## _cr0442 ## Source details **Canonical URL:** [_cr0442](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0442.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0442.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0442.pdf.json) --- ### Background and recent economic developments - The Gambia requested a three-year Poverty Reduction and Growth Facility (PRGF) arrangement in the amount of SDR 20.22 million (65 percent of quota). - Recent political/institutional context: - Presidential, national assembly, and local elections were conducted in late 2001 and early 2002. - The PRSP was forwarded to the Fund and World Bank in May 2002. - Progress in the settlement of the property dispute with Alimenta was noted. - 2001 macro outturns: - Real GDP growth: 6 percent in 2001. - Inflation (consumer price index): 4½ percent in 2001. - External current account deficit (excluding official transfers) widened to 14.8 percent of GDP from 12.1 percent in 2000 (one-time importation of electricity generators noted). - Fiscal deficit (excluding grants): increased to 8¾ percent of GDP from 3½ percent in 2000. - Broad money (M2) growth: moderated to 19.4 percent in 2001 from 35 percent in 2000. - Stock of domestic debt: rose to about 34 percent of GDP due to increased government domestic borrowing. - Early 2002 developments: - Q1 2002 dominated by expansionary fiscal policies; expenditure overruns of about 2 percent of GDP due to election-related outlays (mainly financed from BTL accounts). - Revenues broadly on target in Q1 2002; net government credit moderation linked to project disbursements. - Dalasi depreciated by 5 percent against the U.S. dollar in early 2002 due to delays in groundnut export receipts and tightened border controls. ### Macroeconomic framework and objectives (2002–05) - Medium-term objectives (consistent with the PRSP): - Annual real GDP growth of about 6 percent. - Average inflation of about 3¾ percent per annum. - External current account deficit (excluding official transfers) of 10 percent of GDP by 2005. - Gross external reserves of about 5¼ months of imports of goods and services. - Overall budget deficit (excluding grants) expected to decline to 5 percent in 2002 and about 2 percent by 2005. - Investment and saving-investment targets: - Total investment envisaged to rise from 17¾ percent of GDP in 2001 to 22 percent in 2005 (alternate projection in text to 27¼ percent by 2005 noted in one section). - Government investment envisaged to rise from 4¾ percent to 7 percent (alternate projection to 12¼ percent by 2005 appears in program text). - Envisaged increase in government saving-investment balance of 5 percentage points of GDP (or 7 percentage points in alternate projection) to improve external current account. ### Fiscal developments, risks, and immediate fiscal measures - 2001 fiscal slippages and composition: - Overall budget deficit (excluding grants): 8¾ percent of GDP in 2001 (revised program target was 5.9 percent). - Including grants, deficit increased to 7.6 percent of GDP from 3 percent in 2000. - One-off government expenditures: D 15 million to rehabilitate former Alimenta assets; US$6.7 million payment for Alimenta settlement in 2001; nonprogrammed on-lending to a public enterprise for electricity; election-related BTL outlays. - Revenue shortfalls included customs shortfall of 1.3 percent of GDP; domestic revenue declined to 16.2 percent of GDP in 2001 from 18.2 percent in 2000. - Government domestic debt increased to 33½ percent of GDP at end-2001 from 31½ percent at end-2000. - Measures to contain expansionary fiscal policies and program actions: - Improve tax administration: curtail exemptions, collect arrears, close loopholes. - Strict controls on expenditure from below-the-line accounts; effective May 2002 all expenditure from BTL accounts require proper documentation and reporting. - Slow project execution where appropriate; comprehensive mid-year budget review planned. - Prior actions implemented: CBG board resolution supporting reforms; initiation of review of the Central Bank Act; audit of 2001 Customs and Excise Department. - Public enterprises and arrears: - As of end-January 2002, government arrears to PEs: D 43.5 million (0.7 percent of GDP); PEs owed government about D 138 million. - Quarterly targets agreed to eliminate cross arrears by mid-2003; cabinet paper prepared for PE settlement program. ### Monetary policy, banking developments, and financial sector reform - Monetary and banking developments: - Net credit to government increased by 8.3 percent of GDP through end-2001; credit to private sector increased by 12.8 percent. - Broad money growth moderated to 19.4 percent in 2001 from about 35 percent in 2000. - Treasury bill rate rose from 12½ percent in August to 15 percent by October 2001. - End-September 2001 quantitative performance criterion on net bank credit to the government exceeded by some D 40 million (0.7 percent of GDP); waivers granted for unmet criteria. - Continent Bank: central bank took over in January 2002; at end-March 2002 the bank had about 20,000 depositors and total deposits amounted to D 71.9 million; KPMG contracted to audit the bank; CBG working on a resolution plan. - Financial sector reform priorities and CBG actions: - Emphasize expanded use of indirect policy instruments and enhanced supervision; Fund technical assistance leveraged under TCAP. - CBG measures triggering access to TA include board resolution, Central Bank Act review, revision of Financial Institutions and Insurance Bills, liquidity forecasting, book-entry system operation, revised foreign currency deposit prudential regulations, and staffing fills. - Nonperforming loans declined to 6.8 percent of total outstanding loans by end-March 2002 from 13.6 percent in June 2000; provisioning for nonperforming loans at end-March 2002 remained above 90 percent of such loans in 2001. - Government to encourage banks to maintain capital adequacy ratios above legal requirement of 8 percent. ### External sector developments, reserves, and projections - 2001 external outturns: - External current account deficit (excluding official transfers): about 14¾ percent of GDP in 2001 (alternate figures 14.8 percent or 14% in various excerpts preserved). - Gross official reserves declined to equivalent of about five months of imports (4.9 months noted) due to nondisbursement of donor grants (1.6 percent of GDP); decline contributed to dalasi depreciation of 8 percent in real effective terms in 2001. - Dalasi depreciated by 5 percent vis-à-vis the U.S. dollar in early 2002 despite central bank sales of foreign exchange. - External debt and HIPC: - External debt about 125 percent of GDP (alternate figure 126.9 percent of GDP for 2001 in later text). - Debt-service ratio after enhanced HIPC assistance will fall from about 13¼ percent of exports of goods and nonfactor services in 2002 to 8¼ percent by 2005. - Fund interim assistance under enhanced HIPC: SDR 0.8 million approved; government to use remaining interim assistance to meet Fund obligations in 2002. - External projections and financing: - External current account deficit (excluding official transfers) projected to decline to about 13¼ percent of GDP in 2002 and to about 10¼ percent by 2005. - Gross official reserves projected at SDR 87.7 million in 2002 (about five months of import cover). - Financing gap for 2002: SDR 10.3 million (SDR 76.5 million including PRSP-related funding gaps for 2002–05), expected to be covered by Fund and donor assistance; donor roundtable planned. ### Structural reforms, tax reform (Box 3), and PRSP linkage - Tax reform assessment and recommendations: - 2001 tax revenue: 15.8 percent of GDP. - Re-export trade accounts for 40 percent of customs revenue and 70 percent of sales tax revenue; advised against VAT introduction because re-export exemptions would substantially reduce revenue. - Two-phased approach: - Phase 1 (short-term): improved customs valuation via exchange rate adjustments; improved oil import data; closure of loopholes allowing tax arrears; enhanced surveillance to reduce discretionary exemptions — resulted in broadly on-target revenue in Q1 2002. - Phase 2 (longer-term): collect accumulated tax arrears (D 32 million = 0.5 percent of GDP), transfer domestic sales tax unit to Inland Revenue Department, computerization including ASYCUDA upgrade, redraft Income Tax Act with Fund TA. - MEFP planned actions expected to improve domestic revenue to about 17½ percent of GDP (from 16.2 percent in 2001); target for 2005 revenue: about 18½ percent of GDP. - D 32 million estimated to be repaid in 2002 as part of arrears recovery; D 25 million from divestiture account to be transferred in 2002 to reduce government domestic debt. - PRSP and poverty focus: - SPA II (PRSP) prepared and presented May 2002; program pillars: create environment for sustained growth (rural agriculture income generation) and increase public resource allocation and delivery of social services. - PERs and costing of priorities delayed; 2002 budget relied on ad hoc arrangements to allocate expenditures to key social sectors. - Tracking poverty-reducing expenditure: AAP developed; special central bank account opened for HIPC-funded outlays; first biannual reports (May and November) to become operational in 2002. ### Program monitoring, conditionality, and TA (Box 6 and TMU) - Structural conditionality coverage (five areas): - Completion of Stage I of Household Survey (dry season) and CPI update. - Expand ASYCUDA networking for automatic trade data generation. - Completion of second report on poverty-reducing expenditure. - Quarterly schedule for eliminating government-public enterprise cross arrears (cabinet paper completed end-May 2002). - Completion of enterprise survey to support IIP compilation. - Prior actions before PRGF papers: - (a) CBG Board resolution in support of reforms; (b) initiation of a review of the Central Bank Act; (c) audit of 2001 operations of Customs and Excise Department. - Quantitative performance criteria and reporting (Technical Memorandum of Understanding, as of May 8, 2002): - Quantitative criteria include ceilings on net bank credit to government; ceiling on net domestic assets (NDA) of CBG; floor on basic primary balance of central government; nonaccumulation of external payments arrears; minimum net official international reserves (NIR); limit on new nonconcessional external loans (maturities 1–12 years); zero ceiling on short-term external public debt. - Detailed definitions and reporting frequencies specified for NIR, NDA, net claims on central government by CBG, basic primary balance, external payments arrears, new nonconcessional external public sector debt, and outstanding short-term external public debt. - Program-monitoring committee to be established (senior officials from DOSFEA, CBG, and other agencies) to provide monthly progress reports within four weeks of month-end. - Technical Cooperation Action Plan (TCAP): - TCAP prepared to coordinate Fund TA covering public expenditure management, tax policy and administration, monetary/FX operations, financial sector supervision, and macro data; DFID, World Bank, UNDP, and other donors involved. ### Data and statistical capacity - Substantial weaknesses noted in national accounts, balance of payments, and external debt statistics; reporting delays and poor quality hamper analysis. - CSD constraints: manpower shortages, CPI basket outdated (weights based on 1976/77 survey), base year not rebased (current base 1976/77). - STA and Fund TA missions provided assistance: national accounts, CPI, monetary and financial statistics, balance of payments; CBG established balance of payments unit and improved surveys and databases. - Participation in GDDS; metadata on DSBB; efforts under way to improve timeliness and quality of key monthly and quarterly data (government accounts, CBG balance sheet, treasury bill auction results, exchange rates, BOP data). ### Staff appraisal, risks, and recommendations (selected) - Staff welcomes PRSP and authorities’ actions to address slippages; recommends Executive Board approve the three-year PRGF arrangement. - Policy recommendations: - Strengthen fiscal discipline and tax administration; enforce elimination of tax and other arrears by public enterprises. - Maintain strict controls on BTL accounts and improve budgetary transparency and accountability (appoint Auditor General; resume timely auditing of public accounts). - Continue