The Gambia
Enhanced Heavily Indebted Poor Countries Initiative: Completion Point Document and Multilateral Debt Relief Initiative

An assessment is provided of The Gambia’s performance in meeting the requirements for reaching the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative is provided. Next, the paper reviews the status of creditor participation and presents an updated debt sustainability analysis (DSA). The paper contains a summary of the main conclusions, and lists a number of issues for discussion by the Boards of IDA and the IMF. The poverty database and monitoring capacity has been improved. Macroeconomic performance under the third poverty reduction growth facility (PRGF)-supported program has been strong.

Abstract

An assessment is provided of The Gambia’s performance in meeting the requirements for reaching the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative is provided. Next, the paper reviews the status of creditor participation and presents an updated debt sustainability analysis (DSA). The paper contains a summary of the main conclusions, and lists a number of issues for discussion by the Boards of IDA and the IMF. The poverty database and monitoring capacity has been improved. Macroeconomic performance under the third poverty reduction growth facility (PRGF)-supported program has been strong.

I. Introduction

1. This paper discusses progress by The Gambia under the Enhanced Heavily Indebted Poor Countries Initiative, and recommends that the Executive Directors of the International Development Association and the International Monetary Fund approve the completion point for The Gambia under the Enhanced HIPC initiative. In the opinion of the staffs, The Gambia has made satisfactory progress in achieving the completion point triggers, notably preparing and implementing a Poverty Reduction Strategy Paper (PRSP), maintaining a stable macroeconomic environment, setting up mechanisms to ensure efficient and transparent use of HIPC interim debt relief, implementing reforms in the education and health sectors, and promoting private sector development by strengthening regulatory capacity and restructuring the groundnut sector.

2. In December 2000, the Board of Executive Directors of IDA and the IMF agreed that The Gambia had met the requirements for reaching the decision point under the Enhanced HIPC Initiative.1 The amount of debt relief committed at the decision point was US$66.6 million in NPV terms, calculated to reduce the NPV of debt to 150 percent of exports on the basis of end-1999 data. This relief represents a reduction of 27.2 percent of the NPV of debt as of end-1999 after traditional debt relief. At the same time, the Boards of IDA and IMF agreed to provide The Gambia with interim debt relief until the country reached the floating completion point. Interim assistance under the Enhanced HIPC Initiative was also granted by the African Development Bank Group (AfDB), the European Union, and the Paris Club group of creditors. Executive Directors had determined that completion point would be reached when The Gambia had complied with the triggers set out in Box 7 of the decision point document (see Box 7 in the HIPC Decision Point Document on page 20).

3. This paper is organized as follows: Section II provides an assessment of The Gambia’s performance in meeting the requirements for reaching the completion point under the Enhanced HIPC Initiative. Section III reviews the status of creditor participation and presents an updated debt sustainability analysis (DSA). Section IV contains a summary of the main conclusions and Section V lists a number of issues for discussion by the Boards of IDA and the IMF.

II. Assessment of Requirements for Reaching the Completion Point

4. The conditions for reaching the floating completion point, set out in Box 7 of the decision point document, consist of: (i) PRSP and poverty monitoring—preparation of a full PRSP and satisfactory implementation for at least one year, and improvement of the poverty database and monitoring capacity; (ii) macroeconomic performance—continued maintenance of macroeconomic stability as evidenced by satisfactory implementation of the PRGF supported program; (iii) governance—progress in strengthening public expenditure management; (iv) HIPC interim relief and social sector reforms—use of HIPC interim relief in accordance with annual budgets, and education and health sector reform programs; and (v) structural reforms—establishment of a multi-sector regulatory agency and privatization of the public groundnut processing plants.

5. In the view of the staffs, The Gambia has made satisfactory progress in meeting the conditions for reaching the floating completion point. Of the eleven triggers for reaching the floating completion point, nine have been fully met and two were partially met, for which the staffs recommend that waivers be granted for nonobservance (see box 1 below). This section reviews performance of each of the triggers.

6. Earlier slippages in macroeconomic policies and slow structural reforms have delayed the completion point, but adjustments were successfully implemented in recent years. After the decision point in 2000, expansionary fiscal and monetary policies and poor governance at the Central Bank of the Gambia (CBG) caused the program supported by the Fund’s PRGF to go off track. Successful policy adjustments and reform of the CBG led to a new PRGF-supported program in February 2007, and the first review was successfully concluded in August 2007. Earlier attempts to restructure the groundnut sector were unsuccessful. However, in 2007 the government prepared and started implementing a sector reform “roadmap” to fully liberalize the sector. As part of the roadmap, the government has allowed the free entry of operators at all levels of the value chain and intends to privatize the management of the public groundnut processing plants by 2008.

A. PRSP and Poverty Monitoring

7. The Gambia has produced two full PRSPs since the decision point. The first PRSP, covering the years 2002 to 2005, was presented to the Boards of IDA and IMF in July 2002, along with the Joint Staff Assessment (JSA). The second PRSP and the accompanying Joint Staff Advisory Note (JSAN), for the years 2007 to 2011, were discussed by the Boards of IDA and IMF in July and August 2007, respectively. In the interim years, the country produced two Annual Progress Reports (APRs) which were presented to the IDA and IMF Boards along with the JSANs.

