The Gambia and the IMF
IMF Completes Review Under The Gambia's PRGF Arrangement Country's Policy Intentions Documents
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Gambia—Letter of Intent, Technical Memorandum of Understanding
Mr. Horst Köhler
Dear Mr. Köhler,
1. In the context of its continued reform efforts to promote economic
growth and poverty alleviation, the government of The Gambia adopted a
medium-term economic and financial program (April 1, 1998-December 31,
2001), supported under a three-year arrangement under the Poverty Reduction
and Growth Facility (PRGF) and, in November 2000, published an interim
poverty reduction strategy paper (I-PRSP). This letter, which supplements
our letters of November 27, 2000 and June 29, 2001, reviews performance
under the second half of the third annual PRGF arrangement approved by
the Executive Board on December 11, 2000 (EBS/00/241; 11/28/00, cor. 1).
It also provides an outline of the government's objectives and policies
for the remainder of 2001 through 2004, which we expect will form the
basis for a new three-year PRGF-supported program by early 2002. Against
this background, the government notes the successful settlement of the
property dispute with Alimenta (a private groundnut-marketing company)
and some setbacks in implementing the program. Furthermore, it requests
a waiver for the nonobservance of the end-September 2001 quantitative
performance criterion with respect to net bank credit to the central government
2. The government is aware that overall performance under the third annual PRGF-supported program was mixed. Notwithstanding robust real GDP growth, with moderate inflation and good progress in implementing a number of structural reforms, there have been budgetary slippages during 2001, partly related to payments to Alimenta. The government implemented corrective measures in March and September to address policy slippages, consolidate the overall economic gains, and build a strong momentum for realizing its medium-term economic and financial objectives. Moreover, it remains committed to continuing its efforts, beyond the current program, to reduce poverty. These efforts are being supported by a medium-term macroeconomic framework, complemented by structural reforms and a comprehensive Technical Cooperation Action Plan (TCAP), which are outlined below.
Recent economic developments
3. During 2001, real GDP growth is estimated at 5¾ percent, reflecting continued good performance in agriculture and robust growth in fishing and construction, and notwithstanding the somewhat limited recovery of the tourism and reexport sectors. The expected good harvest in 2001 should moderate the end-of-period inflation (based on the low-income consumer price index—CPI) to below 4 percent. However, the impact of the increase in petroleum product prices earlier in the year and the depreciation of the dalasi have resulted in higher inflation than in 2000.
4. The settlement of the dispute with Alimenta, which required the government to pay a total of US$11.4 million (of which US$6.7 million has been paid in 2001), and related issues have dominated the developments in the internal and external balances during 2001. 1 Accelerated payments to Alimenta through February and government payments (D 64 million) to commercial banks for nonperforming loans from the 1999/2000 crop season, together with underperformance in customs revenue, contributed to a fiscal outturn that is more expansionary than programmed. However, the government undertook corrective measures, including increases in the domestic prices of petroleum products and improvements in customs administration (e.g., the full implementation of the automated system for customs data—ASYCUDA).
5. Fiscal developments through September (including the final US$5 million
government payment to Alimenta in early August) indicate that customs
revenue performance continued to be weak in the second quarter; however,
collections have recovered so far during the second half of the
6. On other aspects of expenditure, wages and salaries have been better controlled; however, the savings likely for the year will not fully compensate for the higher-than-programmed component, "other recurrent expenditure." This increase reflects not only the budgetary pressures discussed above but also the delayed receipt of donor grants. By end-September, the government had collected (through automatic deductions) the 0.4 percent of GDP in salary advances to civil servants granted for the March 2001 Tobaski religious festival. An additional expenditure amounting to 1.6 percent of GDP has been incorporated in the budget, including (a) D 15 million to rehabilitate the former Alimenta assets in preparation for the 2001/02 groundnut marketing (as agreed with the European Union (EU)), and (b) on-lending of a concessional government loan of D 77 million to NAWEC to alleviate a major bottleneck in electricity supply. The overall budget deficit (excluding grants) is now projected at 5.9 percent of GDP (4.6 percent, excluding on-lending to NAWEC), compared with 3.9 percent in the program. The expected receipt of donor grants, estimated at D 94 million (1.6 percent of GDP) before the end of the year, should reduce government domestic debt to 30 percent of GDP from 31 percent in 2000.
