rural households, mainly women, they are at the cutting edge of poverty alleviation. In the context of the PRSP process and the enhanced HIPC Initiative debt-relief and poverty reduction policies, strengthening the financial intermediation provided by MFIs is key to supporting the income-generating activities undertaken by the poor.

A profile of MFIs in The Gambia. The delivery of microfinance in The Gambia is carried out by a number of organizations, including the traditional, informal, but cohesive groups known as Osusus—which resemble rotating savings and credit associations, and Kafos (community groups) where ties of neighborhood, gender, age, kinship, and ethnicity create peer pressure that encourages participation. The close ties to the community and peer pressure have ensured high repayment rates within both the Osusus and Kafos. This has contrasted sharply with other MFIs, many of which failed because of low repayment rates. As a result, many nongovernmental organizations (NGOs) decided to build on the traditional Osusus and Kafos as the main institutions for delivering Microfinance. The mid-1980s witnessed a rapid growth in formal MFIs. An example is the village savings and credit associations (VISACAs)—started in 1988 with financial support from Germany. Village banks were created to mobilize local savings to finance productive activities. Members contribute savings for several years before the money can be lent. Loans are quite small, with repayment rates of above 90 percent. Similarly, interest rates are high, exceeding formal market rates for both savers and lenders. Some MFIs are facilitated by NGOs—such as Association of Farmers, Education and Traders and others by donors—such as European Development Fund. Generally, support has been limited to infrastructure development and training. Another example of a successful MFI is the scheme supported by Action Aid The Gambia (AATG), which started in the 1980s. Its lending is mainly in kind, including seasonal inputs (seed and fertilizer) and agricultural implements (plows, hoes, and weeders). The AATG does not charge interest to the Kafos, which, in turn, decide the rate of interest to charge their members. Groups with good repayment records are rewarded by a replenishment of their resources, which further encourages compliance.

Collateral In some MFIs, farm animals, farm tools, and jewelry are used efficiently and effectively to enforce contracts.

Recent policy initiatives to strengthen MFIs. The central bank, which is responsible for the registration and supervision of VISACAs, initiated registration and monitoring of the MFIs in 1999. In May 2001, 14 had full licenses and 51 had provisional licenses, with agreement on a timetable to meet requirements for a full license. The VISACA Promotion Center provides guidance on operational and technical issues relevant to MFIs. Furthermore, the Rural Finance and Community Initiative Project, which is being funded by the International Fund for Agricultural Development (IFAD) (US$11 million) over six years, aims to strengthen the capacity of MFIs through funds channeled to the Gambia Women’s Finance Association and on-lent to the MFIs.

Outreach. The target markets for the VISACAs are the poor. The average loan sizes range from US$ 11 for the MFIs for rural clients to US$ 100 for agriculture and about US$300 in the greater Banjul area for microentrepreneurs. The potential MFI portfolio at end-2000, including IFAD funds, is estimated at about D 240 million (US$ 15 million)—5 percent of GDP, 37 percent of private sector credit, and 17 percent of commercial bank deposits. The CBG encourages the MFIs to place their deposits in treasury bills and other instruments with the commercial banks to strengthen linkages with the formal financial sector. As of 2000, the number of MFI clients is estimated at about 40 percent of the total Gambian population. However, the figures understate the scope of the activities since many MFIs operate in the informal sector with no public records.

Challenges. Sustainable provision of microcredit remains a major challenge, as well as the strengthening of local institutional and managerial capacity to manage village based microcredit schemes. Creating linkages to the formal financial system to strengthen financial deepening while varying operational procedures among donors creates confusion for the recipients and could thwart efforts to create self-sustainable MFIs.

26. The external current account deficit (excluding official transfers) is projected to improve to 11¼ percent of GDP in 2002 and to about 10½ percent in 2003 and thereafter gradually decline to about 10 percent by 2006. The volume of groundnuts exports will grow by an average of 4 percent during 2002-03 and thereafter by an average of about 5 percent per year. Further modest improvements are also expected in the exports of cotton, fresh fruits, and vegetables. The export offish and fish products, in particular, will benefit from the recent completion of artisanal and cold storage facilities. Tourism receipts are expected to rise by 10 percent in 2002 and more modestly in 2003 and by an annual average of 6 percent during 2004-2006, as operators improve services and the government steps up promotional activities. Import volumes are projected to rise by about 6 percent during 2002-03, as the reexport trade continues to recover following the removal of the preshipment inspection scheme and the reduction and rationalization of the external tariffs in 2000. The reexport volumes are expected to increase by about 5½ percent per year during 2004-06. The financing gaps projected for the period 2002-2006 are expected to be covered by a combination of donor grants and debt relief under the HIPC Initiative—permitting gross official reserves to increase to about 5.6 months of imports.