8. The Boards concluded that the PRSPs provide a credible framework for poverty reduction. The 2002 JSA noted that the first PRSP was an important step forward in the fight against poverty and provided a sound basis for concessional assistance. The 2007 JSAN provided key recommendations for improving implementation of reform programs, and the Boards underscored their support for the second PRSP’s strategic focus. IDA is currently preparing a new Joint Assistance Strategy (JAS) with the African Development Bank, which will be aligned with the second PRSP.

9. The second PRSP applies lessons learned from implementing the first PRSP. As in the first PRSP, the second PRSP used a comprehensive participatory and consultative process in preparing the strategy. Stakeholder consultative workshops and focus group discussions were held with representatives of the public and private sectors and civil society, and consultations reached down to the level of local communities. Unlike the first strategy, the second PRSP included an implementation action plan which outlined costed priority activities, which would allow for improved monitoring and results orientation. The previous strategy’s strengths in the social sectors were retained, while civil service reform and strengthening of public financial management (PFM) now receive greater attention. The JSAN recommended that the PRSP be further integrated into the government budgeting process, and noted that improving governance remains a priority.

10. Progress in implementing the PRSPs provides a satisfactory basis for the completion point. Implementation of reforms in education and health has been satisfactory, as reflected in improved outcomes. Significant progress has been made in strengthening PFM. The economy has been stable and growing at an annual average rate of 6.5 percent in the past five years and inflation has been reduced, thanks in large part to substantially improved macroeconomic policy implementation. Structural reforms to promote private sector development have been slower than initially expected, but progress has been made recently in reforming the groundnut sector, the National Agricultural Development Agency (NADA) has been established, and assessments of the investment climate are being conducted which will pave the way for further reforms. Implementation of the second PRSP is expected to benefit from the lessons learned from the first PRSP. In particular, the newly created National Planning Commission (NPC) is expected to improve coordination among sectors.

11. The poverty data base and monitoring capacity has been improved. Official statistics have been strengthened over time through institutional restructuring, training and technical assistance. The new Statistics Act (2005) and a sector reform Master Plan outline a comprehensive strategy for strengthening official statistics. The Central Statistics Department (CSD) has been restructured into the semiautonomous Gambia Bureau of Statistics (GBOS) and the Statistics Council established to provide oversight and strategic guidance to GBOS. The poverty database has been strengthened through the 2003 household expenditure survey, the 2003 population census and the 2005/6 economic census. GBOS has benefited significantly from training and technical assistance provided under an IDA project. IDA is also currently working with GBOS in preparing a Poverty Assessment.

Status of Triggers for Reaching the Floating Completion Point

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B. Macroeconomic Performance

12. Macroeconomic policies and performance have passed through two phases since the decision point (Table 1 and Box 2):

  • Fiscal slippages, accommodating monetary policy, and falling international reserves during 2001–03 fueled a sharp depreciation of the dalasi and inflation. The dalasi depreciated by 55 percent in nominal effective terms between end-2001 and end-2003, and inflation reached 17 percent in 2003 (the highest level in nearly two decades). The second PRGF arrangement went off-track soon after it was approved in 2002, and it expired in 2005 without completion of a review. As a result, The Gambia was unable to reach completion point as originally envisaged.

  • Policy adjustments restored macroeconomic stability during 2004–07. Macroeconomic policy improved in 2004 but the PRGF program remained off-track due to delays in implementing structural measures for improving governance of the CBG. Subsequently, a staff monitored program (SMP) was successfully implemented from October 2005 to March 2006, and a new PRGF-supported program was approved by the IMF’s Board in February 2007. The first review, which was completed in August 2007, concluded that overall performance under the program has been strong, with all but one of the quantitative performance criteria and indicative targets met. Six out of eight structural performance criteria were observed; waivers were granted for the other two. Performance under the program has remained strong, and Fund staff are recommending completion of the second review.

13. A marked deterioration in public finances in 2001 was driven by unbudgeted expenditures and a decline in tax revenues. The overall deficit including grants increased from 1.4 percent of GDP in 2000 to 13.9 percent in 2001. A combination of unbudgeted expenditures (amounting to 6.8 percent of GDP) and a decline in tax revenues (by 3.2 percent of GDP) led to large government borrowing from the CBG and a sharp rise in domestic debt.

Table 1.

The Gambia: Selected Economic and Financial Indicators, 1999–2007

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Sources: Gambian authorities; and IMF staff estimates.

Excluding reexports and imports for reexport.

Basic primary balance is defined as domestic revenue minus expenditure and net lending, excluding interest payments and externally financed capital expenditures. It measures the Government’s domestic fiscal adjustment effort.

Official transfers also includes an assumption for technical assistance.

Percent of exports of GNFS.

The Gambia: Performance Under the Fund-Supported Programs, 1998–20072

A three-year arrangement under the ESAF, approved in 1998, was converted to an arrangement under the PRGF and expired at end-2001. A new PRGF arrangement was approved July 2002. After one drawing upon approval, the program soon went off track and expired in mid-2005 without completion of a single review. Strengthened macroeconomic policies from 2004 and successful implementation of a staff monitored program paved the way for a new PRGF arrangement in February 2007.

