The Gambia: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for a Waiver of Performance Criterion—Informational Annex

This paper presents key findings of the Fourth Review for the Gambia under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). The Gambia remains at high risk of debt distress. Overall performance under the PRGF-supported program has been satisfactory, but downside risks to achieving program objectives have increased. IMF staff supports the authorities’ requests for a waiver for nonobservance of the fiscal basic balance performance criterion, augmentation of access, and modification of quantitative performance criteria for end-March 2009.

Abstract

This paper presents key findings of the Fourth Review for the Gambia under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). The Gambia remains at high risk of debt distress. Overall performance under the PRGF-supported program has been satisfactory, but downside risks to achieving program objectives have increased. IMF staff supports the authorities’ requests for a waiver for nonobservance of the fiscal basic balance performance criterion, augmentation of access, and modification of quantitative performance criteria for end-March 2009.

The Gambia: Relations with the Fund:

(As of December 31, 2008)

Membership status. Joined September 21, 1967. The Gambia accepted the obligations under Article VIII, Sections 2(a), 3, and 4, of the Fund’s Articles of Agreements on January 21, 1993. It maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

General Resources Account

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SDR Department

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Outstanding Purchases and Loans

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Latest Financial Arrangements

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Projected Payments to Fund (SDR million; based on current use of resources and present holdings of SDRs)1

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Implementation of HIPC Initiative

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Implementation of Multilateral Debt Relief Initiative (MDRI)

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Safeguards assessments

An update Safeguards Assessment of the Central Bank of The Gambia (CBG) was conducted in November 2006. This update assessment was performed against the backdrop of previous safeguards findings, which identified significant vulnerabilities in the CBG’s safeguards framework. While the CBG has instituted a series of control reforms since that assessment, a key challenge looking forward is to build on existing progress to strengthen remaining vulnerabilities in the CBG’s safeguards framework, including controls over international reserves and procedures for extending credit to the government. The update assessment, completed in February 10, 2007, recommended certain priority actions to be taken, including semi-annual audits of monetary program data, the implementation of segregation of duties in the reserves management function, a phased implementation of International Financial Reporting Standards, and an action plan to ensure that government borrowing from the CBG is brought within the statutory limits. The CBG is progressively implementing these recommendations.

Exchange rate arrangement

Until January 20, 1986, the Gambian currency, the dalasi, was pegged to the pound sterling at a rate of D5 = £1. On January 20, 1986, an interbank market for foreign exchange was introduced, and since then the exchange rate has been determined by market forces. Effective June 30, 2002, the exchange rate arrangement of The Gambia was reclassified from independently floating to managed float with no preannounced path. As of end–June 2008, the midpoint exchange rate in the interbank market was D20.651 per U.S. dollar. The Gambia has accepted the obligations of Article VIII, Sections 2(a), 3, and 4 and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. The Gambia maintains exchange restrictions for security reasons, based on UN Security Council Resolutions, that have been notified to the Fund for approval under the procedures set forth in Executive Board Decision No. 144-(52/51).

The Gambia has been part of the exchange rate mechanism of the West African Monetary Zone (WAMZ) since April 2002.

Last Article IV consultation

The Executive Board concluded the 2006 Article IV consultation (Country report 06/444) on October 13, 2006.

Technical assistance

The Fund has been providing The Gambia with extensive technical assistance in macroeconomic, fiscal, and monetary areas, and in improving the compilation of macroeconomic statistics. Specific technical assistance projects are the following:

Fiscal Affairs Department

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Monetary and Capital Markets Department/ Monetary and Financial Systems Department /Monetary and Exchange Affairs Department

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Resident Representative

Mr. Alex Segura-Ubiergo was appointed the Fund’s first Resident Representative to The Gambia in September 2006. He is also the Resident Representative to Senegal.

The Gambia: Joint Bank-Fund Work Program, August 2008-July 2009

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The Gambia: Relations with the African Development Bank

(As of November 10, 2008)

The African Development Bank (AfDB) Group began lending to The Gambia in 1974. As of November 10, 2008, it had approved 54 operations with total commitments (net of cancellations) of UA205.8 million (US$326.4 million) in the following sectors: transport (25 percent); agriculture (21.7 percent); social (24.6 percent); public utilities (12.1 percent); multi-sector (8.8 percent); environment (5.8 percent); and industry (2.0 percent).3 About 84.8 percent of the Bank Group’s net commitments were made from the resources of the African Development Fund (ADF), 8.6 percent from the ADB non-concessional window, and 6.6 percent from the Nigeria Trust Fund (NTF).