7. After growing by 34 percent in 2000, broad money growth moderated to 14 percent for the 12-month period ended March 2001 as the authorities sold foreign exchange and stepped up sales of treasury bills; the latter contributed to an increase in the treasury bill rate from 12 percent to 12.5 percent. The quantitative performance criteria for end-March 2001 with respect to net bank credit to the central government, net domestic assets of the central bank, and the basic primary balance of the central government were not observed (Appendix I, Table 1). With the slower-than-expected recovery in customs duty and the increase in other expenditure, the end-September 2001 quantitative performance criterion with respect to net bank credit to the central government was also not met. It is expected however, that tightened financial measures in September (see below), as well as the improved recovery in customs revenue collections and the receipt of donor grants during the fourth quarter, should result in a significant moderation in net credit to government, net domestic assets of the Central Bank of The Gambia (CBG), and monetary growth by the end of the year.
8. The external sector developments in 2001 are virtually in line with previous projections, based on a modest growth in exports and some recovery of imports and reexports from the adverse impact of the preshipment inspection scheme before its rescindment in 2000. However, the timing of the payments to Alimenta put pressure on international reserves and on the exchange rate, as the dalasi depreciated by 12 percent against the U.S. dollar through September 2001. The end-March 2001 quantitative performance criterion with respect to the floor on the net international reserves of the CBG was not observed as the central bank attempted also to address the buildup in demand for foreign exchange in the previous quarter. For the year, international reserves are projected to decline to the equivalent of 5.2 months of imports from 5.9 months in 2000.
9. The implementation of structural measures was somewhat behind schedule; nevertheless, by end-August 2001, all but two of the structural performance criteria and structural benchmarks had been fully implemented (Appendix I, Table 2). There were technical delays in establishing a regulatory framework, issuing guidelines, and authorizing commercial banks to establish foreign currency deposits. However, in mid-September, the central bank gave notice to banks to initiate preparations for the introduction of foreign currency deposits in December 2001. Moreover, the CBG introduced a 364-day treasury bill effective September 2001 and had earlier established a new Department of Rural Finance to focus efforts to improve the supervision of microfinancing institutions and the provision of rural/informal finance, consistent with the authorities' efforts to better serve the poor. The Central Statistics Department (CSD) suffers from an acute manpower shortage and has not been in a position to either improve the CPI or to rebase the national accounts to 1998 (from the 1976/77 base currently used). The Fund technical assistance mission in September 2001 recommended emergency measures to bolster the CSD personnel. The government agreed to provide funding for an immediate increase of seven positions (including five new positions) in the National Accounts Section.
10. Progress on other key reforms has been encouraging. With the assistance of the Fund budget advisor, government accounts for 1998-99 were closed in August 2001 and, as in the case of the 1992-97 accounts, were submitted to the Auditor General; it is expected that, in view of the loss of some relevant public records, arrangements can be made to complete the audit of these accounts and permit the timely audit of public accounts for subsequent years.
11. With regard to the governance and political process, the settlement reached with Alimenta should enhance investor confidence and catalyze reforms in the key groundnut-marketing sector. Voter registration was completed in July 2001, shortly after which the government lifted a ban on former political parties ahead of the presidential election (October 2001), the planned national assembly elections (January 2002), and local elections (April 2002).
Outline of the medium-term macroeconomic framework and policies for 2001-04
12. Drawing on the building blocks of the Strategy for Poverty Alleviation (SPA) II (the full PRSP), the government has formulated a medium-term macroeconomic framework that has as a key objective the achievement of macroeconomic stability through market-based incentives that are conducive to robust private sector activity and poverty alleviation. To this end, the focus will be on (a) further strengthening of public finances to contain the budget deficit and the high level of domestic debt; (b) continuing and deepening structural reforms; (c) strengthening institutional capacity through extensive recourse to technical assistance; and (d) implementing a comprehensive social sector agenda, especially in the agricultural, education, and health sectors.
13. The key macroeconomic objectives are to (a) establish real GDP growth of 5¾ percent in 2001 and about 6 percent annually during 2002-04; (b) limit average inflation to about 3 percent per annum over the 2002-04 period; (c) contain the external current account deficit (excluding official transfers) at 12½ percent of GDP in 2001 and 11¾ percent by 2004; and (d) maintain gross external reserves over the period at about 5½ months of imports of goods and services. Total investment is projected to increase from 18 percent of GDP in 2001 to 20¼ percent in 2004 from (4¾ percent to 6 percent, respectively, for the government), and the envisaged increase in the government saving-investment balance of 2½ percentage points of GDP would contribute to the improvement in the external current account.