ESAF/PRGF, June 1998 – December 2001. All but one of the reviews were completed, though often accompanied by requests for waivers on nonobservance of Performance Criteria (PCs). While quantitative PCs on external payments arrears and external debt were generally observed, targets on fiscal performance (e.g., revenue and limits on public sector wages) and on the level of net foreign assets of the CBG were often not met. Prior actions and about 2/3 of total benchmarks were met on time.

Later, in 2003, unrecorded public expenditure financed by loans from the CBG in 2001 and illicit foreign exchange transactions by CBG officials were uncovered. This resulted in misreporting of end-March and end-September 2001 PCs; the associated noncomplying disbursements were repaid in 2004.

2nd PRGF, July 2002 – July 2005 (IMF Country Report No. 04/42). Implementation difficulties became acute under the arrangement approved in 2002. As a result of severe policy slippages and the economic consequences of lack of accountability in public expenditure management, the first review under the arrangement was not completed when the program expired. A majority of structural benchmarks under the first year of the second PRGF arrangement were not met on time.

SMP, October 2005 – March 2006 (IMF Country Report No. 06/38). Revenue shortfalls meant fiscal targets for December 2005 were missed, however implementation improved in the second half of the program and the fiscal targets met cumulatively through March 2006. Further, performance against structural benchmarks was strong through strengthened internal controls and the operational independence of the CBG, enhanced public financial management and accountability, and progress toward fiscal sustainability.

3rd PRGF. On February 21, 2007 the IMF Executive Board approved a new three-year PRGF arrangement for the period 2007–09 (IMF Country Report No. 07/116). Consistent with the PRSP and the Fund’s ex-post assessment of its earlier programs, key elements of the program are fiscal adjustment designed to support a reduction in domestic interest rates; measures to enhance CBG internal controls and operational independence to sustain macroeconomic stability; a strengthening of public financial management to ensure that aid and domestic resources are used effectively in line with national priorities; and creation of a credit reference bureau to deepen financial intermediation. Strong performance led to the completion of the first review in August 2007. Fund staff recommend completion of the second review.

14. A tightening of fiscal and monetary policies from late 2003 lowered inflation and contributed to sustained growth. The basic primary balance3 moved from a deficit of over 1 percent of GDP in 2001 to an average surplus of 8.8 percent of GDP during 2004–06, and is expected to reach 9 percent in 2007. Yields on treasury bills rose from 15 percent at end-2001 to 31 percent at end-2003 before declining to 10–15 percent since mid-2005. Inflation fell from 17.6 percent at end-2003 to 1.4 percent at end-2006. A spike in the prices of some imported food items pushed the annual rate of inflation to over 6 percent in the second quarter of 2007, but there has since been an easing of inflationary pressures and the rate is expected to fall to about 5 percent at the end of the year.

15. Economic growth has been robust during most of the period since decision point. After growing by nearly 6 percent in 2001, real GDP fell by about 3 percent in 2002 reflecting macroeconomic instability and the impact of adverse weather on agriculture. Subsequently, growth has averaged 6.5 percent a year, driven by the tourism, telecommunication, and construction sectors. Tourism has been a major beneficiary of foreign direct investment (FDI), which has expanded the supply of hotels and allowed the sector to grow by an annual average of 11.6 percent. A new competitor entered the mobile telephone market in 2007, increasing the total to three. A construction boom has been financed by FDI and also remittances. Agriculture has been the laggard, particularly the groundnut sector, in which a majority of the poor make their livelihood. However, the government recently initiated concrete measures to revitalize the sector as part of the implementation of the sector reform roadmap, based on full liberalization of the sector (see Section II.E). Liberal trade polices and an efficient port infrastructure allow the country to act as a regional re-export hub. Continued macroeconomic stability and strengthened public financing management provide the foundations for sustained growth and poverty reduction.

16. External developments have been broadly favorable over the period. In 2001 and the first year under the second PRGF arrangement, the external current account deficits, including official transfers, remained below the program projections. During most of this period, The Gambia accumulated gross international reserves which were equivalent to six to seven months of import cover and above the program targets except for 2001. Over the period 2001–03, the level of reserves fell in response to macroeconomic instability and uncertainty. With renewed macroeconomic stabilization and an associated increase in FDI inflows, the current account deficit has widened, but reserve coverage has increased to approximately five months of import cover despite increasing imports.

17. Macroeconomic performance under the third PRGF-supported program has been strong. The first review of the program was completed August 2007, and Fund staff are recommending completion of the second review. Under the program, robust growth and low inflation have been sustained through good policy implementation—in particular, strong fiscal performance. The second review included discussion of the authorities’ proposed budget for 2008 which aims at ensuring that past fiscal success will be continued, and translate into lower domestic debt looking forward. The authorities also agreed to indicative limits on new borrowing under the program, to prevent debt ratios quickly returning to pre-decision point levels.

18. The staffs of IDA and the IMF conclude that The Gambia has met the trigger on the maintenance of macroeconomic stability, as evidenced by satisfactory implementation of the PRGF-supported program. After an initial period of uneven performance, a stable macroeconomic environment has been maintained through fiscal and monetary discipline. The Fund’s Board approved the first review of a new PRGF program in August 2007, and Fund staff recommend completion of the second review.