prudent monetary policy with expanded use of indirect instruments and strengthened supervision; resolve Continent Bank issue expeditiously. - Consolidate structural reforms to stimulate private sector activity: improve business legislation, regulation of public enterprises, privatization process, and establish sustainable groundnut marketing arrangement with minimal government involvement. - Improve macroeconomic and social data (national accounts, prices, fiscal and external sectors); strengthen social and poverty database and solicit views of the poor. ### Selected key numeric indicators and projections (preserved exactly as in source) - PRGF request: SDR 20.22 million (65 percent of quota). - If full three-year PRGF disbursed and taking into account scheduled repayments, The Gambia’s use of Fund resources would rise from 66.3 percent of quota at end-2001 to 124.6 percent of quota at end-2005. - Real GDP (selected): 1998-2001 average 5.3; 2002 prog. 6.0; 2003 proj. 6.0; 2004 proj. 6.0; 2005 proj. 6.2. - Groundnut production (metric tons / thousand metric tons variation in text): 1998-2001 120.9; 2002 prog. 125.0; 2003 proj. 128.0; 2004 proj. 130.0; 2005 proj. 135.0. (Alternate figures: 2001 = 141.4; 2002 proj. = 161.0 in concluding summary.) - Consumer price index (end of period / period average variations preserved): 1998-2001 2.5; 2002 prog. 5.5; 2003 proj. 4.0; 2004 proj. 3.0; 2005 proj. 3.0. (Concluding summary: Consumer price index (period average): 2001 = 4.0; 2002 projected = 3.0; annual inflation through April 2002 = about 5.6 percent.) - Exports, f.o.b.: 1998-2001 8.1; 2002 prog. 8.2; 2003 proj. 4.5; 2004 proj. 3.5; 2005 proj. 5.0. - Imports: 1998-2001 5.7; 2002 prog. 2.7; 2003 proj. 3.6; 2004 proj. 1.9; 2005 proj. 2.5. - M2 growth: 1998-2001 17.0; 2002 prog. 13.2; 2003 proj. 9.9; 2004 proj. 9.6; 2005 proj. 9.3. - Fiscal balance, excl. grants (percent of GDP): 1998-2001 -5.4; 2002 prog. -5.0; 2003 proj. -2.7; 2004 proj. -2.3; 2005 proj. -2.1. - External current account balance, excl. off. grants (percent of GDP): 1998-2001 -12.6; 2002 prog. -13.2; 2003 proj. -12.1; 2004 proj. -11.6; 2005 proj. -10.2. - Gross official reserves (million of SDRs): 1998-2001 80.3; 2002 prog. 87.7; 2003 proj. 93.8; 2004 proj. 100.2; 2005 proj. 105.1. - Reserves in months of imports: 1998-2001 5.5; 2002 prog. 5.1; 2003 proj. 5.3; 2004 proj. 5.5; 2005 proj. 5.6. - Additional headline figures preserved: - Overall budget deficit (excluding grants) 2001: 8¾ percent of GDP (alternate reports: 8.7 percent of GDP; 8 % percent of GDP in various excerpts). - Domestic revenue 2001: 16.2 percent of GDP. - Government domestic debt: 33½ percent of GDP at end-2001. - Broad money growth at end-April 2002: 22¾ percent; at end-March 2002: 25 percent. - Outstanding stock of treasury bills: end-May D 1883 million; end-2001 D 1919 million. - European Commission release: € 3.7 million; Financing Agreement: € 4.255 million (including 15 percent enhanced HIPC augmentation). - Paris Club technical arrears reported by a creditor: about US$7 million. - First PRGF disbursement: SDR 2.89 million (about US$4 million) (alternate phrasing: about US$3.8 million). - PRGF interest terms: annual interest rate of 0.5 percent; repayable over 10 years with a 5 1/-year grace period on principal payments. *Source: IMF staff report and Executive Board decision materials contained in the "Executive Summary" and annexed boxes of the PRGF/Article IV documentation (2002) as provided in the supplied content.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Background and recent economic developments - The Gambia is requesting a three-year Poverty Reduction and Growth Facility (PRGF) arrangement in the amount of SDR 20.22 million (65 percent of quota). The staff report also covers the 2002 Article IV consultation discussions. - Recent political and institutional context: - Presidential, national assembly, and local elections were conducted in late 2001 and early 2002. - The PRSP was forwarded to the Fund and World Bank in May 2002. - Progress in the settlement of the property dispute with Alimenta (a Swiss groundnut marketing company) was noted. - 2001 macroeconomic outcomes: - Real GDP growth: 6 percent in 2001. - Inflation (consumer price index): 4½ percent in 2001. - External current account deficit (excluding official transfers) widened to 14.8 percent of GDP from 12.1 percent in 2000, mainly reflecting the one-time importation of electricity generators. - Fiscal deficit (excluding grants) increased to 8¾ percent of GDP from 3½ percent in 2000, owing to shortfalls in customs revenue and one-off expenditures (settlement of Alimenta property dispute, on-lending to a public enterprise, and election-related expenditure overruns). - Broad money (M2) growth moderated to 19.4 percent in 2001 from 35 percent in 2000. - Stock of domestic debt rose to about 34 percent of GDP due to increased government domestic borrowing. - Early 2002 developments: - First quarter of 2002 dominated by further expansionary fiscal policies; expenditure overruns of about 2 percent of GDP due to election-related outlays. - Revenues broadly on target; net government credit expansion moderated by project disbursements. - Delays in receipts of groundnut exports and border controls that impeded the re-export trade exerted pressure on the dalasi, which depreciated by 5 percent against the U.S. dollar. ### Macroeconomic framework for 2002–05 - Key medium-term objectives (consistent with the PRSP): - Annual real GDP growth of about 6 percent. - Average inflation of about 3¾ percent per annum. - External current account deficit (excluding official transfers) of 10 percent of GDP by 2005. - Gross external reserves of about 5¼ months of imports of goods and services. - Overall budget deficit (excluding grants) expected to decline to 5 percent in 2002 and about 2 percent by 2005. - Policy focus: - Structural reforms to promote broad-based economic growth in a low-inflation environment and contribute to durable poverty reduction (consistent with the PRSP). - Fiscal policy to improve tax administration and reorient expenditure to social sectors and infrastructure, underpinning a tight monetary policy with adequate private sector credit provision. - Prior actions under the program: - A Central Bank of The Gambia board resolution in support of the reforms recommended by the December 2001 Fund technical mission. - Initiation of a review of the Central Bank Act. - An audit of the 2001 operations of the Customs and Excise Department. - Measures to contain expansionary fiscal policies: - Improved tax administration to curtail exemptions, collect arrears, and close loopholes. - Strict controls on expenditure from below-the-line accounts and slowing down of certain projects. - Nonrecurring 2001 expenditures expected to be a factor in containing the deficit. ### Issues highlighted in the staff appraisal - Fiscal policy and public finance: - Staff welcomes authorities’ efforts to address fiscal slippages; these need to be complemented by broad reforms to strengthen tax and budget systems. - Monetary and financial sector reform: - Envisaged broad-based reforms should emphasize expanded use of indirect policy instruments and enhanced supervision of institutions, leveraging Fund technical assistance. - Consolidation and broadening of structural reforms remain key to stimulating private sector activity (improve business legislation, regulation of public enterprises, and the privatization process). - Groundnut sector and privatization: - Former Alimenta assets should be sold to competing firms as part of broader groundnut sector reforms. - PRSP and governance: - Staff welcomes the PRSP as providing essential building blocks for the PRGF-supported program. - Authorities are encouraged to strengthen mechanisms to solicit the views of the poor, including through the governance program. - Staff welcomes steps to strengthen implementation of broad-based structural reforms and better coordination of donor technical assistance (Fund contributing via the Technical Cooperation Action Plan (TCAP)). - Data and statistics: - Despite progress, staff urges continued efforts to enhance timeliness and quality of data, especially in national accounts and prices, and the fiscal and external sectors. - Recommendation: - On the basis of positive economic and financial developments, authorities’ efforts to address slippages, adoption of an appropriate macroeconomic framework for 2002–05, and implementation of prior actions, staff recommends that the Executive Board approve The Gambia’s request for a new three-year PRGF arrangement. ### Selected numeric indicators and projections (as presented) - PRGF request: SDR 20.22 million (65 percent of quota). - If full three-year PRGF disbursed and taking into account scheduled repayments, The Gambia’s use of Fund resources would rise from 66.3 percent of quota at end-2001 to 124.6 percent of quota at end-2005. - Selected historical and projected indicators (excerpt): - Real GDP: 1998-2001 average 5.3; 2002 prog. 6.0; 2003 proj. 6.0; 2004 proj. 6.0; 2005 proj. 6.2. - Groundnut production (metric tons): 1998-2001 120.9; 2002 prog. 125.0; 2003 proj. 128.0; 2004 proj. 130.0; 2005 proj. 135.0. - Consumer price index (end of period): 1998-2001 2.5; 2002 prog. 5.5; 2003 proj. 4.0; 2004 proj. 3.0; 2005 proj. 3.0. - Exports, f.o.b.: 1998-2001 8.1; 2002 prog. 8.2; 2003 proj. 4.5; 2004 proj. 3.5; 2005 proj. 5.0. - Imports: 1998-2001 5.7; 2002 prog. 2.7; 2003 proj. 3.6; 2004 proj. 1.9; 2005 proj. 2.5. - M2 growth: 1998-2001 17.0; 2002 prog. 13.2; 2003 proj. 9.9; 2004 proj. 9.6; 2005 proj. 9.3. - Fiscal balance, excl. grants (in percent of GDP): 1998-2001 -5.4; 2002 prog. -5.0; 2003 proj. -2.7; 2004 proj. -2.3; 2005 proj. -2.1. - External current account balance, excl. off. grants (in percent of GDP): 1998-2001 -12.6; 2002 prog. -13.2; 2003 proj. -12.1; 2004 proj. -11.6; 2005 proj. -10.2. - Gross official reserves (in million of SDRs): 1998-2001 80.3; 2002 prog. 87.7; 2003 proj. 93.8; 2004 proj. 100.2; 2005 proj. 105.1. - Reserves in months of imports: 1998-2001 5.5; 2002 prog. 5.1; 2003 proj. 5.3; 2004 proj. 5.5; 2005 proj. 5.6. *Source: IMF staff report, "Executive Summary" (2002) contained in the PRGF/Article IV documentation.* ### 8. In the fiscal area, the overall budget deficit (excluding grants) reached 8¾ percent of ### _cr0442 - 8. In the fiscal area, the overall budget deficit (excluding grants) reached 8¾ percent of ### Fiscal developments (2001–early 2002) - Overall budget deficit (excluding grants) reached 8¾ percent of GDP in 2001, compared with the revised program target of 5.9 percent. - Including grants, the deficit increased to 7.6 percent of GDP from 3 percent in 2000. - Government incurred sizeable one-off expenditures, including: - D 15 million to rehabilitate the former Alimenta assets to facilitate groundnut marketing. - Nonprogrammed government on-lending to a public enterprise to improve generation and distribution of electricity. - Election-related outlays, largely from below-the-line (BTL) accounts. - Revenue shortfalls included customs revenue shortfall of 1.3 percent of GDP, reflecting weak tax administration and financial problems of public enterprises that built up sizable arrears to the government. - Domestic revenue declined to 16.2 percent of GDP in 2001 from 18.2 percent in 2000. - Outlays for the settlement of the Alimenta dispute amounted to US$6.7 million in 2001. - Delayed receipt of donor grants (1.6 percent of GDP) contributed to higher domestic interest payments and larger-than-programmed recourse to net bank financing. - Government domestic debt increased to 33½ percent of GDP at end-2001 from 31½ percent at end-2000. ### Monetary and banking developments - End-September 2001 quantitative performance criterion on net bank credit to the government was exceeded by some D 40 million (0.7 percent of GDP). - Through end-2001, net credit to the government increased by 8.3 percent of GDP, significantly above the target; credit to the private sector increased by 12.8 percent. - Broad money growth moderated to 19.4 percent in 2001 from about 35 percent in 2000, reflecting measures to mop up banks’ excess reserves. - Treasury bill rate increased from 12½ percent in August to 15 percent by October 2001. - A waiver of the performance criterion was granted by the Executive Board during the final review of the third annual arrangement under the PRGF. - In January 