Introduction

Our Gambian authorities are grateful for the constructive engagement by staff during the consultations. They thank the Fund Executive Board and management for their continued support. The authorities are in broad agreement with the thrust of the staff reports. The Gambia has made significant progress towards macroeconomic stability in recent years and performance under the program has continued to be strong. All the quantitative performance criteria for the period ending March 2008 were met. Four of the eight structural performance criteria were comfortably met while two were implemented with a slight delay. The remaining criteria, related to the full operationalization of the credit reference bureau and the register of government commitments for externally financed projects were partially met. The authorities have since taken remedial steps, including the completion of the register of externally financed projects in July. With regard to the credit bureau, it had been set up on time but was not able to operate due to a legal obstacle that had not been envisaged. The authorities have done a review of the relevant legislation and have initiated the process of getting the law modified to facilitate the credit bureau’s full operationalization. Accordingly, they are requesting waivers for the missed performance criteria.

Recent Economic Developments

Gambia’s macroeconomic performance continued to be strong with real GDP growth estimated to have averaged 6% percent a year in 2006-07. Economic growth was led by robust telecommunications, tourism and construction activities. Following a sharp rise driven by high international food and oil prices in 2007, inflation has slowed down in 2008. The appreciation of the dalasi and the relatively tight monetary policy has helped to contain inflationary pressures from rising world food and oil prices.

Overall fiscal performance has improved significantly, registering an overall surplus in 2007 and in the first quarter of 2008. This reflected strengthening in tax administration, which boosted revenues, and unfortunately a decline in capital expenditures on account of shortfalls in external financing, including the delayed grant disbursements for a large EU-supported roads project. Government domestic debt has continued to fall and was 28 percent of GDP at end-2007, as the government cleared more domestic arrears than programmed and is planning to clear the remaining stock of arrears by the end of 2008.

The sharp appreciation of the dalasi during the third quarter of 2007 was mainly a result of changes in market sentiments. Although the Central Bank of Gambia (CBG) intervention stabilized the situation in the foreign exchange market for the remainder of 2007, the appreciation resumed in 2008 due to strong inflow of remittances and reduced debt service payments.

Despite the slight widening of the current account deficit as a result of lower transfers, an improvement in the overall external position was realized in 2007. The current account deficit was more than financed by foreign direct investment (FDI) inflows and official concessional loans. As a result, the level of foreign reserves was estimated to have risen to 5.5 months of import coverage by the end of the year.

Performance under the program

The authorities’ dedication to macroeconomic stability continued to ensure successful implementation of the program. All the quantitative program targets for end-March 2008 were met, and the authorities were able to accelerate the elimination of domestic arrears. Four of the eight structural performance criteria were comfortably met while two were implemented with a slight delay.

The remaining criteria, which pertained to the full operationalization of the credit reference bureau and the register of government commitments for externally financed projects were only partially met. The delay in operationalizing the credit reference bureau was caused by the limitations on data sharing under the current financial institutions laws. The authorities have already established the credit reference bureau and banks are providing information to it. The legislation has been reviewed to allow for, among others, the sharing of customer information among the financial institutions and the process of amending it has been started. With regard to the register of government commitments to externally financed projects information needed for the register had been collected. The authorities have filled the gaps with regard to some individual projects, and completed the register by July 15, 2008.

Macroeconomic policies

The authorities have made significant strides towards the achievement of their goals of consolidating macroeconomic stability and fostering conditions conducive to high and sustainable growth as well as poverty reduction. They remain committed to the implementation of prudent macroeconomic management.

Fiscal policy

Ensuring fiscal sustainability through continued implementation of prudent fiscal policies remains the authorities’ priority. Fiscal policy will aim at containing public debt and related interest payments at sustainable levels, in line with the program.

Revenue performance is thus expected to remain strong in the near to medium term, with continued improvements in tax administration. The authorities are cognizant of the need to review tax policy to broaden the tax base and boost revenues, as efficiency gains from improved revenue administration could be approaching full realization. Such a review will include consideration for streamlining the exemptions on import duties. However, the implementation of the Economic Partnership Agreement (EPA), currently being negotiated between the ECOWAS and the EU, is expected to have adverse effects on revenue, which could represent a fiscal shock to The Gambia, depending on the pace of implementation of the EPA.

The main challenge confronting the authorities is how to address the effects of the high international food and oil prices while maintaining macroeconomic stability. So far, appreciation of the dalasi has helped contain the impact of the price increases. After reducing the tax on rice from 15 percent to 5 percent in July 2007, in order to help keep rice affordable, the government eliminated the sales tax on rice imports in May 2008. Rice is an essential commodity in the consumption basket of the poor in The Gambia. With regard to the price of oil, the authorities plan to alleviate the impact on the poor by cross-subsidizing kerosene through petrol and diesel prices.