C. Governance

19. The government has successfully introduced a number of significant reforms on public financial management and Central Bank operations. These reforms have improved transparency and accountability in the use of public resources and reduced the opportunities for corruption. They addressed critical deficiencies in governance, such as a significant backlog of unaudited public accounts and internal control failures at the Central Bank. In particular, the government has had to rely on preliminary and sometimes incomplete expenditure data for monitoring poverty reducing expenditures, such as in 2004 (see Table 6 below).

Table 2.

Gambia College Primary Teacher’s Certificate (PTC) Graduates

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Table 3

Scholarship Funds for Girls

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Scholarship Trust Fund.

President’s Empowerment of Girls Education Project.

Table 4.

Share of Births Attended by Skilled Health Staffs

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Source: 2000 and 2005 MICS for The Gambia, and WHO for Senegal and Ghana.

Although the decision point document indicates that the baseline of 44 percent was estimated for 1998, it was actually estimated in 1990 (World Bank, PHPNP, ICR, May 2006).

Table 5.

Share of Primary and Secondary Health Care in Health Recurrent Budget

(Percentage)

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The percentage for 2001 is based on the budget allocations, while the other years are based on actual expenditures.

Table 6.

Budget Outturns of Locally Funded Poverty Reducing Expenditures (PREs)

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Source: Government budget reports and draft public accounts, IMF reports and staffs’ own calculations.

Detailed budget outturn data for 2004 are unavailable.

2007 figures are budget allocations, whereas the other years are budget outturns.

The denominator is total locally funded expenditures excluding interest payments.

PRSP priority sectors are education, health and agriculture.

  • Budget Management and Accountability Act (2004). Legislation on budgeting and accounting had been based on an outdated framework. The Budget Management and Accountability Act (2004) updated the legal framework to international standards. It provides for a fuller integration of the recurrent and development budgets, a closer linkage between budget preparation and execution, and consolidation of public funds. It includes good practices on limiting and publicizing government borrowings and guarantees, and timely preparation of annual public accounts.

  • Central Bank reforms. A new Central Bank Act (2005) provides increased operational independence of the CBG, including setting limits on lending to the government by the CBG. The arrangements for external audits were improved, and the capacity of internal audits and supervision departments were strengthened through new recruits and training. Important steps have been taken to strengthen internal controls, in line with the recommendations of the IMF’s Safeguards Assessment and external audits: (i) an action plan for improving internal controls was approved by the CBG’s Board in July 2005 and is being implemented; (ii) formal guidelines for foreign exchange reserves management were approved by the Board in December 2005 and are being implemented; (iii) an audit committee, comprising the independent members of the Board, has been formed to oversee the external audit process and the internal control structure of the CBG; and (iv) new operating manuals for the internal audit, finance, and foreign exchange departments have been prepared.

  • Public procurement reforms. The Gambia Public Procurement Act (2001) provides the framework for an open, nondiscriminatory and transparent procurement system. The new legislation supports national anti-corruption initiatives and harmonizes public procurement policies and tools. The Gambia Public Procurement Authority (GPPA) was created in 2002 with the responsibility for implementing the new legal framework and reviewing all large contract awards. The central tender board was replaced by decentralized procurement committees and units.

  • Gambia Revenue Authority (GRA). The GRA Act (2004) created the semiautonomous GRA which consolidated administration of income and sales tax with customs. The establishment of the GRA contributes to the enhancement of the legitimacy and professionalism of tax administration, the improvement of taxpayer services, and the promotion of uniform application of tax laws. The newly created GRA Board, comprising both public and private sector representatives, has been actively engaged in the reform process. Tax administration capacity has been strengthened through organizational restructuring, training and technical assistance and this has had a positive effect on revenues.

  • Integrated Financial Management Information System (IFMIS). The authorities are introducing the IFMIS, which is a comprehensive public expenditure management IT system for all stages of the budgeting and accounting process. IFMIS began operations in January 2007 and covers the entire central Government. It is being developed and implemented through two phases, with completion of phase one expected in the first quarter of 2008. The system is currently processing all payments and the payroll, and producing fiscal accounts. It incorporates commitment controls which facilitate fiscal discipline. The budgeting module and the full complement of fiscal reports are expected to be completed by the end of phase one. Staffs of the Treasury and the Department of State for Finance and Economic Affairs (DOSFEA) have received extensive training on the system as well as on basic IT and accounting skills. A key challenge for the authorities will be to ensure the sustainability of this system, particularly in terms of retaining trained staffs and adequately preparing for staff turnover.

  • Preparation of public accounts. At the decision point, the government’s public accounts had not been prepared since 1992, undermining fiscal transparency and accountability. The accounts have now been updated to 2006. The IFMIS is expected to produce the 2007 accounts by end-March 2008.

20. The Government has issued annual public reports on the overall budget execution and semi-annual reports on the use of interim HIPC Initiative debt relief. The government’s annual budgets report on actual public expenditures with a two year lag. In addition, a series of annual Public Expenditures Reviews (PERs) were conducted by the authorities, IDA and other development partners. These PERs analyzed the effective use of public expenditures, particularly with respect to PRSP priority spending, and also improvements in public financial management. The use of interim HIPC debt relief has been analyzed through semiannual and annual Poverty Reducing Expenditure Reports (PRERs). These reports cover all poverty-reducing expenditures, not just expenditures funded by interim HIPC relief. The staffs endorse this approach given that funds are fungible. The Cabinet reviews and approves the annual budgets and the PRERs.