2002, the central bank took over Continent Bank; at end-March 2002 the bank had about 20,000 depositors and total deposits amounted to D 71.9 million. An international accounting firm, KPMG, was contracted to audit the bank. ### External sector and exchange rate - Surge in imports, including unprogrammed importation of three electricity generators (funded by a donor concessional loan and supplier’s credit), contributed to external developments. - Current account deficit (excluding official transfers) widened to about 14: percent of GDP in 2001 from 12 percent in 2000. - Nondisbursement of donor grants (1.6 percent of GDP) was the main factor explaining the decline in gross official reserves to the equivalent of 4.9 months of imports and contributed to a further depreciation of the dalasi by 7 percent in real effective terms in 2001. - The current account deficit, including official transfers, increased to 6¾ percent of GDP from 4¾ percent in 2000. - In early 2002, delays in receipts of groundnut exports and tightening of border controls impeded reexport trade; the dalasi depreciated by 5 percent vis-à-vis the U.S. dollar despite sizable sales of foreign exchange by the central bank. - The end-March 2002 indicative target on net official international reserves was not observed. ### Structural reforms and public expenditure management - Significant progress: all but one PRGF-supported program structural benchmarks were implemented (some with delays). The exception was rebasing national accounts to 1998 (currently based on 1976/77), delayed due to inadequate personnel. - Budgetary reforms aimed to enhance transparency and strengthen reporting and control, assisted by the Fund resident budget advisor. - July 2001 Fund TA mission developed an Assessment and Action Plan (AAP) to strengthen capacity for tracking poverty-reducing expenditure, including outlays funded by interim debt relief under the enhanced HIPC Initiative. - Progress highlighted in Box 1 (public expenditure management reforms): - Public accounts for 1991/92-99 were closed in 2001. - An accounting framework to track poverty-reducing expenditure, including HIPC-funded outlays, was developed and incorporated in the 2002 budget. - A special central bank account was opened to monitor expenditure funded from debt relief under the enhanced HIPC Initiative. - Spreadsheet-based framework developed to reconcile treasury cash books with central bank accounts. - Measures taken to bring a number of BTL accounts under budgetary control and reporting, including quarterly ceilings for those funded mainly from the Consolidated Revenue Fund. - IFMIS computerization initiated under World Bank’s CBEMP; an IFMIS resident advisor was posted in March 2002. - Commonwealth Secretariat assisted in payroll computerization; World Bank and United Kingdom supported PERs in agriculture, education, and health. - Resident Fund macroeconomic advisor (since April 2002) helping develop capacity to project budgetary aggregates. - Support to strengthen Auditor General’s Office and participation in the General Data Dissemination System (GDDS). - Development of public expenditure reviews (PERs) and costing of priorities was delayed despite donor TA; the 2002 budget (approved December 17, 2001) relied on ad hoc arrangements to allocate expenditures to key social sectors (agriculture, education, health). ### Medium-term macroeconomic framework (2002/03–2004/05) - Key objectives: - Annual real GDP growth of about 6 percent. - Average inflation of about 3¾ percent per annum. - External current account deficit (excluding official transfers) of 10¼ percent of GDP by 2005. - Gross external reserves equivalent to 52 months of imports of goods and services. - Overall budget deficit (excluding grants) expected to decline to about 2 percent by 2005. - Investment targets: - Total investment envisaged to rise from 17¾ percent of GDP in 2001 to 22 percent in 2005. - Government investment envisaged to rise from 4¾ percent to 7 percent over that period. - Envisaged increase in government saving-investment balance of 5 percentage points of GDP to contribute to external current account improvement. ### Program for 2002/03 and immediate policy actions - Given expenditure overruns through end-March 2002, immediate actions to contain outlays were emphasized: - Maintain tighter controls on BTL accounts; effective May 2002 all expenditure from BTL accounts require proper documentation and reporting. - Slow project execution where appropriate. - Authorities sought grants to finance Mandinaba-Soma road construction; as of early June 2002, US $1.6 million in grants had been disbursed to mitigate budgetary pressures. - Comprehensive mid-year budget review planned to curtail expenditure and disbursements in second half of 2002, especially where overruns occurred. - Revenue-side actions: - Phase one measures implemented that significantly enhanced revenue performance in the first quarter of 2002, with intent to follow up with phase two reform measures. - Quantitative indicative targets for end-March 2002 on basic primary balance of central government and net domestic assets of the central bank were not observed. ### Political and donor context - Completed presidential (October 2001), national assembly (January 2002), and local (April 2002) elections. - March 2002: United States normalized donor relations and lifted prohibition on economic aid; The Gambia resolved differences with the European Union following government request in late 2001 to replace its representative in Banjul. - World Bank approved CBEMP in July 2001 to strengthen key economic institutions; broader TA program to support PRSP implementation under preparation for donor roundtable later in 2002. - Technical Cooperation Action Plan (TCAP) prepared to coordinate Fund TA to improve macroeconomic policies. *Source: _cr0442 - 8. In the fiscal area, the overall budget deficit (excluding grants) reached 8¾ percent of (PDF).* ### Box 3. The Gambia: Tax Reforms ### Box 3. The Gambia: Tax Reforms ### Background and constraints - Fund technical assistance requested in late 2001 to review and propose reforms for the tax system in light of weakened revenue performance and preparations for the PRSP and the new PRGF-supported program. - Assessment: potential to introduce new taxes is limited; improvements will rely mainly on administrative and institutional capacity actions. - 2001 tax revenue was 15.8 percent of GDP. - The Fund tax policy mission noted The Gambia’s already high “tax effort” by regional standards; taking into account low-level per capita income, The Gambia’s “tax effort” is even higher than Senegal and Cote d’Ivoire. - Re-export trade sector importance: accounts for 40 percent of customs revenue and 70 percent of sales tax revenue. - Given limited domestic manufacturing and the prominence of re-exports, the mission advised against introducing a value added tax (VAT) because a fully functioning VAT would have to exempt re-exports and thus substantially reduce tax revenue. ### Tax policy recommendations and emphasis - Avoid VAT introduction due to likely substantial revenue loss from necessary re-export exemptions. - Emphasize incremental tax policy changes to improve efficiency. - Broaden application of excise taxes, including on services (example given: electricity) consumed by relatively higher income groups. ### Two-phased approach to enhance revenue collection - Phase 1: Quick-fix measures to stem revenue losses (implemented during the mission). - Improved customs valuation based on timely adjustments in the exchange rates. - Improved access to data on oil imports (prices and volume) to provide a more realistic tax assessment. - Closure of loopholes that permitted taxpayers, notably public enterprises, to build up tax arrears. - Enhanced surveillance of tax departments to reduce discretionary tax exemptions. - Result: revenue performance through the first quarter of 2002 was broadly on target. - Phase 2: Longer-term measures to strengthen revenue collection and administration. - Collection of substantial accumulated tax arrears, especially by public enterprises. - A cabinet paper approved in early May 2002 to enhance ministerial discipline to enforce payment of tax and other arrears owed to government. - Transfer of the domestic sales tax unit from the Customs and Excise Department to the Inland Revenue Department. - Continued efforts to improve computerization, including upgrading ASYCUDA. - Redrafting the Income Tax Act with Fund technical assistance. ### Institutional reforms and donor coordination - Authorities increased collaboration with the Fund, the World Bank, and DFID to develop a comprehensive tax reform to strengthen tax administration and institutional capacity. - June 2002 joint Fund/World Bank tax mission worked with local donors and authorities to develop a reform package; details were not available at the time of report finalization. - Revenue reforms are to implement recommendations of recent Fund TA missions supported by the CBEMP. - A joint World Bank/Fund mission visited Banjul in June to assist in formulating a tax reform program incorporating recommendations of the audit of the 2001 operations of the Customs and Excise Department; the audit was carried out in May 2002 with DFID assistance. ### Revenue projections and related fiscal context - MEFP planned actions expected to improve domestic revenue to about 17½ percent of GDP (against 16.2 percent in 2001). - Target for 2005 revenue: about 18½ percent of GDP. - Revenue projections for 2002 incorporate measures to eliminate tax and other arrears by mid-2003; about D 32 million (0.5 percent of GDP) is to be repaid in 2002. - Revised 2002 fiscal target: reduce overall deficit (excluding grants) to 5 percent of GDP (compared with 4 percent in the original budget). - The budget provides for a 6 percent across-the-board increase in the wage bill. - Government provided salary advances payable over a six-month period to all civil servants (0.3 percent of GDP) in February 2002 for the Tobaski festival. - Capital expenditure projected to increase to 5¾ percent of GDP in 2002 (from 4.7 percent in 2001). - Interim debt relief under the enhanced HIPC Initiative: about US$4.4 million; including HIPC-supported expenditure, the deficit is projected at 6¼ percent of GDP. - As part of tax arrears recovery, D 32 million owed by public enterprises equals 0.5 percent of GDP; D 25 million from the divestiture account will be transferred in 2002 to reduce government domestic debt. ### Implementation considerations and expected outcomes - Short-term administrative measures produced broadly on-target revenue performance through Q1 2002. - Longer-term institutional changes (tax unit transfer, computerization, Income Tax Act redraft) expected to strengthen administration but require sustained donor-supported technical assistance. - Comprehensive reform package under development with Fund, World Bank, and DFID involvement; detailed measures pending at time of report finalization. *Source: _cr0442 - Box 3. The Gambia: Tax Reforms* ### Box 5. ### Box 5. The Gambia: External Sector Reforms ### Trade and exchange policy - Authorities committed to a liberal trade and exchange system and will continue to rationalize and reduce external tariffs and pursue a market-based flexible exchange rate. - Tariff reform history and current structure: - In 1998, the maximum tariff rate was lowered from 90 percent to 25 percent for all items except tobacco, alcohol, and vehicles. - In 1999, rates on tobacco, alcohol, and vehicles were reduced from 87 percent to 20 percent. - In 2000, the top maximum external tariff was reduced to 18 percent and the number of tariff bands was reduced to three nonzero bands. - The current tariff rates are 0, 5, 10, and 18 percent. - Exchange rate movements: - The nominal exchange rate depreciated by about 20 percent against the U.S. dollar in 2001. - The real effective exchange rate depreciated by 8 percent between January 2001 and January 2002. ### External debt, reserves, and debt relief - External debt and service: - External debt is quite high, at about 125 percent of GDP. - Debt-service ratio, after accounting for enhanced HIPC Initiative assistance, will fall from about 13¼ percent of exports of goods and nonfactor services in 2002 to 8¼ percent by 2005. - The share of repayments to the Fund in relation to total debt service is expected to increase from 1.6 percent in 2001 to 8¾ percent in 2005. - The Fund approved interim assistance under the enhanced HIPC Initiative of SDR 0.8 million, covering 9.6 percent of each repayment obligation falling due until December 31, 2001. - The government intends to use the remaining proceeds of the Fund interim assistance to meet debt service payments on its existing debt to the Fund as they fall due during 2002. - Interest payments and sustainability: - The Gambia enjoys relatively low interest payments on external debt, averaging 4 percent of total exports and nonfactor services or, 1.2 percent of GDP. - Debt relief has been granted to ensure that the long-run path of external debt is sustainable. - Reserves and liquidity: - Gross international reserves (GIR) equivalent to five months of imports and 21 percent of the nominal debt stock. - The ratio of GIR to quasi money has been stable at around 80 percent during the program years. ### Exports and external sector structure - Export performance: - The ratio of the exports of goods and services to GDP increased to around 54 percent in 2001. - Reexports still account for about 80 percent of total exports. - Vulnerabilities: heavy reliance on reexports and exposure to border closures and neighboring countries’ trade reforms. - Fisheries: - Estimated fish yield of around 75,000 tons and a current annual offtake of around 29,000 tons. - Underexploited sector with scope for increased foreign and domestic investment. - Ongoing Artisanal Fisheries Development Project and plans to establish an Industrial Fisheries Port in Banjul (aims: establish a fisheries port; establish a central fisheries market; support MCS Department; promote credit program for small-scale fishermen; establish a Human Resource Development Department). - Tourism: - Tourism contributes over 12 percent to GDP. - Sector constraints include a continued fall in spending by tourists and environmental degradation in some areas. - African Development Bank started a US$10 million project for beach rehabilitation. - Newly created private-sector-directed Tourism Promotion Agency increased the promotion budget by a factor of 20. - Government undertaking a Tourism Development Master Plan Study for 2002–2020. - Groundnuts (peanut sector): - Accounts for about 25 percent of the value added in agriculture, about 8 percent of GDP, and 10 percent of exports (about 70 percent of domestically produced exports). - Production recovered from 78,000 tons in 1997 to 152,000 tons in 2001. - Emphasis shifting to improving processing and marketing: rehabilitation of barges and a processing plant, establishment of a new oil-crushing plant, settlement with Alimenta completed in 2001, proposal to privatize former Alimenta assets, donor support for fertilizer, better seeds, and credit to farmers. ### Investment, free zones, and private sector - Investment framework and projects: - Investment Promotion and Free Zones Act enacted in 2001 to establish The Gambia Investment Promotion and Free Zones Agency (GIPFZA). - Free economic zones established under the US$25 million Trade Gateway Project, using land around Banjul airport to stimulate light manufacturing and export-oriented activities. - Foreign direct investment picked up slightly in 2001, concentrated in tourism, roads, and utilities (electricity and telephones). - Commercial banks licensed to operate foreign currency deposits to facilitate remittances. - Following elections and improved relations, the United States expected to review The Gambia’s eligibility under AGOA; a positive outcome would further encourage investments. ### PRGF, PRSP, and poverty/social impact analysis (PSIA) - PRGF and PRSP linkage: - The new PRGF arrangement provides a framework for prudent financial policies and reforms to improve external competitiveness and promote foreign investment. - The full PRSP, prepared through a participatory process, was presented to Fund and World Bank management in May 2002; a joint staff assessment is being presented to the Executive Board with the PRSP in support of the three-year PRGF arrangement request. - Fiscal adjustment and social spending: - Program adjustment focuses on containing the overall fiscal deficit and eventually bringing it to a sustainable level; this would release resources (up to 20 percent of the revenue that is currently absorbed by domestic debt servicing) to augment poverty-reducing expenditure. - Revenue effort emphasizes reduction in discretionary customs tax exemptions and better enforcement of sales taxes (notably hotels and public enterprises). - Excluding enhanced HIPC Initiative spending, budgetary allocations to agriculture, education, and health increased from 38 percent of non-interest current spending in 2000 to about 43 percent in 2002. - Distributional and incidence issues: - Better tax enforcement and proposed higher excise taxes on cigarettes, liquor, and electricity would primarily affect higher-income groups and foreigners; essential items like rice, medicine, and fertilizer attract zero import duty and are not subject to sales tax. - Expenditure measures aiming to improve allocation, accountability, and transparency would likely reduce corruption and waste, increasing resources for priority sectors; expected salutary impact on inflation over time would increase welfare, especially for the poor. - Poverty indicators and PRSP priorities: - 1998 household survey shows incidence of poverty increased substantially; about 91 percent of extremely poor rural households engaged in agriculture. - PRSP priorities include increased budgetary allocations to agriculture, education, and health. - Financial sector reforms and bank resolution: - Reforms aim to strengthen legal and institutional framework to broaden and deepen the financial system and promote private sector access to credit, including expansion to small enterprises and microenterprises under the PRSP. - Mission argued for closure of Continent Bank to signal commitment to sound banking practices; authorities argued against immediate closure, citing services mainly geared to low-income households; agreement depends on finalizing a resolution plan for the bank. - Statistical capacity and CSD reform: - Proposed reform of the Central Statistics Department (CSD) would substantially enhance macroeconomic, social, and poverty data, strengthening PRSP implementation and benefiting the poor in the medium to long run. ### Enhanced HIPC Initiative progress - Completion and triggers: - Debt-sustainability analysis in 2000 led to eligibility under the enhanced HIPC Initiative. - Government achieved significant progress implementing completion point triggers. - First six-monthly report on tracking poverty-reducing expenditure, including HIPC-funded expenditure for 2001, to be presented to the High-Level Economic Committee. - Education triggers: lower basic education teachers graduating reached 361 in 2001 (compared with 192 in 2000), exceeding the annual growth target of 45 percent. - Girls’ scholarship fund participants rose to over 7,800 at end-2001 (against the annual target of 2,000). - Health triggers: progress broadly on target (indicators include number of births attended by trained antenatal personnel and share of expenditure on primary and secondary health care). - Regulatory Act enacted in 2001 to pave way for establishment of a regulatory agency; privatization of former Alimenta assets under way. - The Gambia is expected to reach the enhanced HIPC Initiative Completion Point by mid-2003. ### Technical assistance, statistics, and capacity building - TCAP and donor support: - Fund staff prepared a comprehensive TCAP aimed at promoting performance under the PRGF arrangement; TCAP focuses on public expenditure management, tax policy and administration, monetary and foreign exchange operations and financial sector supervision, and macroeconomic data. - UK-DFID has expressed interest in providing support, including possible financing of Fund technical assistance under the TCAP. - Statistical weaknesses and improvements: - Economic and financial statistics need improvement, especially balance of payments, national accounts and prices, public investment, public enterprise sector, and employment. - Comprehensive balance of payments still compiled annually, but key external indicators on international reserves and government debt service are provided timely. - Data on social sectors and poverty need substantial improvement and better integration with mainstream economic data. - Authorities have taken steps to strengthen the statistical base, including improving staffing of the CSD; country participating in the Fund’s General Data Dissemination System and metadata available on the Fund’s Dissemination Standards Bulletin Board. ### Prior actions and program monitoring - Prior actions implemented to ensure program success: - (a) a CBG Board resolution in support of the reforms, as recommended by the December 2001 Fund technical mission; - (b) initiation of a review of the Central Bank Act; and - (c) an audit of the 2001 operations of the Customs and Excise Department. - Monitoring and conditionality: - Program monitored through quantitative benchmarks and quantitative performance criteria specified in Appendix I (Tables 1 and 2). - Seven benchmarks set for end-June 2002 (also serve as quantitative performance criteria for end-September 2002); indicative targets for end-December 2002. - Five structural benchmarks set through end-November 2002 and a continuous performance criterion on avoidance of external payments arrears. - Program implementation to be assessed during a first review to be completed by end-December 2002. ### Staff appraisal (summary) - Recent achievements and challenges: - Over the last four years, The Gambia achieved macroeconomic and structural adjustment, including considerable fiscal retrenchment and trade liberalization; fiscal slippages in 2001 undermined these gains. - The PRGF-supported program is a consolidation phase focusing on fiscal prudence, governance strengthening, and broad-based reforms to reduce poverty. - Reforms should benefit from better coordination of donor technical assistance; a donor roundtable will be held to support PRSP implementation. - Positive context: peaceful national elections, full PRSP prepared, improved donor relations, settlement of Alimenta property dispute. - Outlook and priorities: - Staff welcomes authorities’ policy response and actions taken to reverse financial slippages; the challenge is timely full implementation of strategy and supporting measures and reforms. - Revised 2002 budget provides for strengthening fiscal performance and maintaining a sustainable level of government domestic debt. - Revenue recovery expected to take time and depend on gradual institutional improvements, notably sustained improvement in customs administration. *Source: _cr0442 - Box 5.