IMF Executive Board Approves US$21 Million PRGF Arrangement for The Gambia and Additional Interim Assistance under the HIPC Initiative

Press Release No. 07/28
February 21, 2007

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF)1 for The Gambia in an amount equivalent to SDR 14 million (about US$21 million and 45 percent of quota) in support of the government's economic program into 2009. The first disbursement under the PRGF arrangement will be in an amount equivalent to SDR 2 million (about US$3 million).

In addition, the Board granted additional interim assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in an amount equivalent to SDR 0.36 million (about US$0.5 million).

Following the Executive Board's discussion on The Gambia, Mr. Murilo Portugal, Deputy Managing Director and Acting Chairman, stated:

"The Gambian authorities are to be commended for successfully stabilizing the economy over the last three years. A tightening in monetary policy helped to stabilize the exchange rate and to lower the annual rate of inflation to single-digit levels. Prudent macroeconomic policies and increased external financing helped real GDP growth recover from a drought-induced decline in 2002 to average about 6 percent annually during 2003-06.

"Notwithstanding the recent achievements, The Gambia continues to face formidable economic challenges including widespread poverty, vulnerability to exogenous shocks, and a heavy public debt burden. The program supported by the new three-year arrangement has been designed to consolidate macroeconomic stabilization while also addressing the above challenges. It is based on the authorities' recently completed second Poverty Reduction Strategy Paper that integrates the Millennium Development Goals into its objectives.

"Maintaining fiscal discipline will be critical to the achievement of the program's medium-term macroeconomic objectives. In particular, containing the government's domestic borrowing requirement is needed to help lower real interest rates from their current very high levels, and thus stimulate private investment as well as create fiscal space for increasing priority government expenditures.

"The authorities are taking steps to strengthen public financial management and accountability. The launching of the Integrated Financial Management Information System in January 2007 is a key step in improving budget execution and monitoring, and should facilitate the establishment of an effective commitment control system and better alignment of budget execution with PRSP priorities.

"The Central Bank of The Gambia (CBG) deserves commendation for enhancing its monetary operations and for the steps it has taken to address the breakdown in internal controls that led to monetary policy lapses in the early 2000s. The program includes measures to tackle remaining weaknesses and vulnerabilities, and to strengthen the operational independence of the CBG.

"The proposed policies and external debt relief are expected to help The Gambia achieve debt sustainability. Satisfactory implementation of the PRGF-supported program for at least six months is one of the pre-requisites for The Gambia to reach completion point under the enhanced initiative for Heavily Indebted Poor Countries and to become eligible for assistance under the Multilateral Debt Relief Initiative. The authorities have indicated their commitment to fully implement the program," Mr. Portugal said.



ANNEX

Background

The Gambia's macroeconomic performance has improved significantly over the last few years. Real GDP growth recovered from a drought-induced decline in 2002 to average about 6 percent annually during 2003-2006, outpacing estimated 2.8 percent annual population growth. The fastest growing sectors were hotels and restaurants (reflecting increased tourist arrivals), construction, and telecommunications. The authorities also succeeded in reducing inflation from a peak 21 percent per year in August 2003 to annual rates below 3 percent since June 2005. Fiscal performance in 2006 was stronger than the previous year, but not as strong as envisaged in the budget on account of expenditure overruns associated with an African Union summit held in Banjul in July. The economy has stayed relatively competitive in spite of a slight appreciation of the nominal and real exchange rates.

Program Summary

The primary objectives of the program are to consolidate recent macroeconomic achievements and promote sustained high growth and poverty reduction. The program draws on the authorities' recently completed second Poverty Reduction Strategy Paper (PRSP II), which integrates the Millennium Development Goals (MDGs) into its objectives. It targets annual growth of 6-7 percent between 2007 and 2009, annual inflation in the range of 2-4 percent, and fiscal basic balance surpluses of about 3 percent of GDP a year to reduce domestic public debt to a sustainable path. Based on indications from donors, the program projects a significant increase in net external financing which will allow for increased growth-promoting and poverty-reducing government spending. Structural reforms include measures to enhance internal controls and operational independence of the central bank to underpin macroeconomic stability, strengthen public financial management and accountability to ensure that public resources are used effectively and efficiently, and deepen financial intermediation.


The Gambia: Selected Economic and Financial Indicators, 2004-11

2004 2005 2006 2007 2008 2009 2010 2011
    Est. Proj. Proj. Proj. Proj. Proj.

  (Annual percentage changes, unless otherwise indicated)

National income and prices

               

Nominal GDP (millions of dalasis)

12,042 13,182 14,248 15,732 17,261 18,894 20,637 22,540

Nominal GDP

20.1 9.5 8.1 10.4 9.7 9.5 9.2 9.2

GDP at constant prices

7.0 5.1 6.5 7.0 6.0 6.0 6.0 6.0

Consumer price index (period average)

14.2 3.2 1.5 3.2 3.5 3.2 3.0 3.0

Consumer price index (end of period)

8.0 1.8 2.0 3.5 3.5 3.0 3.0 3.0
                 

External sector

               

Exports, f.o.b.1

10.5 -5.7 31.5 3.4 6.3 1.5 10.0 4.9

Of which: domestic exports

47.5 -72.4 276.7 3.9 7.3 5.0 11.1 11.8

Imports, f.o.b.1

46.2 9.8 11.8 10.8 3.7 3.0 6.5 3.1

Terms of trade2

-10.2 -14.3 -7.5 2.2 3.5 3.4 3.2 1.8

Nominal effective exchange rate (period average)3

-11.3 4.2 1.9 ... ... ... ... ...

