Abstract
The Gambia showed good economic performance under the Poverty Reduction and Growth Facility (PRGF) Arrangement. Executive Directors commended the reforms in the financial sector, the substantial reduction and rationalization of external tariffs, and the settlement of the property dispute with Alimenta, and stressed the need for a tightened monetary policy stance. They welcomed the new PRGF program, which aims at improving fiscal discipline, ensuring good governance, implementing structural and financial reforms, and reducing poverty. They approved for The Gambia a three-year Arrangement under the PRGF, and use of interim assistance.
July 10, 2002
Information that has become available since the staff report (Country Report No.04/42) was issued provides evidence of improving economic conditions, which do not affect the thrust of the staff appraisal.
Adequate rains have been reported so far and the authorities are guardedly optimistic about a good year for agriculture. Groundnut production is expected to benefit from increased acreage and better inputs while marketing will be enhanced with an expected new entry of new traders and the rehabilitation of a processing plant and 21 barges that transport groundnuts. Acreage for food crops has increased and better inputs, especially the introduction of high yielding rice varieties, augur well for increased production.
Tourist arrivals so far in 2002 have benefited from political calm and increased charter flights, including for the summer season. Completion of major renovations at the leading hotels will also contribute to at least a 15 percent increase over 2001.
Annual Inflation through April 2002 was about 5.6 percent, having moderated from 8 percent at the end-2001, as prices for mostly imported food items have continued to increase albeit at a slower pace in line with moderating pressure on the fiscal and external sectors; the dalasi has depreciated in nominal terms by less than 1 percent against the U.S. dollar since the elections in late April.
Preliminary fiscal data for April-May show that expenditure growth has moderated significantly especially on projects and now overall expenditure and net lending appears within range of the end-June program target. On the revenue side, the good performance in the first quarter appear to have slowed, as tax on international trade were adversely affected by the border problems that hindered the reexport trade during the period. At end of May, a Joint High Commission held meetings in Dakar, Senegal to resolve the issues in this area and revenues are expected to recover.
Annual broad money growth stood at 22¾ percent at end-April, slightly down from the 25 percent recorded at end-March, reflecting the decline in credit to the government while growth in credit to the private sector continued to be robust. Increased coordination between open market operations and foreign exchange market intervention has improved liquidity management in the banking system. As a result, the stock of treasury bills, sold to mop up excess liquidity, has started to moderate significantly; the outstanding stock of treasury bills at end-May was D 1883 million compared with D 1919 million at end-2001.
Relations with the Paris Club: A Paris Club creditor has reported long-standing technical arrears of about US$7 million, on which it has agreed that no payments need to be made. The Paris Club has indicated creditors’ willingness to provide a rescheduling on Cologne terms to regularize the arrears and provide interim HIPC relief to The Gambia. The resulting cash payments are similar to what was assumed under the program, and thus there is no effect on the residual financing gap.
In late June 2002, The Gambia and the European Commission signed the release of € 3.7 million, which should be disbursed shortly and is expected to be used to reduce government domestic debt. A Financing Agreement was signed concurrently in the amount € 4.255 million, including a 15 percent enhanced HIPC Initiative eligibility augmentation. Thus, the residual financing gap in the PRGF program for 2002 should be covered.
On technical assistance issues, a June 2002 joint Bank/Fund tax mission agreed a work agenda for 2002/03 for the tax revenue departments, including setting up a revenue project management unit and headquarters office to oversee the reforms pending establishment of an Independent Tax Revenue Authority. Proposed measures include setting up a large tax payer unit, self tax assessment, computerization, setting up a taxpayer identification number system, and better implementation and eventual upgrading of the automated system for customs data. The detailed reform package will be incorporated into the PRGF program during the September 2002 program review mission. Meanwhile, the Fund will send an expert to Banjul in late summer to help with the drafting of a new Income Tax Bill. Separately, the authorities have requested the Fund to provide a follow up mission to the central bank (planned for late July 2002) to initiate a work on a comprehensive program under the Technical Cooperative Action Plan.