Macroeconomic and budgetary framework for 2001-02
14. To maintain macroeconomic stability for the balance of 2001 and beyond, a package of policy measures was introduced in September entailing (a) an increase in the treasury bill interest rate to 15 percent; (b) authorization to commercial banks to introduce foreign currency deposits beginning December 2001; and (c) a fast-paced privatization program for Track II 3 public enterprises, including the National Printing Services Corporation, the Management Services Agency, the former Alimenta assets, the Gambia International Airline, and the Banjul Shipyard. Studies for the privatization of Track I public enterprises should be launched by early 2002 in line with the Trade Gateway project. The government will carefully monitor developments and stands ready to take additional measures as necessary.
15. For 2002, real GDP is projected at 5¾ percent, supported by the expected privatization of, and reforms in, groundnut marketing, the continued recovery in the reexport and fishing sectors, and the improved supply of electricity. End-period inflation should moderate to 3 percent, with the benefit of the good harvest in 2001, as well as the recent measures to tighten financial policies.
16. The budget for 2002, approved by the cabinet on November 13, 2001, aims at containing the fiscal deficit (excluding grants) at about 3.6 percent of GDP; including grants, the deficit will be reduced to 1 percent of GDP. The budget incorporates poverty-reducing expenditure funded with interim debt relief under the enhanced HIPC Initiative. The budget also reflects key sector priorities derived from public expenditure reviews (PERs) in the agricultural, education, and health sectors.
17. Revenues are projected at about 18½ percent of GDP in 2002, underpinned by measures to improve tax administration that will be supported by Fund (a tax administration mission visited Banjul in November) and World Bank technical assistance, the latter under the capacity-building project approved in July 2001. Coordination of the revenue departments should benefit from computerization, including the planned implementation of ASYCUDA II in the Customs Department. The Central Revenue Department will be expanding the tax net through better documentation of rental property and the introduction of self-assessments.
18. On the expenditure side, the aim is to reduce recurrent expenditure to 18 percent of GDP in 2002 from the projected 20 percent in 2001 with the benefit of lower domestic interest payments. The social and poverty sectors identified by the PRSP will be protected, while a 6 percent across-the-board increase in the wage bill in 2002 (equivalent to about 0.3 percent of GDP) will be provided to help retain skilled staff following a wage freeze for senior personnel in 2001. With donor support, capital expenditure is projected to increase to 5¾ percent of GDP in 2002 (4.6 percent in 2000), in order to strengthen the physical infrastructure and the agricultural, health, education, and judicial sectors; the ultimate goal is to alleviate poverty, strengthen private sector activity, and promote exports.
19. One of the government's high priorities—to undertake substantive budgetary reforms associated with the requirements of the PRSP and the triggers for debt relief under the enhanced HIPC Initiative—is articulated in a paper approved by the cabinet in September 2001. The paper outlines a comprehensive reform program centered on the Accountant General's Office, aimed at improving the reporting and control of expenditure, as well as expediting the reconciliation and closing of public accounts. The new system should also subsequently facilitate conversions to program budgeting in line with the objectives of the PERs (and, eventually, the medium-term expenditure framework - MTEF) and improve expenditure classification to reflect better the PRSP and enhanced HIPC Initiative priorities. Noting also the important role of the Auditor General's Office, the paper recommends a quick implementation of the recommendations of the Commission of Inquiry to close the investigations in that office, and, among other things, to expedite the audit of accounts. Fulfillment of committed and outstanding requests for technical assistance from the Fund (for the extension of the services of the budget advisor), the U.K. Department for International Development (DFID), the World Bank, and the UN would play a critical role in implementing these reforms.
20. The government is implementing measures to deal firmly with the reemergence of cross arrears between the government and the public enterprises. As of end-September 2001, the government had accumulated arrears of D 27 million (0.4 percent of GDP) to public enterprises, while the latter had accumulated an estimated D 84 million in arrears to the government. A program for the mutual settlement of these arrears, with quarterly targets leading to their elimination by end-2002, is being implemented. Renewed efforts will be made in 2002 to review the financial operations of all public enterprises and the likely restructuring of selected public enterprises, especially NAWEC. Contacts have been made with the World Bank to discuss the NAWEC restructuring in the context of a broader energy strategy.