As of November 10, 2008,41 operations had been completed, 2 were cancelled at the government’s request, and 11 others continue, including 3 multinational projects, all in agriculture. Implementation of the portfolio is generally satisfactory; it achieved a rating score of 2.01 (on a scale from 0 to 3) during the Bank Group’s 2006 portfolio review. The portfolio has a relatively low project-at-risk (PAR) rate of 33.3 percent, which compares well with the Bank-wide average of 45 percent as indicated in the AfDB’s 2007 Annual Portfolio Performance Review (APPR). Total disbursement rates for the portfolio are also satisfactory. By November 10, 2008, they were 90 percent (overall), 100 percent (AfDB-financed projects), 91 percent (ADF), and 71 percent (NTF). The disbursement rate for the ongoing portfolio was 62.7 percent as of November 10 2008.

The AfDB is also a major participant in The Gambia’s enhanced Heavily Indebted Poor Countries (HIPC) Initiative program, under which it is due to grant debt relief of US$15.8 million in net present value (NPV) terms (23.6 percent of total debt relief under the program). Of this, $6.3 million in end-1999 NPV has been paid as interim relief. Additionally, MDRI relief from the AfDB will yield annual debt service savings (net of HIPC assistance) averaging US$1.6 million over the next 5 years and US$3.9 million over the following 39 years.

The AfDB prepared a Joint Assistance Strategy (JAS) with the World Bank in early 2008 to cover 2008–11. The JAS is based on two main pillars—(1) strengthening the institutional framework for economic management and public service delivery, and (2) enhancing growth and competitiveness and the productive capacity of the economy. The JAS will help support the Government’s national priorities through the main channels of budget and project support in the context of growth poles and enhanced service delivery. The strategy was approved at the World Bank in February 2008 and at the AfDB in March 2008. The JAS is anchored to the Gambia’s Poverty Reduction Strategy Paper PRSP II (2007–2011) and will be supported by new lending and by the ongoing portfolio, which is summarized in Table 2. Table 1 below describes some of the recent projects in the portfolio:

Table 1.

Some Recent Projects in the Portfolio

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Table 2.

Ongoing Portfolio as of November 10, 2008

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Under ADF–10 and ADF–11, The Gambia is a grants-only recipient. Additional resources can be made available if there is improvement in both performance under the Country Policy Institutional Assessment (CPIA) and portfolio performance.

The AfDB’s strategy is implemented through both lending and non-lending activities. Lending activities will comprise project finance and budget support. Non-lending intervention is designed to strengthen policy dialogue between the government and stakeholders and focuses mainly on studies, funded through grants, to improve governance, mainstream gender, enhance efficiency of infrastructure, and improve the energy supply. The AfDB prepared a Governance Profile for The Gambia in 2007 and has recently collaborated with the World Bank and the U.K. Department for International Development (DfID) in the preparation of a study on Civil Service Reform. A Gender Profile is planned for 2009.

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The Gambia: Statistical Issues

Data provision has some shortcomings, but is broadly adequate for surveillance. While the authorities have made some progress in improving the compilation of economic and financial statistics, substantial shortcomings remain in national accounts, balance of payments, and external debt statistics. Data reporting to the Fund is somewhat irregular. The country participates in the General Data Dissemination System (GDDS), with its metadata last updated in the second half of 2003.

The National Assembly passed a new Statistics Act in December 2005 and work began in June 2006 to implement the plan for transforming the Central Statistics Department (CSD) into The Gambia Bureau of Statistics (GBoS). A Statistics Council and a Statistician General have already been appointed and efforts are ongoing to fully staff the GBoS. A mission visited Banjul in February 2005 to prepare a data ROSC, which was published by the Fund in November 2005.

Real sector

The main constraints to improving national accounts include inadequate source data due to low response rates of surveys (manufacturing, trade, and business services industries), as well as poor quality of external data and inattention to other important sources (such as the household budget survey, livestock census, and census of industrial production). The GBoS continues to face human and financial constraints to undertake such surveys and process the data.