* ### Box 6. The Gambia: Structural Conditionality in the Proposed PRGF Arrangement for The Gambia ### Box 6. The Gambia: Structural Conditionality in the Proposed PRGF Arrangement for The Gambia ### Coverage of structural conditionality in the proposed program - Structural conditionality in the proposed PRGF arrangement covers five areas (as detailed in Table 2 of Appendix I): - Completion of Stage I of the Household Survey (dry season) to provide further data for the analysis of poverty and form a basis for constructing an updated and comprehensive consumer price index (CPI). An updated CPI will also be helpful in the formulation of monetary policy. - Measures to expand the automated system for customs data (ASYCUDA) by networking the customs administration and using the system to automatically generate trade data, to improve efficiency of the customs administration and the timeliness of trade data. - Completion of a second report on poverty-reducing expenditure (the first report was completed in May 2002). - A quarterly schedule for eliminating government-public enterprise cross arrears based on a review of a public enterprise study and cabinet paper (completed at end-May 2002). - Completion of the enterprise survey to form the basis for the compilation of data on the international investment position in the balance of payments. - Three prior actions, all on structural reform issues, were incorporated in the program: - An audit of the Customs and Excise Department was carried out to strengthen revenue performance. - Actions relating to the central bank intended to significantly improve its institutional capacity. ### Change of status of structural conditionality from earlier programs - The proposed PRGF arrangement does not include structural conditionality on: - restructuring and privatization of public enterprises; - the procurement code; - the investment code; and - the public investment program (PIP). - These items were covered by structural benchmarks in earlier PRGF annual arrangements. - The World Bank has the lead role in these areas, and, except for item (a), they have been addressed through legislation, interim codes, and an initial review of the PIP. - Conditionality on privatization was not fully met; emphasis shifted to providing legal frameworks for privatization and regulation, both approved by parliament in the 2000/01 sessions. - To deal with financial problems of public enterprises, the current PRGF-supported program incorporated quarterly budget targets to eliminate government-public enterprise cross arrears. - The third annual PRGF arrangement and the prospective three-year arrangement have been refocused toward structural conditionality where the Fund takes a lead role and that has a more direct bearing on macroeconomic issues. ### Structural areas covered by World Bank lending and conditionality - All existing and prospective (in fiscal-year FY 2003) World Bank lending is in projects, of which those in education and health have conditionality that is reflected also in the HIPC Initiative floating completion triggers. - The World Bank has not scheduled any credit or structural adjustment lending in FY 2003. ### Structural areas covered by HIPC Initiative completion point conditionality - Explicit structural reforms covered by the triggers include: - improving the capacity to generate poverty data; - strengthening the regulation of private and public enterprises; - improving public expenditure tracking; and - bringing to the point of sale the former Alimenta groundnut-processing plants. - Groundnut-marketing and production reforms are complemented by agreements and arrangements with the European Union—the lead donor in the sector. ### Other relevant structural conditionality not included in the current program - Three main areas: - Governance issues explicitly raised by donors (notably reforms in the Auditor General’s Office). These are monitored by the relevant donors. - The PRSP process (including participatory programs, sector policies, public expenditure reviews, the medium-term expenditure framework, and social impact analysis) is supported by various donors and nongovernmental organizations; it has not been covered by specific conditionality in the PRGF-supported program. - Liquidity forecasting by the central bank has been developed to a certain extent by the monetary authority acting on its own. Additional conditionality in this area depends on ongoing reforms in the accounts of the central government, which would provide timely inputs into the formulation of monetary policy. ### Key macroeconomic findings and statistics (from program review and recent developments) - The government requested a three-year arrangement under the PRGF in an amount equivalent to SDR 20.22 million (65 percent of quota). - Fiscal developments and public finance: - Fiscal deficit (excluding grants) declined from 7.8 percent of GDP in 1997 to 3.6 percent in 2000, then increased to 8.7 percent in 2001. - Domestic debt increased to over 33 percent of GDP by end-2001. - Monetary and external sector: - Broad money growth accelerated to 35 percent in 2000, then moderated toward the end of the program. - International gross reserves declined to the equivalent of 4.9 months of imports at the end of the program. - The exchange rate depreciated by an average of about 4 percent annually in real effective terms during 1998–2001. - Growth and inflation: - Real GDP is estimated to have grown by 6 percent in 2001. - End-of-period inflation increased to 8 percent in 2001 compared with the program target of 3½ percent. - Trade policy reform: - Maximum external tariff reduced from 90 percent in 1998 to 18 percent in 2000. - Number of tariff bands reduced from 30 to 3 over the same period. ### Policy recommendations and program assessment (selected passages) - Authorities encouraged to: - Ensure strict adherence to the repayment plan agreed between public enterprises and the government and persevere with reforms in the tax system. - Press ahead with budgetary reforms to enhance transparency and accountability of public expenditure, including the appointment of an Auditor General with substantive responsibilities and resumption of timely auditing of public accounts. - Collaborate effectively with donors to improve and broaden the PER exercise to cover other sectors, with a view to developing a medium-term expenditure framework encompassing all major expenditure programs. - Monetary policy: - Continue vigilance in implementing a prudent monetary policy to maintain low inflation while providing adequate private sector credit growth. - Emphasize the expanded use of indirect monetary policy instruments, taking advantage of Fund technical assistance. - Act resolutely and expeditiously to resolve the Continent Bank issue, including completing a resolution plan to establish the full cost to the budget of either recapitalization or liquidation of the bank. - Structural and private sector reforms: - Consolidation and broadening of structural reforms remain key to stimulating private sector activity and accelerating poverty reduction. - Key reforms include measures to improve business legislation, establish a framework for the regulation of public enterprises, continue with privatization, and establish a sustainable marketing arrangement for groundnuts with minimal government involvement. - Data and PRSP linkage: - Further work needed to refine sector priorities and improve macroeconomic and social data to assess the impact of adjustment and reform on the poor. - Strengthen efforts to solicit the views of the poor, including through the governance program. - Continue efforts to enhance the timeliness and quality of data, especially in the national accounts and prices, and the fiscal and external sectors; strengthen the social and poverty database. - Risks and capacity: - Possible risks include delays in dealing with, or the reemergence of, governance issues (including avoidance of unprogrammed expenses and revenue leakages), and delays in effectively using technical assistance, especially in the fiscal area. - Heavy burden of implementing a broad range of measures and reforms will test institutional and human resource capacity; intensify collaboration with donors and the Fund for timely access to and effective use of technical assistance. - Staff recommendation: - On the basis of broadly encouraging developments, efforts to address slippages, and adoption of an appropriate macroeconomic framework (and supporting policies, including prior actions) for 2002–05, the staff recommends that the Executive Board approve The Gambia’s request for a new three-year PRGF arrangement. - It is recommended that the next Article IV Consultation with The Gambia be held on a standard 12-month cycle. *Source: Box 6, "The Gambia: Structural Conditionality in the Proposed PRGF Arrangement for The Gambia."* ### 7. The external current account deficit (excluding official transfers) widened to about ### _cr0442 - 7. The external current account deficit (excluding official transfers) widened to about ### External position and reserves - External current account deficit (excluding official transfers) widened to about 14¾ percent of GDP in 2001 due to: - unprogrammed importation of three electricity generators (funded from a donor concessional loan and supplier’s credit); - higher imports for domestic use. - Gross official reserves were at the equivalent of about five months of imports and fell short of the 2001 target, largely because of an estimated delay in the disbursement of donor grants of 1.6 percent of GDP. - The delay in donor grants contributed to a further depreciation of the dalasi of 8 percent in real effective terms in 2001. ### Fiscal outturn 2001 and slippages - Overall deficit (excluding grants) is estimated at 8.7 percent of GDP in 2001, exceeding the revised target of 5.9 percent of GDP. - Main causes: shortfalls in customs duty receipts; recurrent expenditure (including other charges) exceeded program target. - Unprogrammed expenditure: on-lending to a public enterprise to purchase electricity generators and related equipment and making payments to commercial banks. - Further shortfalls since September amounting to an estimated 1.3 percent of GDP, including a buildup of tax arrears by public enterprises. - GAMTEL incurred tax arrears amounting to D 32 million. - Footnote: delays in closing its accounts led to an estimated D 25 million overdue income tax; together with sales tax arrears, amounts to 0.4 percent of GDP. - NAWEC was unable to pay D 27 million in tax arrears. - Other fiscal shortfalls/overruns in 2001: - shortfalls in nontax revenue: 0.5 percent of GDP; - overruns in net lending: 0.4 percent of GDP (reflecting financial problems of public enterprises); - excess outlays through BTL accounts: 0.4 percent of GDP to accelerate development projects in response to election pressures. - Government recourse to net bank financing: about 26 percent of beginning period money stock (compared with 8 percent under the program). - Outstanding government domestic debt had risen to about 33 percent of GDP by end-2001. - Payment (amortization) for the Alimenta settlement: US$6.7 million in 2001 (partly aggravated nondisbursement of donor grants). ### Monetary developments and domestic credit - Domestic credit expansion in 2001 was dominated by government borrowing, crowding out the private sector. - Government payments to commercial banks: D 64 million, equivalent to 1.1 percent of GDP, for nonperforming crop finance loans extended to private operators in 1999/2000 after seizure of Alimenta assets. - Broad money growth contained at 19 percent in 2001 (35 percent in 2000) following central bank liquidity mop-up via treasury bill sales. - Treasury bill rate increased from 12 percent to 15 percent during the year. - Four quantitative performance criteria for end-March 2001 and one for end-September 2001 were not observed; waivers were approved by the Fund’s Executive Board. - Two end-December 2001 quantitative indicative targets (net bank credit to, and the basic primary balance of, the central government) were not observed. - End-March 2002: two indicative targets (basic primary balance of the central government and net domestic assets of the central bank) were not observed. - End-March 2002: dalasi depreciated by 5 percent vis-à-vis the U.S. dollar despite central bank foreign exchange sales. - End-March 2002 indicative target on net official international reserves was not observed. ### Structural reforms, institutional capacity, and statistics - By end-2001, all but one structural performance criterion and structural benchmarks had been fully implemented. - Delays occurred in establishing regulatory framework, issuing guidelines, and authorizing commercial banks to establish foreign currency deposits. - By year-end, one bank authorized to offer foreign currency deposits. - Central Bank of the Gambia (CBG) actions: - introduced a 364-day treasury bill effective September 2001; - established a new Department of Rural Finance to improve supervision of microfinancing institutions and promote rural/informal finance. - Central Statistics Department (CSD) constraints: - acute manpower shortage; - unable to improve the consumer price index (CPI) or rebase national accounts (current base 1976/77). - CPI covers low-income urban households; basket not updated since 1974. - Fund technical assistance mission (September 2001) recommended emergency measures to bolster CSD personnel; government agreed to provide funding for immediate increase in National Accounts Section. - Progress in public accounts and audits: - government accounts for 1998–99 closed in August 2001 and submitted to the Auditor General; - arrangements expected to complete audit despite loss of some public records. - Technical assistance and coordination: - proposed Technical Cooperation Action Plan (TCAP) discussions initiated with Fund staff; - Fund extended services of resident budget advisor for one year and to provide a macroeconomic advisor in DOSFEA; - multiple Fund technical