Monetary policy and financial sector reforms
21. Key objectives of monetary policy during 2002 are to maintain low inflation and strengthen external reserves. To these ends, the government will maintain prudent fiscal policies and a tight monetary policy (while providing adequate credit to the private sector), and promote exchange rate flexibility, consistent with a further buildup of official reserves. The avoidance of unprogrammed increases in net credit to the government, such as those associated with payments to Alimenta and related developments in 2001, will be an important objective for monetary policy in 2002. Through sales of securities, the central bank will seek to moderate the growth of broad money from an estimated 35 percent during 2000 to 10½ percent by end-2002.
22. Financial sector reforms include measures to improve the auctions for treasury and central bank bills, such as the introduction of a book-entry system and longer-maturity treasury bills, as well as the introduction of foreign currency deposits. The CBG received Fund technical assistance in April and May 2001 to assist in these tasks, respectively. In August 2001, the CBG received Fund technical assistance, which recommended measures to improve monetary statistics. The CBG is also taking various steps to strengthen its regulatory framework and supervision of the financial sector. These include final revisions to the Financial Institutions Bill and the Insurance Bill, which are now receiving priority after long delays, before their presentation for parliamentary approval, which is expected by late March 2002. The legislation and the recommendations of technical assistance missions now require extensive revisions to the financial institutions reporting requirements, which will be addressed during 2002. Nonperforming loans declined to 10.7 percent of total outstanding loans in June 2001 from 13.6 percent in June 2000, and provisioning for nonperforming loans has remained above 90 percent of such loans in 2001. The government will encourage banks to maintain their capital adequacy ratios above the legal requirement of 8 percent and have taken steps to strengthen the management capacity of a financial institution that has not been meeting some of these standards. The CBG's Rural Finance Department is expected to play a key role in efforts to improve the supervision and growth of the microfinance sector.
23. During 2002, The Gambia will continue to pursue regional monetary integration through collaboration with five other countries in West Africa 4 to establish a West African Monetary Zone (WAMZ) by 2003. In April 2001, the West African Monetary Institute (WAMI) was established with a mandate to prepare the groundwork for the establishment of the West African Central Bank (WACB), which will function as the central authority of the WAMZ.
Structural and sectoral policies
24. During 2002, the government will start to implement the Trade Gateway project (US$23 million), which was approved by the World Bank in October 2001 to enable The Gambia to establish an export-processing center to promote private sector activity consistent with the PRSP objectives. A Regulatory Bill will be submitted to the cabinet and is expected to be enacted in early 2002; it provides for the establishment of an agency to regulate privatized utilities. Since May 2000, the government has worked closely with the Commonwealth Secretariat to develop a competition policy and, eventually, a Competition Bill to remove legal and regulatory impediments to competitive markets. In July 2001, legislation was approved by the national assembly, resulting, inter alia, in the setting up of the National Tourism Authority (a largely private sector-driven body) to promote the industry, including through the classification of hotels, and help improve the quality of service. Regarding the public enterprise sector, the Privatization Act formalized the establishment of the Gambia Divestiture Agency, which will channel the privatization proceeds into the divestiture account at the central bank. In 2002, up to D 25 million will be transferred from the divestiture account to pay some of the government's domestic debt.
25. In agriculture, the government intends to continue to work with the EU and the Agri-Business Service Plan Association (ASPA), comprising farmers and buyers, to improve the marketing of groundnuts and encourage ASPA to adhere to a schedule of public announcements of producer prices early in the planting season. The settlement of the Alimenta dispute and the proposed privatization of its processing plants and barges among competing and reputable firms should promote private crop financing while contributing to better earnings by farmers. The privatization program is being prepared by the Gambia Divestiture Agency; meanwhile, experts provided through EU technical assistance have evaluated the assets in preparation for their expected offers of sale. Already, the government has injected some D 15 million to improve these assets, in order to facilitate groundnut marketing during the 2001/02 season and the subsequent asset sale. Moreover, the proposed EU audit of the 1999/2000 operations of the trading companies will provide remedies to ensure adherence to proper internal control measures in compliance with industry standards. The government intends to make timely arrangements to assist with the provision of improved seed, fertilizer, and microfinance facilities to farmers, the latter through the US$10 million International Fund for Agricultural Development Rural Finance and Community Initiative. Significant support for the fishing sector is being provided through the recent completion of artisanal facilities and a cold storage in the country.