D. Social Sector Reforms

21. Resources in the budget freed by interim HIPC debt relief have been used in accordance with the annual budgets approved by the Cabinet. The use of interim HIPC relief is explicitly specified in the annual budgets as part of poverty-reducing expenditures. The budgets identify all poverty-reducing expenditures, parts of which were funded by interim debt relief and the rest through the government’s own local revenue. IDA and the AfDB Group suspended their interim relief in March 2005 and end-2003, respectively. IMF relief was suspended in 2002 when the PRGF went off-track, and it resumed in 2007 with the approval of a new PRGF. The government continued to track poverty-reducing expenditures even after the cessation of interim HIPC relief. Instead of the Task Force and HILEC as originally envisioned in the decision point, currently the entire Cabinet directly reviews and approves the annual budgets and the allocations to poverty-reducing expenditures. HILEC is a Cabinet subcommittee.

22. There have been important gains in education. The government has a new comprehensive Education Policy (2006–2015) which focuses on expanding and improving the quality of education. Education benefits from: (i) the largest government budget among all ministries; (ii) support from donors, including IDA’s recently approved second phase of its education project; and (iii) funding from the EFA FTI Catalytic Grant. The education sector has benefited from an extensive government program of expanding infrastructure, teacher training and school materials. Over 1,000 classrooms were built with the support of the World Bank education project. Access to education has expanded, particularly in rural areas, with a gross enrollment rate of 77 percent which increases to more than 90 percent if Madrassa enrollments are included.4 The government has programs to recruit and retain qualified staff, including hardship allowances and improved working conditions for teachers assigned to rural areas. The key next challenge is to improve the quality of education programs.

23. The annual increase in the number of graduating lower basic education teachers has significantly exceeded the decision point target of 45 percent. Starting from 192 graduates in the base academic year 2000/01, the number of graduates from The Gambia College with a Primary Teacher’s Certificate has increased every year, reaching 331 in 2005. This represents an increase of 72 percent from the base year, which will help the country improve the quality of teaching in the grades considered to have the greatest impact on poverty.

24. The scholarship scheme for girls has increased far beyond the annual target of 2,000 girls in at least three regions. The number of girls that have benefited from a scholarship has increased every year, reaching 41,939 in 2005–06. There are two scholarship programs for girls. The Scholarship Trust Fund for Girls under the Department of State for Education covers regions three to six out of a total of six regions, while the President’s Empowerment of Girls Education Project is a more recent program initiated in the 2005/6 school year, covering regions one and two. Together, the two girls scholarship programs cover the poorest regions of the country.

25. Health care has expanded significantly. The country has a comprehensive set of health policies, including the National Health Policy, a National Drug Policy, and a National Nutrition Policy. Health has the third largest budget among government ministries. Primary and secondary health care have expanded significantly, particularly the construction of health centers through donor financing. Moreover, investments in health centers have mostly been made in poorer regions. Physical access to basic health services is generally good, with 85 percent of the population living within one-hour travel time, or 7.5 km, of a health facility. Hospital beds, at 1.21 beds per 1,000, compare favorably with other Sub-Saharan Africa (SSA) countries. The challenge now is to ensure that the health centers are properly equipped and staffed.

26. The country has substantially increased the share of births attended by a person trained in antenatal care, but not to the extent envisioned at decision point. At the decision point, this indicator was targeted to increase annually by at least 5 percent, from 44 percent in the base year of 1998. The most recent estimate available is from the 2005 Multiple Indicator Cluster Survey (MICS), which indicates that 56.3 percent of births were attended by skilled health personnel. This is a significant increase from the baseline, but it is less than the decision point target of 61.9 percent in 2005.

27. The staffs observe that the target percentages are unrealistically high, and similar or better than other Sub-Saharan African countries. The high percentages are due to the long delays in reaching the completion point, resulting in a situation where the indicator would have continuously increased for an unreasonably long period. As a result of the substantial gains made since the decision point, the share of assisted births in The Gambia is now significantly greater than the SSA average (Table 4). In general, the government has increased the supply of antenatal care services with skilled attendants.5

28. The share of primary and secondary health care within the recurrent budget for health has increased. The recurrent budget for primary and secondary health care is understood to comprise health centers, dispensaries and sub-dispensaries, health promotion and protection, family health, disease control, and nurses’ training. It does not include expenditures incurred directly or indirectly on foreign personnel and referral hospitals. The share of primary and secondary health care was 42 percent in 1999, the baseline year. In 2001, this share remained relatively stable up to 2002, but subsequently it increased to 50 percent in 2003 and has generally maintained this higher level. The share has averaged 48 percent since 2003, which is greater than the baseline of 42 percent as required by the decision point trigger.

E. Structural Reforms

29. A functional multi-sector regulatory agency has been established. The Gambia Public Utilities Regulatory Authority (PURA) Act was enacted in 2001. The Act provides PURA the mandate to regulate the water, electricity, and telecommunication sectors. The Board has been established and staffs recruited. At present, PURA’s activities are mainly focused on the electricity and telecommunication sectors. It collaborates with the Department of State for Finance and Economic Affairs (DOSFEA) and the relevant line ministries on licensing, tariffs, and competition (antitrust) related policy decisions.