27. The authorities indicated that they remained committed to a liberal trade and exchange system. They will continue to assess the impact of external tariff reforms, as well as reforms in neighboring West African Economic and Monetary Union (WAEMU) countries (which have a maximum external tariff of 20 percent). Efforts have been intensified to improve balance of payments data based on the recommendation of a Fund technical assistance mission in September 2000. The authorities also intend to introduce ASYCUDA II, inter alia, to better integrate customs revenue and balance of payments data. The reduction in external tariff, together with the pursuit of a market-based flexible exchange rate—which resulted in a further depreciation of the dalasi by an estimated 5 percent in real effective terms during the first quarter of 2001—have benefited external competitiveness. The mission concurred with the authorities’ assessment and considered the prevailing exchange, in conjunction with the pursuit of prudent fiscal and monetary policies, as broadly appropriate to maintain The Gambia’s external competitiveness.

28. The Gambia is on track to achieve external debt sustainability within the context of the enhanced HIPC Initiative. It is now receiving interim debt relief and expects to reach the completion point, subject to the triggers outlined in EBS/00/242 (11/28/00), by end-2002. Medium-term projections indicate that total outstanding external debt will fall from 108.9 percent of GDP this year to about 90 percent of GDP in 2006. External debt service (including the Fund) is similarly projected to decline from 15.6 percent to 9.2 percent of GDP during the same period. Measures have been taken to provide the external debt unit at DOSFEA with better staffing and equipment in order to improve the quality and timeliness of external debt data. The authorities have also contacted all creditors to follow up with debt relief under the enhanced HIPC Initiative. In this context, they expect that by August 2001 agreement will be reached on the debt owed to the Norwegian export guarantee agency arising from a government-guaranteed loan to the Senegambia Beach Hotel.

29. The Gambia will need to continue to manage its external debt prudently and rely exclusively on external grants or long-term loans on highly concessional terms. Payments to the Fund in 2001 will total SDR 0.3 million (plus SDR 0.25 million to the Saudi Fund for Development), equivalent to 0.2 percent of the projected exports of goods and nonfactor services. The Gambia has an excellent record in meeting its debt-service obligations to the Fund, and, given the projected improvements in its financial policies, it is expected to discharge its future obligations to the Fund in a timely manner.

IV. The PRSP Process

30. The PRSP process is on schedule for the preparation of a full PRSP by end-2001. Notwithstanding the delayed roundtable meeting, donors have continued to support the PRSP process including the key steps outlined in para. 25 of the letter of intent. An outline of the PRSP was circulated in May for comments and drafting should commence by late summer. Meanwhile, the authorities have made good progress with education and health reforms, which—in addition to tracking poverty-reducing expenditure and the privatization of Alimenta assets—together with the implementation of the PRSP, are triggers for the enhanced HIPC Initiative floating completion point in December 2002.

Social impact of the program11

31. In addition to the pro-growth and anti-inflationary stance of macroeconomic policies, the I-PRSP incorporates sector policies that are, inter alia, part of the program pillars to reduce poverty. The approach is based on promoting income-earning activities in the key sectors, namely, agriculture, tourism, and trade, better targeting and delivering of education and health services, and focusing on employment creation, especially for the youth.

32. The low-inflation objective serves to protect the limited purchasing power of the poor, who predominate in rural agricultural activities and the urban informal sector. The PRGF-supported program has incorporated a significant adjustment in petroleum product prices, whose short-term adverse impact on consumers would be reversed when world oil prices decline. The impact on the poor has been somewhat mitigated through the provision of cross subsidies to kerosene, which is predominantly used by low-income households; however, improved government revenue resulting from higher fuel prices has helped to sustain expenditure, including those targeted to the poor. The PRGF-supported program has also supported flexible exchange rates, which, with the depreciation of the dalasi, have resulted in higher prices for imports. The poor consume mainly nontraded goods but would still be adversely affected by some higher import prices. However, the poor who are involved especially in the groundnut, tourism, and reexport sectors, tend to benefit when the dalasi depreciates, resulting in larger export proceeds and increased employment.