External sector policies
26. On the basis of the economic policies detailed above, the external current account deficit (excluding official transfers) is projected to decline to about 12 percent of GDP in 2002. The volume of total exports (including reexports) is projected to increase by about 10 percent, reflecting further expansion in groundnut production, fruit and fish exports, and the reexport trade. It is also expected that the groundnut exports will contain a larger proportion of high-quality nuts. Import volumes are projected to grow by about 10½ percent in 2002 as the reexport trade continues to recover as a result of the removal of the preshipment inspection (PSI) scheme, improved cross-border relations, and the better availability of foreign exchange, including through the introduction of foreign currency deposits. The terms of trade, excluding reexports, are projected to improve by 2.3 percent in 2002. Receipts from tourism are expected to increase only modestly as the sector supported by a planned increase in weekly flights and the recent creation of the National Tourism Authority, continues to recover from the sharp decline in 2000. However, tourist arrivals may be hampered by the holding of the elections and the likely slowdown in the world economy. Donor assistance is also projected to increase, contributing to gross official reserves of SDR 86.4 million in 2002, a level equivalent to about 5.2 months of import cover. A financing gap of SDR 26.6 million is projected for the period 2002-04, which is expected to be covered by recourse to Fund and donor assistance, the latter likely through a donor roundtable meeting planned for 2002.
27. The government remains committed to a liberal trade and exchange system. It will continue to assess the impact of the reduction in the external tariff to a maximum rate of 18 percent and in the number of tariff bands from ten to three in 2000, as well as of the reforms in the neighboring West African Economic and Monetary Union (WAEMU) countries (which maintain a maximum external tariff of 20 percent). Efforts have been intensified to improve the balance of payments data, based on the recommendation of a Fund technical assistance mission in September 2000, as well as on the full introduction of ASYCUDA II to, inter alia, generate trade data on a timely basis. The reduction in external tariffs, together with the pursuit of a market-based flexible exchange rate, should benefit The Gambia's external competitiveness.
28. During 2002, The Gambia will continue to benefit from interim debt relief under the enhanced HIPC Initiative in the context of achieving a sustainable external debt. As part of this initiative, measures have been taken to strengthen the external debt unit at the Department of State for Finance and Economic Affairs (DOSFEA) with better staffing and equipment in order to improve the quality and timeliness of external debt data. Meanwhile, the government has asked the Paris Club creditors for debt-flow rescheduling on Cologne terms and is in discussion with Norway on the debt owed to the Norwegian export guarantee agency arising from a government-guaranteed loan to the Senegambia Beach Hotel. Efforts are also under way to obtain debt relief from all other creditors.
Developments in the PRSP process
29. The government has decided to defer the submission of the SPA II (full PRSP) to the Executive Boards of the Fund and World Bank until early spring 2002 in order to improve the quality of the document, as explained in the progress report on the interim PRSP presented to the two Boards. To give this effort the high priority it requires, the cabinet approved a paper in September directing relevant sector ministries and institutions to collaborate with the Strategy for Poverty Alleviation Coordinating Office (SPACO) and facilitate a timely submission of a SPA II to the Fund and the World Bank.
30. The Gambia's economic and financial statistics remain in need of improvement, especially with regard to the major components of the balance of payments, the national accounts and prices, public investment, the public enterprise sector, and employment. Moreover, data on the social sectors and poverty need to be substantially improved and better integrated with mainstream economic data. The government has benefited from the recommendations of various recent Fund technical assistance missions to strengthen the compilation of economic data. A notable development is the recent effort to improve the personnel of the CSD on an interim basis, pending the longer-term restructuring of the department into an independent agency, by offering better incentives to retain staff. The country is also benefiting from participation in the Fund's General Data Dissemination System (GDDS) and uses the framework to improve the quality, timeliness, and transparency of data provision.
