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© 2007 International Monetary Fund
March 2007
IMF Country Report No. 07/116
The Gambia: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for The Gambia
In the context of the request for a three-year arrangement under the Poverty Reduction and Growth Facility and for additional interim assistance under the enhanced Initiative for Heavily Indebted Poor Countries, the following documents have been released and are included in this package:
the staff report for the Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, prepared by a staff team of the IMF, following discussions that ended on November 16, 2006, with the officials of The Gambia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 7, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF;
a Press Release summarizing the views of the Executive Board as expressed during its February 21, 2007 discussion of the staff report that completed the request; and
a statement by the Executive Director for The Gambia.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of The Gambia*
Memorandum of Economic and Financial Policies by the authorities of The Gambia*
Technical Memorandum of Understanding*
* Also included in Staff Report
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INTERNATIONAL MONETARY FUND
THE GAMBIA
Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries
Prepared by the African Department
(In consultation with other Departments)
Approved by Michael Nowak and Adrienne Cheasty
February 7, 2007
Discussions on a new three-year Poverty Reduction and Growth Facility (PRGF) arrangement were held in Banjul during November 3–16, 2006. This followed the Gambian authorities’ successful implementation of a staff-monitored program (SMP) over the period October 2005-March 2006. The last PRGF arrangement went off track soon after its approval in 2002 and expired in July 2005 without completion of a single review.
The Gambia reached the decision point under the Heavily Indebted Poor Countries (HPC) Initiative in December 2000, but is yet to reach the completion point. One outstanding prerequisite is satisfactory implementation of a PRGF-supported program for at least six months and the completion of at least one review. The Gambia will be eligible for assistance under the Multilateral Debt Relief Initiative (MDRI) once it reaches the HIPC completion point.
The authorities are requesting a PRGF arrangement in the amount of SDR 14 million (45 percent of quota) and additional HIPC interim assistance in the amount of SDR 0.36 million. The Gambia’s outstanding purchases and loans from the Fund at end-December 2006 amounted to SDR 11.8 million (38 percent of quota).
The mission met, among others, President Jammeh, Mr. Bala Gaye (Secretary of State for Finance and Economic Affairs), Mr. Jatta (Governor of the Central Bank of The Gambia), members of the Public Accounts Committee of the national assembly, and representatives of civil society organizations and the donor community.
The mission team comprised Messrs. Tsikata (head), Srour, Sriram (all AFR), Marsh (PDR), and Segura-Ubiergo (Resident Representative to The Gambia and Senegal). Mr. Goodwin and Ms. Grochalska from FIN joined the mission to conduct an update safeguards assessment of the Central Bank of The Gambia. Ms. Lephoto (OED) and Mr. Soh (World Bank) participated in discussions with the authorities.
President Jammeh was re-elected to a third five-year term in September 2006, with 67 percent of the votes cast. International observers described the election as fair.
Contents
Executive Summary
I. Introduction
II. Recent Economic Developments
III. Macroeconomic Framework and Policies
A. Consolidating Macroeconomic Stability
B. Strengthening Public Financial Management and Accountability
C. Strengthening Central Bank of The Gambia Internal Controls and Operational Independence
D. Promoting Growth and Poverty Reduction
E. Toward HIPC Completion Point
F. Other Issues
IV. Access Level and Financing Assurances
V. Prior Actions, Program Monitoring, and Capacity to Repay the Fund
VI. Risks to the Program
VII. Staff Appraisal
Tables
1. Selected Economic and Financial Indicators, 2004–11
2. Central Government Operations, 2004–09
3. Monetary Survey, 2004–09
4. Analytical Account of the Central Bank of The Gambia, 2004–09
5. Balance of Payments, 2004–11
6. Financial Soundness Indicators for the Banking Sector, 2000–September 2006
7. Heavily Indebted Poor Countries Initiative Completion Point Triggers
8. Proposed Schedule of Disbursements
9. Indicators of Capacity to Repay the Fund, 2006–11
Appendix
1. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Executive Summary
The Gambian authorities are requesting a three year PRGF arrangement to support their economic reform program and to help them make progress toward HIPC completion point. The program aims to consolidate recently achieved macroeconomic stabilization while also addressing the formidable challenges faced by the country, including debt distress, vulnerability to exogenous shocks, and widespread poverty.
Recent developments
Real GDP growth recovered from a drought-induced decline in 2002 to average about 6 percent a year during 2003–06, outpacing population growth estimated at 2.8 percent a year.
The authorities succeeded in reducing inflation from a peak of 21 percent per year in August 2003 to annual rates below 3 percent since June 2005.
Fiscal performance in 2006 was stronger than in 2005, but not as strong as envisaged in the budget on account of expenditure overruns associated with an African Union summit held in Banjul in July. High domestic interest payments have been crowding out discretionary expenditures including PRSP-related spending.
After contracting in 2004, credit to the private sector rebounded strongly in 2006.
The economy has stayed relatively competitive in spite of a slight appreciation of the nominal and real effective exchange rate indices.
Key elements of the PRGF-supported program
Program objectives draw on the authorities’ recently completed second PRSP. The medium-term (2007–09) assumptions and targets include (i) annual growth of 6–7 percent; (ii) annual inflation in the range of 2–4 percent; (iii) fiscal basic balance surpluses of about 3 percent of GDP a year to bring down domestic public debt to a sustainable path; and (iv) maintenance of international reserves at 4–5 months of imports. Based on indications from donors, the program projects a significant increase in net external financing which allows for increased growth-promoting and poverty-reducing government spending.
Fiscal adjustment, which is central to the program, is used to support a reduction in domestic real interest rates. Structural reforms include measures to (i) enhance internal controls and operational independence of the central bank to underpin macroeconomic stability; (ii) strengthen public financial management and accountability to ensure that public resources are used effectively and efficiently; and (iii) deepen financial intermediation.
Failure to maintain fiscal discipline poses the greatest risk to the program. President Jammeh assured staff of his government’s commitment to successfully implement the program. If all goes well, completion of the first program review could be combined with reaching the HIPC completion point in July/August 2007.
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INTERNATIONAL MONETARY FUND
THE GAMBIA
Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries—Informational Annex
Prepared by the African Department
(In collaboration with other departments)
Approved by Michael Nowak and Adrienne Cheasty
February 7, 2007
Relations with the Fund. Describes financial and technical assistance from the Fund and provides information on the safeguards assessment and exchange rate system. Outstanding purchases and loans amounted to SDR 11.82 million (38.01 percent of quota) at end-December 2006.
Relations with the World Bank. Describes the World Bank Group program and portfolio, including a statement of IFC investments.
Relations with the African Development Bank. Describes the African Development Bank Group program and portfolio.
Statistical Issues. Assesses the quality of statistical data. Weaknesses in a broad range of economic statistics are hampering the analyses of economic developments in the country.
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Press Release No. 07/28
FOR IMMEDIATE RELEASE
February 21, 2007
International Monetary Fund
Washington, D.C. 20431 USA
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February 21, 2007