The authorities will continue to make efforts to enhance the efficiency and transparency of fiscal operations. Significant improvements in commitment controls, budget execution and monitoring of PRSP related spending have been realized since the introduction of IFMIS in January 2007. The recently established register of capital projects will help strengthen the system for allocation and monitoring of government counterpart funds to externally-financed capital projects. Efforts to strengthen the budget formulation process, enhance accountability in the use of public resources and improve the quality of public projects will also be continued.

In order to enhance effectiveness of the public sector, the authorities are undertaking a comprehensive civil service reform program with the support of the World Bank. The reform is expected to enable the authorities to attract and retain highly qualified professional staff. The Gambia’s external debt has been significantly reduced by the HIPC and MDRI relief. However, the country continues to be at a high risk of debt distress. Delivery of the promised relief by the Paris Club bilateral creditors would further alleviate the debt problem. The authorities are making efforts to obtain additional debt relief from all non-Paris Club bilateral creditors. The authorities are committed to safeguarding external stability through prudent management of external debt. In that regard, they are planning to prepare a comprehensive debt management strategy. To provide input into the strategy they will undertake an independent debt sustainability assessment (DSA) with the assistance of the Commonwealth Secretariat. The new debt strategy will guide The Gambia’s debt policy going forward. In the meantime, the government will continue to observe the indicative limits, established under the PRGF-supported program, on contracting of new debt and will limit new borrowing to highly concessional terms. These limits will be revisited within the context of program reviews, once the government’s strategy is developed and government is able to conduct it own DSAs.

Monetary and Financial Sector Policies

The monetary policy objective of the CBG is to maintain price stability. The money targeting framework is used to conduct monetary policy and the rediscount rate to signal changes in policy stance. Increasing international prices of food and oil are expected to pose a challenge to monetary policy from the second half of 2008 onwards.

The authorities welcome the staff assessment that the Dalasi is in line with fundamentals. The CBG remains committed to maintaining a flexible exchange rate system. However, it will occasionally intervene in exchange markets to prevent disorderly adjustment, correct any misalignment of the exchange rate, and build up foreign reserves or prevent their depletion.

This will be conducted in line with its well-defined intervention policy.

The authorities intend to pursue measures to enhance the CBG’s operational independence and its monetary policy execution capacity. These will include ensuring compliance with the provisions of the CBG Act (2005) on its capital requirements and limits on lending to government.

Coordination of monetary and fiscal policies will remain an important part of the authorities’ macroeconomic agenda. This will be led by the memorandum of understanding signed by the Department of State for Finance and Economic Affairs (DoSFEA) in 2007 and the CBG to guide domestic debt management and monetary operations. To enhance the effectiveness of monetary policy, the government will continue to replenish the treasury bill special deposit account to mitigate the constraints to the CBG’s monetary operations arising from low balances in the account.

The banking sector in The Gambia is sound. However, private sector lending remains weak as the banks continue to be risk averse. To facilitate financial intermediation, the CBG has established a credit reference bureau which will provide the financial sector with information on the credit worthiness of potential borrowers. Banks have started providing data on their customers to the credit bureau. However, the information cannot yet be accessed as the current legislation does not permit sharing information on individual customers. The ongoing review of the financial sector legislation is expected to, among others, remove this restriction and facilitate full operationalization of the credit bureau. The authorities are continuously strengthening prudential supervision of banks. They have made significant headway in the use of the Prompt Corrective Action (PCA) framework, introduced in 2007, to monitor bank compliance and performance against a number of critical indicators. They appreciate the assistance they have thus far received from the Fund in strengthening their banking supervision capacity.

Growth and Poverty Reduction

The authorities are confronted with the challenge of translating economic growth into the improvement of the economic well-being of the majority of the people, more than 60 percent of whom are estimated to live below the poverty line. The Gambia’s second PRSP (PRSP II) attempts to address this through the promotion of macroeconomic stability and effective public resource management, pro-poor growth and employment through private sector development, as well as improvement in the provision of basic services. However, significant funding resources and strengthened capacity in the public service will be needed for the successful implementation of the PRSP II and the achievement of the Millennium Development Goals. The assistance of international development partners will be very important in this regard.

Conclusion

We would like to reaffirm the authorities’ commitment to prudent macroeconomic policies, growth promotion and improving the livelihood of the people. They appreciate the support they have received from the Fund and the international community thus far. We encourage The Gambia’s development partners to continue supporting the country to alleviate the enormous capacity and financial constraints they face. The recently received HIPC and MDRI debt relief has been beneficial in creating some fiscal space which will facilitate allocation of resources to development and poverty reducing activities. Additional debt relief from the remaining creditors would also be very beneficial.