The Technical Cooperation Action Plan (TCAP)
31. As a follow-up to our request to the Fund management for technical assistance in April 2001, the government has worked closely with the Fund staff in collaboration with other donors to prepare a comprehensive technical assistance program for the PRSP. It is expected that the coordinated effort will promote complementary efforts aimed at covering the key requirements for technical assistance through a careful identification of gaps. These gaps would then be presented to the donor roundtable meeting planned for mid-2002, together with the PRSP for funding. Within this framework, considerable work has been initiated by the Fund staff to prepare a comprehensive TCAP aimed at promoting performance under a possible new three-year PRGF arrangement.
Macroeconomic framework monitoring
32. To help monitor economic and financial performance during the remainder of 2001 and early 2002, understandings have been reached on a prior action, indicative targets, and structural indicative targets (see Appendix I, Table 1). It is expected that this approach will, inter alia, permit continuity in the implementation of the financial and economic program and establishment of a track record of performance for purposes of the enhanced HIPC Initiative. The prior action for the completion of the second review under the third annual arrangement under the PRGF entails the approval by the cabinet of an appropriate budget for 2002. The indicative quantitative targets for end-December 2001 and end-March 2002 comprise the following: (a) a ceiling on net bank credit to the government; (b) a ceiling on net domestic assets of the central bank; (c) the nonaccumulation of external payments arrears; (d) a minimum level of net official international reserves; (e) a limit on new nonconcessional external loans contracted or guaranteed by the government in the maturity ranges of 1-5 years and 1-12 years; and (f) a zero ceiling on the outstanding stock of short-term external public debt (excluding normal import-related credits). The indicative target on the nonaccumulation of external payments arrears will be applied on a continuous basis.
33. The macroeconomic framework also includes six indicative structural targets as outlined in Table 3 of Appendix I.
34. The government believes that the policies described in this letter are adequate to achieve the objectives of the economic and financial program during 2001 but will, if necessary, take any further measures deemed appropriate for this purpose. During the remaining period of the third annual PRGF arrangement, The Gambia will continue to consult with the Managing Director on the adoption of any measures that may become appropriate, at the initiative of the government or whenever the Managing Director requests such a consultation.
35. The government of The Gambia will provide the Fund with such information as the Fund requests in connection with the progress made in implementing the economic and financial policies and achieving the objectives of the program.
May 16, 2001
1. This memorandum sets out the understandings between the Gambian authorities and staff of the International Monetary Fund (IMF) regarding the definitions of quantitative and structural performance criteria and benchmarks for the third annual arrangement under the Poverty Reduction and Growth Facility (PRGF), as well as the related reporting requirements. The tables with the latest actual data for the monetary aggregates, as well as the preliminary estimates for March 2001 used for the derivation of the flows for the program period, are included in the staff report. (Tables 6 and 7).
II. Quantitative Performance Criteria: Definitions and Reporting Standards
A. Net International Reserves of the Central Bank of The Gambia
2. Definition. Net international reserves (NIR) are defined as reserve assets less liabilities to foreign residents of maturity of one year or less and less borrowing from the IMF. Gold holdings will be valued at U.S. dollar market prices, together with foreign currency holdings, at the bilateral exchange rates prevailing on March 31, 2001. The NIR shall be converted into dalasis at the exchange rate prevailing on March 31, 2001 (estimated at D 19.087 per SDR). Reserve assets are defined for this purpose as external assets readily available to, or controlled by, the Central Bank of The Gambia (CBG). Pledged or otherwise encumbered reserves assets, including, but not limited to, reserves assets used as collateral or guarantee for third-party external liability, are to be excluded.
3. Adjustment clauses. The floor on the net international reserves of the central bank will be adjusted upward (downward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the budget (Appendix I, Table 1).
4. Supporting material. Net international reserves of the central bank will be transmitted on a weekly basis within ten days of the end of each week; the net foreign assets of the commercial banks and external budgetary support will be transmitted on a monthly basis within six weeks of the end of each month.
B. Net Domestic Assets of the Central Bank
5. Definition. The net domestic assets of the central bank are defined as the difference between reserve money (the sum of currency outside banks and all deposits of the commercial banks, excluding deposits of the central government) and the net foreign assets of the central bank, converted at the foreign exchange rate specified in paragraph 2. Net foreign assets are defined as NIR plus other claims on, and liabilities to, foreign residents.
6. Adjustment clauses. The ceiling on net domestic assets of the central bank will be adjusted downward (upward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the budget (Appendix I, Table 1).