33. The fiscal strategy to contain the overall deficit and, eventually, the domestic debt has in the short term limited government expenditure and put emphasis on revenue collection that have reduced the disposable income and, therefore, the consumption of the public, including the poor. This effect has been mitigated by progressive income taxes and the exemption or low taxation of items consumed by the poor, such as rice and medicine, while expenditure targeting of the poor, especially on services, has helped to increase the share of some spending benefiting the poor. Reforms to improve the budget process focusing on the transparency and accountability of public expenditure should reduce fraud and increase efficiency in the allocation and targeting of increased resources to the poor. As indicated above, the tight monetary policy is putting a greater adjustment burden on the government in order to permit an adequate increase in private sector credit. However, the share of credit going to the poor is limited by antiquated business legislation and lack of collateral. Financial sector policies and reforms, complemented by fiscal reforms, should reduce financial intermediation costs and interest rates, which in turn, should benefit the public, including the poor. However, these policies are likely to become effective only gradually. In the meantime, the authorities have targeted reforms in microfinance as a faster way of targeting the poor and helping them improve their income-generating activities and ability to withstand economic shocks.12

34. The key sectoral measures targeting the earning capacity include payments to Alimenta, which should serve as a catalyst for the privatization of its former assets and the related reforms in groundnut marketing. The expected outcome is a considerable improvement in the production and marketing of groundnuts, which should benefit the poor households and help to reverse the major increase in the incidence of poverty experienced in The Gambia between 1992 and 1998 (see EBD/00/99; 11/28/00). The reduction and rationalization of the external tariff, together with the establishment of an export processing zone to be supported by the proposed Trade Gateway project, are expected to improve the external competitiveness of The Gambia, boost foreign investment, and significantly increase the scope of the key entrepôt activities. Together, these measures should provide the poor with better employment opportunities, marketing of their produce, and access to imported inputs. A positive outcome for youth employment would curtail problems such as HIV/AIDS, the potential for participation in drug and arms smuggling and mercenary adventure, and significantly contribute to poverty reduction.

35. Adhering to the work agenda to improve the social impact analysis is a priority. Among other areas, the authorities should focus on (a) bottlenecks that impede the effectiveness of current policies, including land and legal reforms to facilitate access to assets by the poor and especially women; (b) the inadequate social and poverty statistics informing policies; and (c) the lack of well defined output targets against which to measure progress. Discussions are ongoing to access technical assistance, notably from the DFTD to launch formal social impact analysis studies, better integrate the household surveys with the PPA and SPP exercises, and, separately, to undertake a housing and population census in 2003. Fund-assisted programs will focus on fiscal reforms and improvements in macroeconomic data.

V. Technical Assistance and Statistical Issues

36. As detailed in the attached letter of intent, The Gambia has made some headway in strengthening its statistical base. While such statistics are broadly adequate for surveillance purposes, further improvements are needed in data quality and coverage, especially with regard to the major components of the balance of payments, the national accounts and prices, public investment, the public enterprise sector, employment, and social and poverty data. The Fund and donors have provided technical assistance to improve data compilation in a number of areas, and The Gambia is a participant in the Fund’s General Data Dissemination System (GDDS) and uses the framework to improve the quality of data. Moreover, the government intends to utilize the donor roundtable (likely to take place by mid-2002, to mobilize external support for the PRSP) to work closely with donors in developing a comprehensive and better-coordinated technical assistance program to support the PRSP reforms and the closely related elements of the UN Integrated Preventive Strategy.

VI. Prior Actions and Program Monitoring

37. To enhance the success of the program, the following prior actions were implemented by the government: (a) the introduction of a comprehensive accounting framework to monitor poverty-reducing expenditure, including expenditure funded from debt relief under the enhanced HIPC Initiative; and (b) the submission to parliament of the 2001 budget funded from the interim debt relief under the HIPC Initiative.

38. The program will be monitored through the quantitative benchmarks and quantitative performance criteria specified in Tables 1 and 2 the letter of intent. The six quantitative performance criteria set for end-September 2001, will also serve as benchmarks for end-June 2001. Five structural benchmarks are still outstanding, set for specific dates during the period through end-September 2001; the rationale for structural conditionality is provided in Box 5. A continuous performance criterion on the avoidance of external payments arrears has also been set. Program implementation will be evaluated during a second review, to be completed by December 11, 2001.