30. The Government unsuccessfully attempted to privatize the public groundnut processing plants. The Gambia Groundnut Corporation (GGC), which owns the groundnut plants as well as transportation and storage facilities, was formerly a foreign-owned private company which was nationalized in 1999. From 2005 to 2006, the authorities attempted to privatize GGC. A due diligence was conducted, the bidding document was prepared and requests for bids advertised. There was only one bidder, a local firm, and the authorities decided to reject the bid on the grounds that it was not sufficiently qualified and that it would be detrimental to the sector and the economy.

31. Groundnut exports fell sharply in 2005 due to poor marketing. In 2005, a public-private joint enterprise, the Gambian Agricultural Marketing Corporation (GAMCO), was established. A change in licensing regulations left GAMCO as the sole operator for processing and marketing groundnuts in 2005/06. GAMCO was undercapitalized and lacked market experience. As a result, groundnut exports decreased to US$2 million in 2005 from US$16.9 million in the previous year, and GAMCO is now bankrupt. In 2006, the Government reopened the groundnut market to multiple operators. Also, GGC was given a license to export groundnuts, whereas previously it focused exclusively on processing, transport and storage activities.

32. The government has prepared a comprehensive sector reform strategy to revitalize the groundnut sector and attract established international investors. A sector reform “roadmap” was prepared in consultation with key public and private sector stakeholders, including the World Bank, the IMF and the EU. This roadmap outlines the government’s plans to fully liberalize the sector and to privatize the management of the publicly-owned groundnut facilities. The government has already implemented the following actions from the roadmap: (i) allowing immediate free entry of operators at all levels of the value chain; (ii) transferring management responsibility for the sector to an association of the sector’s public and private stakeholders, the Agribusiness Service Plan Association (ASPA), which will inter alia determine the producer price; (iii) putting GAMCO under a receivership as part of the liquidation process; and (iv) dissolving the Board of Directors of GGC, and initiating steps to reconstitute a new Board which will no longer intervene in the daily operations of the company. In 2008, the government plans to introduce private management to GGC under a performance-based contract, in preparation for eventual complete privatization. The only direct cost to the budget from the implementation of the roadmap relate to the government’s assumption of nonperforming bank loans, equivalent to one percent of GDP, that were guaranteed by the Social Security and Housing Finance Corporation, a public enterprise. The loans will be repaid over three years beginning in 2008. IDA and the EU plan to support the implementation of the roadmap through investment projects and budget support operations.

33. The groundnut sector reform roadmap was endorsed by the Cabinet in June 2007. In July 2007, the government made a public announcement to inform all interested parties of its commitment to the implementation of the roadmap, and to full liberalization and open competition in the sector. The government also formally communicated to IDA and IMF its commitment to the roadmap. The staffs broadly support the roadmap’s strategic focus on liberalizing the sector.

F. Use of HIPC Interim Relief

34. The Gambia has benefited from the full amount of the interim HIPC debt relief from IDA, AfDB and the EU. Interim assistance from IDA reached the ceiling of one third of expected total HIPC relief in December 2004.6 IMF interim relief was suspended in 2002 when the PRGF went off-track, and it resumed in 2007 with the approval of a new PRGF. IDA has delivered interim assistance in the amount US$8.0 million in NPV terms and the IMF has delivered interim debt relief of US$0.6 million (SDR 0.4 million) in NPV terms as of end-November 2007. Interim assistance from the AfDB Group was provided during 2001–2003. It came to an end in end-2003 when the 40 percent ceiling of total AfDB HIPC relief provided as interim relief was reached. Total assistance during the interim period amounted to US$17.5 million in NPV terms (US$21.2 million in nominal terms), of which US$17.0 million in NPV terms came from multilateral creditors and US$0.5 million in NPV terms from bilateral creditors.

35. The government allocates between one quarter to one third of total locally funded expenditures to poverty-reducing spending. Locally funded expenditures are recurrent expenditures and parts of development expenditures that are directly funded by the government’s own resources. The share of poverty-reducing spending comprises approximately half of total expenditures when interest payments are excluded. The PRSP priority sectors account for approximately a fifth of all expenditures, and approximately a third if interest payments are excluded. As an indication of their prioritization, the Departments of State for Education and Health have the largest and third largest budgets, respectively. The Department of State for Finance and Economic Affairs (DOSFEA) has the second largest budget, mainly due to transfers to economic management agencies such as the Gambia Revenue Authority (GRA) and the Gambia Bureau of Statistics (GBOS). The PRSP defines this type of spending as poverty reducing given that these agencies are responsible for strengthening public financial management and official statistics. Other poverty reducing expenditures cover agriculture, governance and civil service reform, decentralization and local government capacity building, and cross-cutting programs on nutrition, population, gender and HIV/AIDS.