7. Supporting material. Net domestic assets of the central bank will be transmitted on a monthly basis within four weeks of the end of each month.
C. Net Claims on the Central Government by the Central Bank of The Gambia
8. Definitions. The net claims on central government by the central bank are defined as claims on the central government by the central bank less deposits of the central government with the central bank.
9. Adjustment clauses. The ceiling on net claims on the central government by the central bank will be adjusted downward (upward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the central government budget (Appendix I, Table 1).
10. Supporting material. Data on cumulative government revenue and expenditure, on the net central government position with the central bank, and on treasury bills outstanding, as well as data on external loans and grants to the government, will be transmitted on a monthly basis within six weeks of the end of each month.
D. Basic Primary Balance of the Central Government
11. The basic primary balance is defined as government domestic revenue (tax and nontax) minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.
E. External Payments Arrears
12. Definition. External payments arrears are defined as the stock of external arrears on loans contracted or guaranteed by the public sector (as defined below in paragraph 14), except on debts subject to rescheduling or a stock-of-debt operation.
13. Supporting material. An accounting of nonreschedulable external arrears by creditor countries (if any), with detailed explanations, will be transmitted on a monthly basis within four weeks of the end of each month. This accounting would include, separately, arrears owed by the central government and other public sector entities to Paris Club creditors, non-Paris Club creditors, and other creditors.
F. New Nonconcessional External Debt Contracted or Guaranteed by the Public Sector
14. Definitions. In this memorandum, the public sector consists of the central and regional governments and other public agencies, including the Central Bank of The Gambia. This performance criterion is on the contracting or guaranteeing of external debt with original maturity of 1-12 years by the public sector. 5 Excluded from this performance criterion is debt with a grant element of at least 35 percent. The grant element is to be calculated by using currency-specific discount rates reported by the OECD (commercial interest reference rates): for maturities of less than 15 years, the grant element will be calculated based on six-month averages of commercial interest rates, and, for maturities longer than 15 years, the grant element will be calculated based on ten-year averages.
15. Supporting material. A comprehensive record, including a loan-by-loan accounting of all new concessional and nonconcessional debt contracted or guaranteed by the public sector, with detailed explanations, will be transmitted on a quarterly basis within four weeks of the end of each quarter. Nonconcessional external debt over one year includes financial leases and other instruments giving rise to external liabilities contingent or otherwise on concessional terms.
G. Outstanding Stock of External Public Debt
16. This performance criterion is the outstanding stock of external debt with original maturity of less than one year owed or contracted by the public sector. 6 Excluded from this performance criterion are normal import-related credits.
17. Supporting material. A comprehensive record of all external debt with original maturity of less than one year owed or contracted by the public sector, with detailed explanations, will be transmitted on a quarterly basis within four weeks of the end of each quarter.
III. Prior Actions and Quantitative Performance Criteria and Benchmarks
18. To monitor policy implementation, a prior action and a number of quantitative benchmarks have been proposed over the course of the program, as well as quantitative performance criteria and benchmarks for end-September 2001 (see Appendix I, Table 1). The prior actions entail (a) the submission to the national assembly of the supplementary budget measures, including the contingency budget to be funded from interim debt relief under the enhanced HIPC Initiative; and (b) the establishment and implementation of a comprehensive accounting framework to monitor expenditure on poverty reduction, including expenditure funded from enhanced HIPC Initiative debt relief. The proposed benchmarks for end-June 2001 will comprise the following: (a) a ceiling on net bank credit to the central government; (b) a ceiling on net domestic assets of the Central Bank of The Gambia; (c) a floor on the basic primary balance of the central government, defined to exclude interest payments and foreign-financed investment spending; (d) the nonaccumulation of external payments arrears; (e) a floor on net official international reserves; (f) a ceiling on new nonconcessional external loans contracted or guaranteed by the public sector for maturities of 1-12 years; and (g) a zero ceiling on the outstanding stock of short-term external public debt owed or contracted by the public sector (excluding normal import-related credits). The criterion on the nonaccumulation of external payments arrears will be applied on a continuous basis. Limits on items (a)-(g) above for end-September 2001 will serve as quantitative performance criteria. In addition, the reform measures indicated in Appendix I, Table 2 have been adopted as structural performance criteria and benchmarks for the program.