VII. Staff Appraisal

39. The Gambia’s economic performance during 2000 and the first half of 2001 has been mixed. The economy has continued to grow briskly while maintaining low inflation with the benefit of good weather. However, there were slippages in fiscal policy through March 2001, partly related to efforts to address the Alimenta property dispute and its impact on groundnut financing. Moreover, the authorities are continuing to implement broad-based structural reforms despite a number of delays. In response to the slippages, the authorities have implemented corrective financial measures and, with the benefit of technical assistance, including from the Fund, are in a position to regain momentum in implementing the structural reform agenda. The Gambia is starting from a relatively low level and thus faces a considerable challenge in its attempts to meet the HIPC Initiative and PRSP public expenditure tracking standards, but the authorities have established an adequately ambitious comprehensive public finance reform program. Moreover, the authorities rightly plan to coordinate donor technical assistance support in these areas as part of a comprehensive program that would be presented at a roundtable meeting to support implementation of the PRSP reforms and elements of the complementary UN Integrated Preventive Strategy.

40. The revised program for the balance of 2001 appropriately aims at strengthening areas where slippages have occurred, including use of prior actions. It also focuses on strengthening structural reforms to improve the environment for robust private sector activity and enhance the delivery and monitoring of public services. The reinforcement of the program is essential to restore macroeconomic stability and contribute to a durable reduction in poverty in The Gambia.

41. To these ends, the authorities need to strengthen governance, including completion of the settlement with Alimenta and a timely implementation of the comprehensive governance program adopted by the government and incorporated in the PRSP. A number of elements of the governance program are critical to broadening the participatory process in the PRSP and the authorities have made commendable headway in implementing them. However, challenges remain on several fronts—also of concern to donors—notably, the pending local and national elections, for which the program has provided the necessary funding in the budget for 2001. The staff welcomes the progress made in some of these areas and urges the authorities to continue to actively seek broad consultations in implementing the rest. It urges the authorities to adhere to the target date for completing the full PRSP.

42. Fiscal performance should be strengthened in line with the revised program and the goal of maintaining a sustainable level of government domestic debt. On the revenue side, the improvement in customs administration remains critical for, inter alia, the sustainability of the recent external tariff reforms. Budgetary reforms to enhance the transparency and accountability of public expenditure are also crucial to the PRSP and HIPC Initiative process. The staff encourages the authorities to persevere with these reforms and a return to the timely audit of public accounts. The authorities should also collaborate effectively with donors in extending the nascent PER exercise to include the establishment of a medium-term expenditure framework encompassing all major expenditure programs.

Structural Conditionality in the Third Annual PRGF Arrangement for The Gambia

Coverage of structural conditionality in the current program

As detailed in Table 2 of Appendix I, structural conditionality in the third annual PRGF arrangement for The Gambia covers four areas. First, the inclusion of the tracking of poverty reduction expenditure in conditionality reflects the critical role of public resource management in the context of the strategy to reduce poverty; hence the use of a structural performance criterion and the subsequent two prior actions. Second, issues in data compilation (balance of payments, external and domestic debt, and national accounts) were included in order to encourage the authorities to improve their capacity to use the GDDS, formulate timely policies, monitor the program, and expedite the provision of data to the Fund for program monitoring and publication. Third, customs and tax administration is covered in conditionality in order to enhance revenue mobilization while promoting measures that will ensure the sustainability of the recent sizable reduction and rationalization of external tariffs. Fourth, the financial sector reforms covered in conditionality include the introduction of a book-entry system for treasury bills and foreign currency deposits. These are expected to promote the development of the money and foreign exchange markets, and enhance efficiency and interest rate flexibility.

Status of structural conditionality from earlier programs

The third annual PRGF arrangement does not include structural conditionality on (a) the restructuring and privatization of public enterprises; (b) the procurement code; (c) the investment code; and (d) the public investment program (PIP), all of which were covered by structural benchmarks in the earlier PRGF annual arrangements. The World Bank has the lead role in all these areas, and, except for item (a), all these have been addressed with legislation, interim codes, and an initial review of the PIP. The conditionality on privatization was not fully met, but the emphasis shifted to providing legal frameworks for privatization and regulation, both of which were approved by parliament in the 2000/01 session. Meanwhile, to deal with financial problems of public enterprises, the current PRGF program incorporated quarterly budget targets to eliminate government-public enterprise cross arrears. Moreover, the third annual PRGF arrangement was refocused to include structural conditionality that was more in the areas of Fund expertise and had a more direct bearing on macroeconomic issues.

Structural areas covered by World Bank lending and conditionality

Existing and prospective (in fiscal year (FY) 2002) World Bank lending is all in projects, of which those in education and health have conditionality that is reflected also in the HIPC floating completion triggers. The World Bank has not scheduled any credit or structural adjustment lending in FY 2002 but is considering such new lending in FY 2003; a budget support operation under consideration could assist a further reduction in external tariffs and arrangements to restructure/buy back domestic debt.