assistance missions on tracking poverty-reducing expenditures, tax administration strengthening, monetary/price/national accounts compilation, and central bank institutional capacity. - Recent mission found central bank had implemented only a limited number of past IMF recommendations; recommended more integrated approach and careful monitoring. ### Governance, political context, and sectoral reforms - Settlement with Alimenta expected to enhance investor confidence and catalyze reforms in the groundnut-marketing sector. - Presidential elections October 2001: President Jammeh reelected with 53 percent of the vote. - Second inauguration in December: condemned September 11 attacks, granted amnesty to former president and family, called for national unity. - National Assembly elections January 2002; new Assembly inaugurated February 1. - United States agreed in March to remove suspension of economic aid to The Gambia (suspended since 1994 coup). - Local government elections held in April 2002. - Continent Bank seized by central bank in January 2002 pending a resolution plan. ### Objectives and macroeconomic targets for 2002–05 - Medium-term framework objectives (consistent with SPA II/PRSP): - further strengthen public finances to contain budget deficit and high domestic debt; - continue and deepen structural reforms; - strengthen institutional capacity through technical assistance; - implement comprehensive social sector agenda (agriculture, education, health); - strengthen macroeconomic and social databases to link macro and social targets, with focus on the poor. - Key macroeconomic targets for 2002–05: - maintain real GDP growth of about 6 percent annually during 2002–05; - limit average inflation to below 4 percent per annum over 2002–05; - contain the external current account deficit (excluding official transfers) at about 10 percent by 2005; - maintain gross external reserves over the period at about 52 months of imports of goods and services. - Investment projections: - Total investment projected to increase from 17¾ percent of GDP in 2001 to 27¼ percent in 2005. - Government investment projected from 4¾ percent to 12¼ percent of GDP (2001 to 2005). - Envisaged increase in government saving-investment balance of 7 percentage points of GDP (before PRSP-related expenditure) expected to improve external current account. ### The program for 2002/03 — 2002 outlook and fiscal policy - Real GDP projection for 2002: about 6 percent (continued strength in agriculture; reforms in groundnut marketing; tourism and reexport recovery; improved infrastructure/utilities). - Inflation projected to decline to below 6 percent by end-2002 (good weather, bumper 2001 crop, tightened financial policies). - Budget modifications for 2002: - interim debt relief of about US$4.4 million under enhanced HIPC Initiative (Fund, World Bank, African Development Bank/Fund). - overall deficit (excluding grants) projected at 5 percent of GDP; including grants, deficit projected at 2½ percent of GDP. - Allowing for enhanced HIPC Initiative debt-relief expenditure, overall deficit would reach 6¼ percent of GDP. - Revenue and tax administration measures for 2002: - Revenues projected at about 17½ percent of GDP in 2002, supported by tax administration improvements. - Fund tax administration and tax policy missions visited Banjul in November 2001 and February 2002. - Measures to prevent emergence of new tax arrears and collect existing arrears (estimated at D 32 million, or 0.5 percent of GDP). - Decision to discontinue summer sales tax relief for hotels (granted in 2001). - Independent audit of 2001 Customs and Excise Department operations conducted in April (prior action for PRGF-supported program). - Customs direct delivery system to be discontinued (except perishable and bulk cargo) unless voucher presented at clearance; exceptions processed expeditiously to minimize inconvenience. - List of exemptions updated and to be gazetted shortly. - Domestic sales tax unit to be transferred from Customs and Excise Department to Central Revenue Department as soon as possible. - Initiatives to set up headquarters office to oversee proposed tax reforms, first step toward establishing an autonomous revenue authority. - Computerization planned, including implementation of ASYCUDA II in Customs and Excise Department. - Joint World Bank/Fund mission in June 2002 prepared joint work agenda for other planned reforms. - Expenditure policy for 2002: - Aim to reduce recurrent expenditure to 17¾ percent of GDP in 2002 from estimated 20¼ percent in 2001. - Key social and poverty sectors in SPA II (PRSP) given allocative priority. - 6 percent across-the-board increase in civil service salaries and public wages provided (to help retain skilled staff after 2001 wage freeze for senior personnel). - One-month salary advance provided to civil servants for Tobaski (repayable over six months via automatic salary deductions). - Enhanced HIPC Initiative interim debt relief resources to augment allocations to priority social sectors. - With donor support, capital expenditure projected to increase to 6¼ percent of GDP in 2002 (from 4¾ percent in 2001) to strengthen infrastructure and agricultural, health, education, and judicial sectors. - Election-related and BTL account developments in early 2002: - Implementation of expansionary fiscal policies in Q1 2002: revenues broadly on target, expenditure overshot targets by about 2 percent of GDP due to elections-related outlays funded mainly from BTL accounts where reporting and control were ineffective. - Construction started on Mandinaba-Soma road, funded by a payment of US$2.6 million on the US$35 million contract with Tetrax; several projects accelerated. - Disbursement by Taiwan Province of China for the power project (including 2001 electricity generators) helped cushion net government credit from banking system and led to drop in outstanding treasury bills. - Delays in receipts of groundnut exports and border controls impeded reexport trade, adding pressure on exchange rate. *Source: _cr0442 - 7. The external current account deficit (excluding official transfers) widened to about* ### 23. To address the first quarter expenditure overruns, the government has agreed to ### _cr0442 - 23. To address the first quarter expenditure overruns, the government has agreed to ### Expenditure control, Mandinaba-Soma road, and donor grants - Government to finance the Mandinaba-Soma road project with grants now expected from two donors. - As of early June 2002, US$1.6 million in grants had been disbursed. - Funds set in escrow for this project (D 42 million) have been repatriated and paid back into the consolidated revenue fund. - Recurrent expenditure and disbursement on a number of development projects, including the Mandinaba-Soma road, will be slowed via tightened controls on the relevant BTL accounts. - Effective May 2002, all expenditure from BTL accounts will require proper documentation and reporting. - Filling of vacancies in the budget unit and the Auditor General’s office expected to improve expenditure control and auditing. ### Budgetary reforms, Accountant General’s Office, and donor technical assistance - A cabinet paper approved in September 2001 outlined comprehensive budgetary reforms associated with SPA II (PRSP), triggers for debt relief under the enhanced HIPC Initiative, and the PRGF-supported program. - Reforms centered on the Accountant General’s Office aim to improve reporting and control of expenditure (including BTL accounts) and expedite reconciliation and closing of public accounts. - New system to facilitate conversion to program budgeting and the medium-term expenditure framework (MTEF) and improve expenditure classification to reflect SPA II (PRSP) and enhanced HIPC Initiative priorities. - Complementary reforms aimed at the Auditor General’s Office to expedite the audit of accounts; white paper on the Commission of Inquiry on the former Auditor General and a paper on its recommendation placed on cabinet’s agenda. - Government looks forward to continued Fund technical assistance, including return of the resident budget advisor and placement of a DOSFEA macroeconomic advisor in Banjul to improve regular reporting and projections of fiscal data (revenue, expenditure, debt service, external assistance, and government borrowing requirements). - Other donors involved: World Bank, UNDP, and DFID. ### Public enterprises (PEs), cross arrears, and privatization studies - As of end-January 2002, the government had accumulated arrears of D 43.5 million (0.7 percent of GDP) to PEs. - PEs had accumulated an estimated D 138 million in arrears to the government. - Cabinet paper prepared proposing a comprehensive program to address PE financial problems and a mutual settlement of these arrears. - Quarterly targets to eliminate cross arrears by mid-2003 were agreed with key public enterprises. - Donor-funded study planned to provide recommendations to restructure or privatize eight Track II PEs. ### Monetary policy objectives and broad money - Key objectives for 2002: reduce inflation and strengthen external reserves. - Government will maintain prudent fiscal policies and a tight monetary policy while providing adequate credit to the private sector and promoting exchange rate flexibility consistent with reserve buildup. - Avoidance of unprogrammed increases in net credit to the government is an important objective. - Central Bank will seek, through sales of securities, to moderate growth of broad money from an estimated 19 percent during 2001 to 13 percent by end-2002, in line with projected nominal GDP growth. ### Financial sector reform measures and central bank actions - Reforms aim to improve money market operation, make interest rates more flexible, and enhance financial system soundness and efficiency. - CBG received Fund technical assistance missions in 2001, including December and August missions; recommendations include improving monetary statistics and addressing weaknesses in supervision, monetary operations, reserve management, payments systems, and internal controls. - CBG measures to trigger access to Fund technical assistance under the TCAP include: - (a) a CBG board resolution to support reform measures; - (b) initiation of a review of the Central Bank Act; - (c) revision and resubmission of the Financial Institutions and the Insurance Bills for parliamentary approval; - (d) establishment of a committee to prioritize, coordinate, and enhance the CBG’s training program; - (e) preparation of a resolution plan for an insolvent bank and two insurance companies; - (f) introduction of a liquidity-forecasting framework and operation of the book-entry system; - (g) issuance of the revised foreign currency deposit prudential regulations to commercial banks; - (h) filling of vacancies, particularly in the banking and insurance areas. - Items (a) and (b) were implemented in February 2002 and are prior actions for the PRGF-supported program for 2002/03–2004/05. - Proposed legislation and technical assistance recommendations require extensive revisions in financial institutions’ reporting requirements to be addressed during 2002–03. ### Banking soundness, nonperforming loans, and specific institution actions - Nonperforming loans declined to 6.8 percent of total outstanding loans by end-March 2002 from 13.6 percent in June 2000. - Provisioning for nonperforming loans at end-March 2002 remained above 90 percent of such loans in 2001. - Government will encourage banks to maintain capital adequacy ratios above the legal requirement of 8 percent. - CBG working on a resolution plan for the Continent Bank and has commissioned an audit by KPMG. - CBG’s Rural Finance Department to play a key role in improving supervision and growth of the microfinance sector. ### Regional monetary integration - The Gambia will continue to pursue regional monetary integration with five other west African countries to establish a West African Monetary Zone (WAMZ) by 2003. - In April 2001, the West African Monetary Institute (WAMI) was established to prepare groundwork for the West African Central Bank (WACB), to function as central authority of the WAMZ. ### Domestic debt, debt-service burden, and reduction strategies - Large stock of government domestic debt was 33 percent of GDP at end-2001, whose service absorbs more than 20 percent of government domestic revenue. - Government focus on reducing fiscal deficit (excluding grants and fully-funded