IV. Structural Performance Criteria and Benchmarks
19. Lastly, the authorities will notify the African Department of the Fund of developments with respect to structural performance criteria and benchmarks as soon as they occur. The authorities will provide the following documentation, according to dates in Appendix I, Table 2, elaborating the steps taken to (a) establish and begin to implement a comprehensive accounting framework to monitor expenditure on poverty reduction, including expenditure funded from enhanced HIPC Initiative debt relief; (b) extend the mandate of the external debt unit of the Department of State for Finance and Economic Affairs and have it start to also compile publicly guaranteed external debt, other external contingent liabilities of the government, and domestic debt; (c) complete the full installation of the automated system for customs data (ASYCUDA II) and use it also to generate trade data reclassified by economic categories; (d) complete the rebasing of the national accounts to 1998; (e) establish the regulatory framework, issue guidelines, and authorize commercial banks to establish foreign currency deposits; and (f) introduce the book-entry system for treasury bill auctions and finalize plans for introducing longer-term treasury bills and government bonds.
V. Other Elements of the Program
A. Program-Monitoring Committee
20. Definition. The Gambian authorities shall establish a program-monitoring committee composed of senior officials from the Department of State for Finance and Economic Affairs (DOSFEA), the CBG, and other relevant agencies. The committee shall be responsible for monitoring the performance of the program, recommending policy responses, informing the Fund regularly about the progress of the program, and transmitting the supporting materials necessary for the evaluation of performance criteria and benchmarks. The committee shall provide the Fund with a progress report on the program on a monthly basis within four weeks of the end of each month, using the latest available data.
VI. Data Requirements
A. Production and Prices
21. Reporting standard. The monthly disaggregated consumer price index will be transmitted within four weeks of the end of each month.
B. Government Accounts Data
22. Reporting standard. A consolidated budget report of the central government will be transmitted comprising (a) the revenue data by each major item, including that collected by the Commissioner of Taxes and the customs department, as well as privatization's transfers to the budget; (b) details of the recurrent and capital expenditure of the central government; (c) details of budget financing (domestic and external), which will be transmitted on a monthly basis within six weeks of the end of each month; and (d) details on the government's outstanding arrears outstanding, as of end-March 2001, including payments and other arrangements to discharge them (these data will be transmitted on a monthly basis within six weeks of the end of each quarter). The government's arrears amounted to D 23 million as of end-March 2001, while public enterprises owed the government about D 39 million.
C. Monetary Sector Data
23. Reporting standard. The balance sheet of the central bank and the consolidated balance sheets of the commercial banks will be transmitted on a monthly basis within six weeks of the end of each month. The results of the treasury bill auctions will be transmitted on a biweekly basis within five business days. The stocks of government securities, balances in the divestiture account, detailed information on interbank loans (terms, duration, and participating institutions), and interest rate developments will be transmitted on a monthly basis within two weeks of the end of each month.
D. External Sector Data
24. Reporting standard. The following standard will be adhered to: (a) the interbank market exchange rate, as the simple average of the daily-weighted average buying and selling rates, will be transmitted on a weekly basis within five business days of the end of the week; (b) the results of foreign exchange auctions (on a weekly or more frequent basis) will be transmitted on a weekly basis within five business days of the end of each week; and (c) balance of payments data will be transmitted on a quarterly basis within six weeks of the end of each quarter.
1 Details of developments in the first half of 2001 are provided in our previous letter to the Managing Director, dated June 29, 2001, and in the staff report EBS/01/104 (7/2/01).
2 This recovery also reflects action to rescind the improper arrangements that had contributed to nonpayment of customs duty on oil imports by the National Water and Electricity Corporation (NAWEC). Settlement has been reached to clear cross arrears, including D 27 million in customs revenue arrears.
3 Public enterprises that do not require regulation.
4 The other countries that are signatories to the April 2000 Accra Declaration are Ghana, Guinea, Liberia, Nigeria, and Sierra Leone.
5 This performance criterion applies not only to debt as defined in point no. 9 of the "IMF Guidelines on Performance Criteria with Respect to Foreign Debt" (adopted by the Executive Board of the Fund on August 24, 2000), but also to commitments contracted or guaranteed for which value has not been received.
6 The term "debt" has the meaning set forth in point no. 9 of the "IMF Guidelines on Performance Criteria with Respect to Foreign Debt," adopted on August 24, 2000.