Other relevant structural conditions not included in the current program

These conditions comprise four main areas. First, reforms are linked to the settlement of the Alimenta property dispute, notably timely payments to Alimenta and the privatization of its assets and the complementary groundnut marketing and production reforms. These areas are covered by agreements and arrangements with the European Union—the lead donor in the sector. Moreover, the privatization of the two Alimenta groundnut processing plants is included in the HIPC Initiative floating completion triggers. Second, governance issues have been explicitly raised by donors, notably the timing of local elections. These are issues that go beyond the mandate of the Fund and are monitored by the relevant donors. Third, the PRSP process, including participatory programs, sector policies, public expenditure reviews, the medium-term expenditure framework, and social impact analysis, is supported by various donors and NGOs; however; it has not been covered by specific conditionality in the PRGF-supported program. Finally, liquidity forecasting by the central bank has been developed as far as it can be by the monetary authority acting on its own. Additional conditionality in this area is now dependent on ongoing reforms in the accounts of the central government, which would provide timely inputs into the formulation of monetary policy and catalyze additional reforms.

43. The authorities need to continue to pursue prudent monetary policy to maintain low inflation while providing adequate private sector credit growth. Supporting reforms should emphasize the expanded use of indirect instruments, taking advantage of Fund technical assistance. The central bank plans more timely and regular sales of foreign exchange in the market, for smoothing purposes. In addition, it is taking measures to improve the operation of the interbank foreign exchange market that have reduced the spread between the parallel and interbank foreign exchange rates. Moreover, these measures will need to be underpinned by prudent financial policies and supported by the planned introduction of foreign currency deposits. The staff welcomes the measures to improve the soundness of the financial system and urges the authorities to press on with the recovery of the outstanding loans from the 1999/2000 groundnut season.

44. The consolidation and broadening of other structural reforms remain key to improving private sector activity and accelerating a reduction in poverty. Key reforms include measures to improve business legislation, such as the regulation and privatization of public enterprises. Also, reforms that will provide for a sustainable marketing arrangement for groundnuts without direct government involvement should be put in place. The staff urges that timely and coordinated reforms be implemented in these areas, as well as those that will contribute to the attainment of the I-PRSP objectives.

45. The staff welcomes the further reduction in the external tariff, which has put The Gambia ahead of other countries in the region. The staff considers the current level of the exchange rate to be appropriate, in the context of the proposed pursuit of prudent financial policies, for maintaining the country’s external competitiveness.

46. Notwithstanding the progress that has been made in improving economic and financial data and The Gambia’s commitment to participate in the GDDS, the staff urges the authorities to continue their efforts to improve the timeliness and quality of data, especially in the national accounts and prices, fiscal, and balance of payments. Moreover, the social and poverty database remains in great need of improvement in light of the objectives outlined in the PRSP. While the provision of data to the Fund does not prevent effective surveillance or program monitoring, the delays in reporting and the quality of data should be significantly improved to facilitate the analysis of economic developments.

47. Possible risks to the implementation of the program include delays in dealing with governance issues and implementing structural reforms, especially in the fiscal area, which are critical not only to the program but to the PRSP and HIPC Initiative process as well. Moreover, the heavy burden of implementing a broad range of measures will be a major test of the limited economic management capacity in the country. Thus, the staff welcomes the authorities’ intention to intensify collaboration with donors and the Fund to ensure timely access to technical assistance.

48. The quantitative performance criteria were missed on account of nonrecurring payments to Alimenta and the commercial banks but also because of weaknesses in customs revenue collections for which corrective measures have been implemented. Moreover, the program for the balance of 2001 envisages additional measures and reforms, notably those to address underlying weaknesses in the fiscal and groundnut marketing, as described in the attached letter of intent. On this basis, the staff recommends to the Executive Board (a) approval of the authorities’ request for waivers on the nonobservance of four performance criteria and the structural performance criterion; and (b) completion of the first review under the third annual PRGF arrangement.

49. It is recommended that the next Article IV consultation with The Gambia be held on the standard 12-month cycle.

Table 6.

The Gambia: Monetary Survey, December 1997-December 2003

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

Includes claims on public enterprises.

Exchange rate in accordance with program.

The abrupt movement in other items net reflects mainly some technical problem relating to the treatment of the revaluation account of the central bank and lack of disaggregation of the commercial banks’ balance data. Even though, its contribution to broad money growth has been minimal, this problem is expected to be addressed by the forthcoming STA mission on monetary statistics in August 2001.