36. The share of poverty-reducing expenditures declined from 2002 to 2005 due to rising domestic interest payments and efforts to restore fiscal discipline. Poverty-reducing expenditures as a share of total locally funded expenditures increased to 37 percent in 2002, but then declined to 24 percent in 2005.7 Poverty-reducing expenditures were essentially crowded out by domestic interest payments which increased from 23 percent of total recurrent expenditures in 2000 to 45 percent in 2005 (Figure 1). Rising interest payments were a legacy of earlier fiscal and monetary slippages which significantly increased the domestic debt and interest rates. Subsequent efforts to restore fiscal discipline meant that the growth of recurrent expenditures was further constrained.

37. The share of poverty-related expenditures has increased since 2005. Domestic interest rates eventually declined as a result of improved fiscal and monetary discipline, leading to a decrease in the share of interest payments in total recurrent expenditures from 45 percent in 2005 to 35 percent in 2006. Its share is expected to decline further to 26 percent in 2007. In response to the expanded fiscal space, PRSP priority spending increased from 24 percent in 2005 to 26 percent in 2006, and is expected to increase to 34 percent in 2007. Compared to 2001, poverty-reducing spending was larger by 34 percent in 2005 and by 138 percent in 2007, while the corresponding percentages for interest payments decreased from 285 percent to 188 percent in the same years.

Figure 1.
Figure 1.

Poverty Reducing Expenditures and Interest Payments

(Percent of total locally funded expenditures)

Citation: IMF Staff Country Reports 2008, 109; 10.5089/9781451815603.002.A001

Source: See table 2.Note: Budget outturn of poverty-reducing expenditures in 2004 is unavailable.

38. Social development funds have been used to target support to local communities. Most of these social development funds were established with support from development partners. In particular, the Board of IDA approved in August 2007 a Community Driven Development (CDD) project which will support rural communities. The PRSP outlined plans for a Poverty Reduction Fund (PRF) as an accounting framework for monitoring pro-poor spending. It has now evolved into an overall framework for tracking spending from social development funds. Once operationalized, it is expected that the PRF will facilitate the coordination and monitoring of spending from the CDD project and other social development funds.

G. Staff Assessment

39. The staffs are of the view that the Government has fully implemented nine out of eleven completion point triggers. Two triggers were partially completed: (i) annual increase by five percent of the share of births attended by a person trained in antenatal care; and (ii) bringing to the point of sale the publicly-owned groundnut processing plants. The staffs recommend that waivers be granted for nonobservance of these two triggers. These waivers are sought because, as discussed above: (i) substantial progress was made towards implementation of each trigger; (ii) regarding the trigger on assisted births, the target percentages are unrealistically high due to the long delays in reaching the completion point, and moreover progress on this front has been such that the situation is now similar or better than in other comparable Sub-Saharan African countries; and (iii) with respect to groundnut processing plants, a previous attempt by the government to privatize them was unsuccessful and corrective actions are now being implemented.

III. Updated Debt Relief and Sustainability Analysis

A. Updated Data Reconciliation for the Decision Point

40. The staffs of IDA and the IMF, together with the Gambian authorities, have reviewed the stock of debt at end-December 1999 presented in the decision point document against creditor statements. As a result of this exercise, the NPV of the debt owed to some creditors as presented in the decision point document was revised. The revisions arose primarily from data discrepancies discovered during consultations with creditors. The revisions are as follows:

41. Multilateral creditors: As a result of this exercise, the nominal stock of debt owed to multilaterals has decreased by US$0.6 million to US$355.6 million, and the NPV of debt was reduced by US$0.5 million to US$180.3 million. The NPV of debt to IDA was revised upwards by US$0.1 million. Moreover, European Union (EU) loans administered by IDA—amounting to US$0.3 million in NPV terms after traditional debt relief—were not included at decision point (see paragraph 42 below). The NPV of debt owed to the African Development Bank Group was revised downwards by US$0.6 million, mainly due to corrections in the loan database, while the NPV of debt to the Arab Bank for Economic Development in Africa (BADEA) and the EU was revised upwards, respectively, by US$0.2 million and US$0.1 million to account for higher nominal stocks of debt than considered at decision point. The NPV of debt owed to the Islamic Development Bank (IsDB) and the International Fund for Agricultural Development (IFAD) was revised downwards by US$0.3 million and US$0.02 million, respectively, due to overstated nominal stock, while the NPV of debt owed to the OPEC Fund for International Development (OFID) was revised upwards by US$0.1 million due to understated nominal stock at decision point.

42. Bilateral creditors: The NPV of debt to Paris Club creditors after applying a traditional debt relief mechanism was revised upward from US$17.6 million to US$19.5 million (Table 10). This revision is attributable to the reclassification of European Union loans administered by IDA that are now treated as loans from Paris Club creditors (US$0.3 million in NPV terms after traditional debt relief) and to the changes of the NPV of debt owed to Norway and France.8 The NPV of debt to Norway increased from US$2.8 million to US$5.6 million, while the NPV of debt to France was revised downward from US$5.5 million to US$4.3 million.9 The NPV of debt to non Paris Club creditors decreased from US$46.4 million to US$40.9 million due to the revised NPV of debts to Kuwait, Taiwan Province of China, and Libya.10

Table 7.

Debt and Exports Related Variables (After HIPC Assistance)

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Table 8.

Decomposition of the Changes in the NPV of Debt-to-Exports Ratio

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Table 9.