Real effective exchange rate (period average)3

-1.2 4.5 0.2 ... ... ... ... ...
                 

Money and credit

(Percent change in beginning-of-year broad money)
                 

Broad money

18.3 13.1 16.5 13.3 12.0 10.0 9.8 9.8

Net foreign assets

28.8 0.3 7.4 9.9 3.9 4.0 2.8 2.9

Net domestic assets

-10.5 12.8 9.1 3.3 8.1 6.1 7.1 6.9

Credit to the government (net)4

-10.6 6.3 6.2 0.0 -1.2 -0.9 -2.2 -2.7

Credit to the private sector and public enterprises

-6.5 5.5 9.1 5.9 5.9 5.7 6.0 6.1

Claims on foreign exchange bureaus

-1.2 0.0 -0.6 -0.4 -0.3 -0.2 -0.2 -0.1

Other items net

7.7 1.0 -5.6 -2.2 3.7 1.5 3.5 3.6
                 

Velocity (GDP/average broad money)

2.4 2.3 2.1 2.1 2.0 2.0 2.0 2.0

Yield on treasury bills (percent per year)5

28.0 12.5 10.7 ... ... ... ... ...
                 

Gross domestic investment and savings

(Percent of GDP)
                 

Gross investment

26.7 25.7 23.1 26.2 23.1 22.4 21.3 20.2

Gross domestic savings

0.8 -2.6 1.0 3.6 2.9 3.3 3.5 3.8

Gross national savings

14.1 5.5 8.7 13.3 11.4 11.7 11.0 10.5
                 

Central government budget

               

Domestic revenue

20.9 19.7 21.6 21.3 21.3 21.2 21.3 21.2

Grants

4.5 1.7 0.8 8.6 5.0 4.5 4.2 3.8

Total expenditure and net lending

31.1 30.0 27.1 28.4 27.4 26.5 25.3 24.8

Overall balance, including grants

-5.7 -8.6 -4.7 1.4 -1.1 -0.7 0.2 0.2

Basic balance6

2.4 -0.1 1.3 3.1 2.4 2.6 3.2 3.0

Basic primary balance7

9.6 8.5 7.9 8.3 6.6 5.9 6.0 5.3

Net foreign financing

5.7 5.5 2.2 1.1 2.6 1.5 1.8 1.8

Net domestic financing

0.5 3.7 2.4 -2.5 -1.5 -0.8 -2.0 -2.0
                 

Stock of domestic public debt

32.9 35.5 31.6 30.3 26.4 23.1 19.0 15.2
                 

External sector

               

Current account balance

               

Excluding official transfers

-21.2 -25.3 -18.3 -21.9 -19.3 -17.7 -16.8 -15.6

Including official transfers

-12.6 -20.2 -14.3 -12.9 -11.7 -10.7 -10.4 -9.7
                 
  (Millions of U.S. dollars, unless otherwise indicated)
                 

Current account balance

               

Excluding official transfers

-84.9 -116.7 -92.5 -121.9 -117.0 -116.4 -119.8 -121.0

Including official transfers

-50.7 -93.0 -72.7 -72.1 -70.7 -70.5 -74.1 -75.4
                 

Overall balance of payments

32.9 14.6 8.9 16.1 -0.6 1.1 -1.6 0.2

Gross official reserves

84.0 96.6 101.5 109.5 120.5 133.0 139.0 143.0

In months of imports, c.i.f.

4.3 4.5 4.2 4.1 4.3 4.6 4.6 4.6
                 

External public debt

               

Stock

580.7 614.7 633.3 249.9 254.8 263.1 271.2 280.1

Stock (percent of GDP)

144.8 133.2 125.0 44.9 42.1 40.0 37.9 36.0

Net present value of debt (percent of exports)8

... 215.4 128.0 82.7 82.2 84.7 84.3 85.7

External debt service (percent of exports)8

21.0 24.0 20.8 17.2 10.1 12.9 10.1 8.9
                 

Use of Fund resources

(Millions of SDRs)
                 

Purchases/disbursements

0.0 0.0 0.0 4.0 4.0 4.0 2.0 0.0

Repurchases/repayments

-7.6 -1.4 -2.7 -11.4 0.0 0.0 0.0 0.0

Credit outstanding

15.9 14.6 11.8 ... ... ... ... ...

Sources: Gambian authorities; and IMF staff estimates and projections.

1Computed based on values in U.S. dollars.

2Excluding reexports and imports for reexport.

3Data for 2006 represent as of October 2006.

4Including advances to the government in foreign currencies.

5Weighted average for all maturities based on weekly auction data. Data shown for 2006 are for November.

6Defined as domestic revenue minus expenditure and net lending, excluding externally financed capital expenditure.

7Defined as domestic revenue minus expenditure and net lending, excluding interest payments and externally financed capital expenditure.

8Exports of goods and nonfactor services (not including re-exports).


1 The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.



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