HIPC Initiative expenditure) to sustainable levels. - Plans to use part of proceeds from privatization, available donor assistance, and part of debt relief under the enhanced HIPC Initiative to reduce domestic debt. - Because a sizable part of this debt is held by commercial banks, reduction should avoid injecting liquidity; possible solutions include establishing an offshore entity to take over the debt or debt/equity swaps for selected public institutions. ### External sector projections and financing - External current account deficit (excluding official transfers) projected to decline to about 13¼ percent of GDP in 2002. - Volume of total exports (excluding reexports) projected to increase by about 6.8 percent in 2002. - Import volumes projected to decline by about 2.7 percent in 2002. - Terms of trade, excluding reexports, projected to improve by 1.4 percent in 2002. - Receipts from tourism expected to increase significantly supported by an increase in weekly flights and creation of the National Tourism Authority. - Donor assistance projected to increase, contributing to gross official reserves of SDR 87.7 million in 2002, equivalent to about five months of import cover. - Financing gap of SDR 10.3 million projected for 2002 (SDR 76.5 million, including PRSP-related funding gaps for 2002–05), expected to be covered by Fund and donor assistance; donor roundtable meeting planned for September 2002. ### Trade, exchange system, and data improvements - Government committed to a liberal trade and exchange system; continues to assess impact of reduction in external tariff to a maximum rate of 18 percent and reduction in tariff bands from ten to three in 2000. - Efforts intensified to improve balance of payments data based on September 2000 Fund technical assistance. - DFID provided technical assistance in 2001 to launch surveys of foreign direct investment. - UNDP assisted with full introduction of ASYCUDA to generate trade data on a timely basis. - Reduction in external tariffs, together with prudent financial policies and a market-based flexible exchange rate, expected to benefit The Gambia’s external competitiveness. ### Debt management and sovereign credit assessment - Remaining proceeds of Fund interim assistance under the enhanced HIPC Initiative (approved December 15, 2000) to be used to meet debt-service payment on existing debt to the Fund during 2002. - Measures taken to strengthen the loan and debt management unit at DOSFEA with additional staffing and equipment to improve external debt data quality and timeliness. - Efforts under way to obtain debt relief from all other creditors. - The Gambia will opt to participate in the sovereign credit rating assessment, funded either by the U.S. government or the UNDP. ### Structural and sectoral policies: legislation, privatization, trade gateway, and agriculture - December 2001 National Assembly enactment of the Regulatory and Procurement Acts to establish implementing agencies to regulate privatized utilities and handle public procurement. - DFID-funded PE regulatory study tendered. - Work with Commonwealth Secretariat to develop a competition policy; draft completed and eventual Competition Bill planned. - July 2001 legislation approved to set up the National Tourism Authority. - Preparatory work on the Tourism Master Plan for 2002–20 funded by the AfDB. - Plans to introduce bills on business transactions, organization, and partnership to replace existing Company Act; Mortgage and Money-Laundering Bills to be drafted to strengthen financial sector regulation. - Privatization Act (2000) formalized establishment of the Gambia Divestiture Agency (GDA); privatization of Track I public enterprises approved by cabinet. - GDA to channel part of 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 reduce government domestic debt. - Trade Gateway Project (US$23 million) approved by World Bank in February 2002 to establish an export-processing zone and one-stop Investment Promotion Center; support for privatization and private sector activity consistent with PRSP. - Agriculture: continued work with EU and Agri-Business Service Plan Association (ASPA) to improve groundnut marketing and encourage producer price announcements. - Government injected D 15 million to improve Alimenta assets to facilitate groundnut marketing during 2001/02 season and asset sale. - Proposed EU audit of 1999/2000 operations of trading companies to ensure internal control compliance. - Government to make timely arrangements to provide improved seed, fertilizer, and microfinance facilities to farmers via the US$10 million International Fund for Agricultural Development Rural Finance and Community Initiative. - Fishing sector support: projects worth some US$13 million to build a second cold storage facility and establish artisanal facilities during 2002. ### Governance and public finance transparency - Government implementing a governance program adopted during the March 2000 roundtable meeting in Banjul, including reforms to: - (a) strengthen the constitutional and electoral processes; - (b) strengthen the National Assembly structures and processes; - (c) promote civic education and enhance civil participation in the political process; - (d) improve the legal and judicial processes; - (e) decentralize and reform the local government system; - (f) improve the management and transparency of public finances. - Several reforms supported by DFID, EU, and UNDP and implemented in the context of SPA II (PRSP). *Source: _cr0442 - 23. To address the first quarter expenditure overruns, the government has agreed to (excerpt).* ### 39. As part of implementing the PRGF-supported program, the government intends to put ### _cr0442 - 39. As part of implementing the PRGF-supported program, the government intends to put ### Social and poverty reduction policies - SPA II (PRSP) launched; PRGF-supported program is now based on SPA II (PRSP) and incorporates the views of Gambians, including the poor. - SPA II (PRSP) improvements: - Better ability to identify the poor and sources of poverty. - Intensified efforts to develop interventions to better target the poor. - Program “pillars”: create an environment conducive to sustained high growth (targeting income generation in rural agriculture) and increase allocation of public resources and delivery of social services. - Sector and budget linkages: - Preparation of PERs in key sectors as an early means of linking sector and national budget priorities. - Interim resources from debt relief under the enhanced HIPC Initiative reinforce this process. - Other program emphases: - Promote the role of the private sector. - Enhance transparency and accountability for public finances. - Improve macroeconomic and social data to strengthen poverty policy analysis. - Access technical assistance to support institutional capacity. - Budget and reporting: - The budget for 2002 attempts to integrate PERs and enhanced HIPC Initiative debt relief to allocate increased resources for the social sectors and development expenditure. - System for reporting on poverty-reducing expenditure (including the special HIPC Initiative account at the central bank) to become fully operational in 2002 with the issuance of the first biannual reports (May and November). - Broader resource requirements of SPA II (PRSP) evaluated with PRGF financing gaps and to be presented to the donor roundtable meeting planned for the second half of 2002. - Institutional capacity and donor collaboration: - Updating SPA II (PRSP) will place considerable burden on institutional capacity and necessitate further reforms to improve delivery and monitoring of enhanced public services. - Government intends to intensify collaboration with donors, including the Fund, for timely access to and effective use of technical assistance. ### Statistical issues - Key data gaps and needs: - Major components needing improvement: balance of payments, national accounts and prices, public investment, public enterprise sector, and employment. - Social sector and poverty data need substantial improvement and better integration with mainstream economic data. - Institutional developments: - Recent Fund technical assistance recommendations to strengthen economic data compilation. - Interim effort to improve staffing of the CSD pending longer-term restructuring into an independent agency, including offering better incentives to retain staff. - CSD responsibilities: generate macroeconomic data; carry out the household survey; conduct the baseline delivery survey for social amenities; and execute the 2003 housing and population census. - Data dissemination: - Participation in the General Data Dissemination System (GDDS) used to improve the quality, timeliness, and transparency of data provision. ### Technical Cooperation Action Plan (TCAP) - Development and purpose: - Following a request for technical assistance in April 2001, government worked with Fund staff and other donors to prepare a comprehensive technical assistance program for the PRSP. - TCAP aims to promote coordinated, complementary technical assistance covering key requirements and identifying gaps for presentation to the donor roundtable meeting planned for September 2002 (together with SPA II (PRSP) for funding). - Fund staff prepared a comprehensive TCAP aimed at promoting performance under a possible new three-year PRGF arrangement. ### Program monitoring and review (overview) - Program monitoring instruments: - Prior actions, quantitative performance criteria for end-September 2002, and quantitative benchmarks identified. - Prior actions (three required before issuance of papers on the PRGF arrangement): - (a) a CBG board resolution in support of the reforms recommended by the December 2001 Fund technical assistance mission; - (b) the initiation of a review of the Central Bank Act, with a view to modernizing the act; - (c) the audit of the 2001 operations of the Customs and Excise Department. - Quantitative performance criteria for end-September 2002 (to monitor first annual program under PRGF arrangement): - (a) a ceiling on net bank credit to the government; - (b) a ceiling on net domestic assets of the central bank; - (c) a floor on the basic primary balance of the government; - (d) the nonaccumulation of external payments arrears (applied on a continuous basis); - (e) a minimum level of net official international reserves; - (f) a limit on new nonconcessional external loans contracted or guaranteed by the central government in the maturity ranges of 1–12 years; - (g) a zero ceiling on the outstanding stock of short-term external public debt (excluding normal import-related credits). - Benchmarks and indicative targets: - Quantitative benchmarks established for these variables for end-June 2002; indicative targets agreed for end-December 2002. - Quarterly financial indicators established on total government revenue, the wage bill, and the primary budget balance. - Program includes structural benchmarks for various dates as indicated in Table 2 of the Appendix. - Reviews and conditionality on disbursements: - Disbursement of the second loan under the PRGF arrangement conditioned on observance of end-September 2002 performance criteria and completion of the first review no later than end-December 2002. - Disbursement of the third loan conditioned on observance of end-March 2003 performance criteria and completion of the second review no later than end-June 2003. ### Technical Memorandum of Understanding: definitions, reporting, and procedural specifics (As of May 8, 2002) - Purpose: - Sets out understandings between Gambian authorities and IMF staff regarding definitions of quantitative and structural performance criteria and benchmarks for the third annual PRGF arrangement and related reporting requirements. - Net International Reserves (NIR) of the Central Bank of The Gambia (CBG): - Definition: reserve assets less liabilities to foreign residents of maturity of one year or less and less borrowing from the IMF. - Gold and foreign currency valuation: gold holdings valued at U.S. dollar market prices, together with foreign currency holdings, at the bilateral exchange rates prevailing on March 31, 2002. - Conversion: NIR shall be converted into dalasis at the exchange rate prevailing on March 31, 2002 (estimated at D 21.3000 per SDR). - Reserve assets defined as external assets readily available to or controlled by the CBG; pledged or encumbered reserve assets excluded. - Adjustment