The Gambia: Discount Rate and Exchange Rate Assumptions 1/

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Sources: OECD and IMF, International Financial Statistics.

The discount rates used are the average commercial interest reference rates (CIRRs) for the respective currencies over the six-month period ending in December 2006 for the completion point and in December 1999 for the decision point.

For all Euro area currencies, the Euro CIRR is used. For the Kuwaiti Dinar, the US dollar CIRR is used for completion point calculations (compared to the decision point calculations, when the SDR CIRR was used), in accordance to the explicit peg of the Dinar to the US dollar in the beginning of 2003. For all other currencies for which the CIRRs are not available, the SDR discount is used as a proxy.

Table 10.

The Gambia: Nominal and Net Present Value of External Debt Outstanding as of End-December 1999 1/

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Sources: The Gambian authorities; and Bank-Fund staff estimates.

Public and publicly guaranteed debt only.

Before full use of traditional debt relief mechanisms.

Assumes a stock-of-debt operation on Naples terms (67 percent NPV reduction) and at least comparable action by other official bilateral and commercial creditors.

EU loans administered by IDA amounting to US$0.3 million in NPV terms were reclassified as official bilateral claims.

Data revision are due to better data availability.

43. Estimates of exports of goods and services used to evaluate HIPC assistance at the decision point have also been revised from an average of US$118.8 million per year over 1997–99 to US$119.4 million.

44. The debt reconciliation exercise, together with revised estimates of exports, implies a decrease in the required HIPC assistance. The nominal stock of debt at end 1999 has decreased by US$7.9 million to US$444.7 million and the NPV of debt, after the delivery of traditional debt relief, is reduced by US$4.2 million to US$240.7 million (Table 10). Revisions to debt and export data together would result in a downward revision of HIPC assistance by US$5.0 million in NPV terms, from US$66.6 at the decision point to US$61.7 million.

45. Debt relief under the enhanced HIPC Initiative nevertheless remains that agreed at the decision point. For countries that reached the decision point prior to the adoption of the decision on information reporting by the Boards of IDA and the Fund, the amount of enhanced HIPC assistance required at the decision point cannot be adjusted downward without consent of the country authorities. In this case, the Gambian authorities have not agreed to a revision on the grounds that, by reducing the resources available for their ongoing PRSP program, a downward adjustment in assistance would weaken poverty reduction efforts. As a result, committed debt relief under the enhanced HIPC Initiative remains US$66.6 million in NPV terms, as estimated at the decision point, and the common reduction factor remains at 27.2 percent.

B. Status of Creditor Participation in the Enhanced HIPC Initiative

46. The Gambia has received financing assurances of participation in the Enhanced HIPC Initiative from creditors accounting for 80.7 percent of the NPV of HIPC assistance estimated at the decision point. Multilateral creditors account for 73.5 percent of total committed assistance, while bilateral creditors account for 26.5 percent. Several multilateral creditors and all Paris Club creditors have provided interim assistance (Table 19). Most multilateral and all Paris Club creditors have confirmed their participation in the HIPC Initiative. The authorities are working toward reaching agreements with all remaining creditors (Table 19).

Table 11.

The Gambia: Estimated Assistance at Decision Point 1/

(In millions of U.S. dollars in NPV terms at end-1999, unless otherwise indicated)

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Sources: The Gambian authorities and staff estimates and projections.

The proportional burden sharing approach is described in “HIPC Initiative—Estimated Costs and Burden Sharing Approaches” (July 7, 1997).

Applies a hypothetical stock-of-debt operation on Naples terms and appropriate comparable treatment by other official bilateral creditors at end-December 1999.

Each multilateral’s NPV reduction at the decision point in percent of its exposure at the decision point.

Based on latest data available at the decision point after full application of traditional debt relief mechanisms.

Uses a three-year average of exports of goods and nonfactor services centered on previous year.

Table 12.

The Gambia: External Public and Publicly Guaranteed Debt at End-December 2006 1/

(In millions of U.S. dollars)

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Sources: The Gambian authorities; and Bank-Fund staff estimates.

Figures are based on data as of end-2006.

Reflects the external debt situation as of end-2006, including Cologne flow and additional assistance beyond HIPC for some creditors where applicable.

Assumes full delivery of HIPC assistance as of end-2006.

Paris Club creditors deliver their share of assistance as a group. Actual delivery modalities are defined on a case-by-case basis.

Shows the amount of amortization and interest payment falling due before end-2007. Paris Club expected to deliver their share of HIPC Initiative assistance through a stock-of-debt reduction under Cologne terms, leading to the cancellation of all outstanding obligations.

Table 13.

The Gambia: Net Present Value of External Debt 1/

(In millions of U.S. dollars, unless otherwise indicated)

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

Refers to public and publicly guaranteed external debt only and is discounted on the basis of the average commercial interest reference rate for the respective currency, derived over the six-month period prior to the latest date for which actual data are available (December 2006).

Assumes a stock-of-debt operation on Naples terms (67 percent NPV reduction) as of end-2006, and at least comparable action by other official bilateral and commercial creditors.

NPV of total debt assuming the entire HIPC Initiative assistance is fully delivered as of end-2006.

Includes additional debt relief provided on a voluntary basis by the Paris Club and some commercial creditors beyond the requirements of the enhanced HIPC framework.