STA missions on national accounts in 2007 and March 2008 assisted the GBoS to implement the 1993 System of National Accounts methodology and rebase the national accounts to properly reflect the country’s output levels, economic structure and relative prices. In this context, STA missions have helped the authorities: (1) process the data collected for the 2004 Economic Census; (2) rebase the GDP series using the results of the 2004 Economic Census; and (3) improve the GDP estimates by the production approach and begin compiling GDP series by the expenditure approach. The authorities now have a preliminary revised nominal GDP series compiled by the production approach for the period 2000–07 (with a base year of 2004). GDP series by the expenditure approach are still under review. In May 2007, the country began participating in the second phase of the GDDG Project for Anglophone Africa on national accounts, which is funded by the U.K. Department for International Development (DfID).

The World Bank has been providing technical assistance to the GBoS to update the consumer price index (CPI) using the 2003 household expenditure survey to better reflect current consumption patterns. The GBoS began to publish in early 2007 a new national CPI with representative expenditure basket as of August 2004.

Government finance

The authorities release data on central government transactions with a lag of about four weeks for both revenue and expenditure. The central government accounts for 1991–99 were not audited until 2005. Inadequacies persist in compiling data on an economic basis and in tracking foreign-financed expenditure. Monthly data on domestic government financing are available with a delay of six to eight weeks. At a meeting with STA in October 2007, the authorities expressed interest in technical assistance to facilitate the migration to GFSM2001. No data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS.

Monetary data

The Central Bank of The Gambia (CBG) has improved data reporting to the Fund, but sometimes the reports are delayed. An April–May 2006 STA mission recommended: expanding the coverage of depository corporations to include credit unions; including accrued interest in the value of financial instruments; and compiling a financial survey given the significant influence of the Social Security and Housing Finance Corporation in monetary developments. To improve the accuracy and classification of government accounts, the mission designed a supplementary form for reporting government positions at the CBG, to be reported to the IMF monthly. It also assisted the CBG in the introduction of standardized report forms (SRFs). A follow-up mission in April/May 2008 made further progress on the SRFs for reporting data on the central bank and other depository corporations to STA and establishing an integrated monetary database, which would generate alternative outputs for use by the CBG, STA, and AFR. The authorities have now prepared a preliminary set of SRFs.

External sector statistics

Despite recent improvements, balance of payments statistics continue to be affected by shortcomings. These include long delays in the collection of trade, customs, and tourist arrival data; crude methods of estimating re-export trade; poor data on capital flows; lack of a register of firms and establishments engaged in external transactions; poor classification of balance of payments data; and lack of consistent methodology. Institutional weaknesses have also been a major impediment to improving statistics. Official grant and loan disbursements and repayments are generally well recorded, but there are some gaps in project disbursements.

The CBG produces balance of payments statistics according to the Balance of Payments Manual, 5th edition (BPM5). These statistics are published in International Financial Statistics (IFS) and in the 2007 IMF Balance of Payments Statistics Yearbook (BOPSY 2007). The CBG has been compiling quarterly balance of payments statistics through a Fund-administered technical assistance project funded by DfID. The most recent data available are for the first quarter of 2008.

With DfID assistance the CBG conducted an enterprise survey in March 2006 to collect data for the international investment position. In April 2006, the CBG also initiated a survey funded by the World Bank to collect data on selected components of the current account.

The Gambia: Table of Common Indicators Required for Surveillance

(As of February 3, 2009)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extrabudgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A); irregular (I); not available (NA).

Reflects the assessment provided in the data ROSC published on November 8, 2005, and based on the findings of the mission in February 2005. For the dataset corresponding to the variable in each row, the assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment and validation of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies..

1

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

2

The Fund approved the decision on 12/15/2000 as Decision 12365-(00/126). The World Bank Board decision was taken on 12/14/2000.

3

Assistance committed under the enhanced HIPC Initiative is expressed in net present value (NPV) terms at the decision point.

4

Under the enhanced HIPC Initiative, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

5

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end–2004 that remains outstanding at the time the member qualifies for such debt relief.

3

UA stands for unit of account = 1 SDR (equivalent to about $1.6445 as of March 31, 2008).

The Gambia: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for a Waiver of Nonobservance of Performance Criterion, Augmentation of Access, and Modification of Performance Criteria: Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for The Gambia
Author: International Monetary Fund