clause: floor on NIR adjusted upward (downward) by the amount of disbursed external budgetary support (non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of programmed budget amounts (Appendix I, Table 1). - Reporting: NIR transmitted weekly within ten days of the end of each week; net foreign assets of commercial banks and external budgetary support transmitted monthly within six weeks of the end of each month. - Net Domestic Assets (NDA) of the central bank: - Definition: difference between reserve money (currency outside banks and all deposits of commercial banks, excluding deposits of the central government) and net foreign assets of the central bank, converted at the foreign exchange rate specified in paragraph 2. Net foreign assets defined as NIR plus other claims on, and liabilities to, foreign residents. - Adjustment clause: ceiling on NDA adjusted downward (upward) by disbursed external budgetary support at end of each quarter in excess (in shortfall) of programmed amounts (Appendix I, Table 1). - Reporting: NDA transmitted monthly within four weeks of the end of each month. - Net claims on the central government by the CBG: - Definition: claims on the central government by the central bank less deposits of the central government with the central bank. - Adjustment clause: ceiling on net claims adjusted downward (upward) by disbursed external budgetary support at end of each quarter in excess (in shortfall) of programmed central government budget amounts (Appendix I, Table 1). - Reporting: cumulative government revenue and expenditure, net central government position with the central bank, treasury bills outstanding, and external loans and grants transmitted monthly within six weeks of the end of each month. - Basic primary balance of the central government: - Definition: government domestic revenue (tax and nontax) minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure. - External payments arrears: - Definition: stock of external arrears on loans contracted or guaranteed by the public sector, except debts subject to rescheduling or a stock-of-debt operation. - Reporting: accounting of nonreschedulable external arrears by creditor countries (if any) transmitted monthly within four weeks of the end of each month; includes arrears by central government and other public sector entities to Paris Club creditors, non-Paris Club creditors, and other creditors. - New nonconcessional external public sector debt contracted or guaranteed by the central government: - Scope: public sector defined as central and regional governments and other public agencies, including the CBG. - Performance criterion covers contracting or guaranteeing external debt with original maturity of 1-12 years by the government. - Exclusions: borrowing from the IMF and debt with a grant element of at least 35 percent. - Grant element calculation: use currency-specific discount rates reported by the OECD (commercial interest reference rates); for maturities of less than 15 years, grant element calculated based on six-month averages of commercial interest rates; for maturities longer than 15 years, grant element calculated based on ten-year averages. - Reporting: comprehensive loan-by-loan accounting of all new concessional and nonconcessional debt contracted or guaranteed by the public sector transmitted quarterly 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. - Outstanding stock of external public debt (short-term): - Definition: outstanding stock of external public sector debt with original maturity of less than one year owed or guaranteed by the central government; excludes normal import-related credits. - Reporting: comprehensive record of all external debt with original maturity of less than one year owed or contracted by the public sector transmitted quarterly within four weeks of the end of each quarter. - Prior actions, benchmarks, and timelines (summary): - Prior actions required: (a) CBG Board resolution in support of reforms recommended by the December 2001 Fund technical mission; (b) initiation of a review of the Central Bank Act; (c) audit of the 2001 operations of the Customs and Excise Department. - Proposed benchmarks for end-June 2002: ceiling on net bank credit to the central government; ceiling on NDA of the CBG; floor on basic primary balance of the central government (excluding interest and foreign-financed investment spending); nonaccumulation of external payments arrears (continuous); floor on net official international reserves; ceiling on new nonconcessional external loans contracted or guaranteed by the public sector for maturities of 1–12 years; zero ceiling on outstanding short-term external public debt owed or contracted by the public sector (excluding normal import-related credits). - Limits on items above for end-September 2002 serve as quantitative performance criteria; indicative targets set for end-December 2002. - Five structural benchmarks outstanding for specific dates through end-November 2002, plus a continuous indicative target on avoidance of external arrears (Appendix I, Table 2). - Notifications: - Authorities will notify the African Department of the Fund of developments with respect to structural performance criteria and benchmarks as soon as they occur and provide documentation according to dates specified. *Source: _cr0442 - 39. As part of implementing the PRGF-supported program, the government intends to put (PDF chapter/section).* ### Appendix I, Table 2, elaborating the steps taken to (a) complete Stage I of the Household ### _cr0442 - Appendix I, Table 2, elaborating the steps taken to (a) complete Stage I of the Household ### V. OTHER ELEMENTS OF THE PROGRAM – PROGRAM-MONITORING COMMITTEE - Definition and responsibilities: - A program-monitoring committee shall be established composed of senior officials from the Department of State for Finance and Economic Affairs (DOSFEA), the CBG, and other relevant agencies. - The committee shall monitor program performance, recommend policy responses, inform the Fund regularly about program progress, and transmit supporting materials necessary for 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 H3: A. Production and Prices - Reporting standard: - The monthly disaggregated consumer price index will be transmitted within four weeks of the end of each month. H3: B. Government Accounts Data - Reporting standard and content of consolidated budget report (to be transmitted on a monthly basis within six weeks of the end of each month, except where noted): - (a) Revenue data by each major item, including that collected by the Commissioner of Taxes and the Customs and Excise Department, as well as transfers from privatizations to the budget. - (b) Details of the recurrent and capital expenditure of the central government. - (c) Details of budget financing (domestic and external). - (d) Details on the government’s outstanding arrears as of end-March 2002, 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). - Key figures: - The government’s arrears amounted to D 43 million as of end-December 2001. - Public enterprises owed the government about D 138 million. H3: C. Monetary Sector Data - 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. H3: D. External Sector Data - Reporting standard: - (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. - (c) Balance of payments data will be transmitted on a quarterly basis within six weeks of the end of each quarter. ### VII–X and Related Financial Position Summaries (select figures) - General Resources Account: - Quota: 31.10 SDR Million (% Quota 100.0) - Fund holdings of currency: 29.62 (% Quota 95.2) - Reserve position in Fund: 1.48 (% Quota 4.8) - SDR Department: - Net cumulative allocation: 5.12 SDR Million (% Allocation 100.0) - Holdings: 0.05 (% Allocation 1.0) - Outstanding Purchases and Loans: - ESAF/PRGF arrangements outstanding: 20.61 SDR Million (% Quota 66.3) - Latest Financial Arrangements (selected): - ESAF/PRGF approved 06/29/1998; Expiration Date 12/31/2001; Amount Approved 20.61 SDR Million; Amount Drawn 20.61 SDR Million. - ESAF approved 11/23/1988; Expiration Date 11/25/1991; Amount Approved 20.52 SDR Million; Amount Drawn 18.02 SDR Million. - SAF approved 09/17/1986; Expiration Date 11/22/1988; Amount Approved 10.86 SDR Million; Amount Drawn 8.55 SDR Million. - Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Overdue and Forthcoming (04/30/2002 and years shown): Principal: 0.7 1.4 2.7 - Charges/interest: 0.2 0.2 0.2 0.2 0.2 - Total: 0.2 0.2 0.9 1.6 2.9 - HIPC Initiative (Implementation): - Decision point date: 12/11/2000 - Total assistance (US$ million): 66.6 - Of which: Fund assistance (SDR million): 1.8 - Delivery of Fund assistance (SDR million): Amount disbursed 0.08; Interim assistance 0.08 - Amount applied against member’s obligations (cumulative): 0.02 ### Safeguards, Exchange Rate, and Statistical/Technical Assistance - Safeguards assessments: - The Central Bank of The Gambia (CBG) is subject to a full Stage One safeguards assessment with respect to the forthcoming PRGF arrangement. - An on-site safeguards assessment mission will visit The Gambia before September 2002. - The first review under the PRGF arrangement will address potential issues emerging from the safeguards assessment. - Exchange rate arrangement: - Prior to January 20, 1986, the dalasi was pegged to the pound sterling at a rate of D 5=,1. - On January 20, 1986, an interbank market for foreign exchange was introduced; since then the exchange rate has been determined by market forces. - At end-April 2002, the midpoint exchange rate in the interbank market was D 18.7 per U.S. dollar. - The Gambia accepted the obligations of Article VIII, Sections 2, 3, and 4 on January 21, 1993. - Technical assistance (selected missions and dates): - A long-term Fund resident macroeconomic advisor arrived in Banjul in April 2002. - The long-term Fund resident budget expert returned to Gambia in March 2002 for another one-year term. - FAD tax policy mission visited in February 2002. - MAE diagnostic mission visited in December 2001. - FAD income tax and customs administration mission visited in November 2001. - STA mission to assist National Accounts and Price Statistics visited in August–September 2001. - STA Monetary and Financial Statistics mission visited in August 2001. - FAD mission to assess capacity to track poverty-related spending visited in July 2001. - Prior missions and experts listed with dates back to 1993–2001 assisting on book-entry system, liquidity forecasting, national accounts, balance of payments statistics, monetary management, and bank supervision. - Resident Representative: - There is currently no provision for a resident representative in The Gambia. ### Relations with the World Bank Group (select points) - IDA assistance objectives: - (a) establishment of a macroeconomic and sectoral environment conducive to economic growth; - (b) rehabilitation and development of infrastructure; - (c) development of human capital through more efficient social services; - (d) capacity building in departments key to economic management. - As of April 30, 2002: - IDA had approved 30 credits for a total amount of about US$271 million, with an undisbursed amount of about US$70 million. - The current portfolio consisted of six projects totaling US$99 million. - Summary of Statement of IDA Credits (as of April 30, 2002; in millions of U.S. dollars): - 24 credits closed: Commitment 171.8; Disbursed 172.8; Undisbursed 0.0 - Ongoing projects subtotal: Commitment 83.0; Disbursed 17.9; Undisbursed 64.1 - Total: Commitment 270.8; Disbursed 198.5; Undisbursed 70.4 - IFC portfolio (as of April 30, 2002; in millions of U.S. dollars): - Total Portfolio Committed/Held: 0.6 (Loan 0.6; Equity 0.0; Quasi 0.0; Partic 0.0) - Total Disbursed: 0.6 (Loan 0.6; Equity 0.0; Quasi 0.0; Partic 0.0) *Source: _cr0442 - Appendix I, Table 2 (extracted content).* ### 73. There are substantial weaknesses in The Gambia's economic and financial statistics, ### There are substantial weaknesses in The Gambia's economic and financial statistics ### Data quality, dissemination, and metadata - Substantial weaknesses exist in national accounts, balance of payments, and external debt statistics. - Reporting delays and poor quality of some data hamper analysis of recent economic developments. - Authorities have recently provided most core data to the Fund in a timely manner. - Available data are published in the central bank's quarterly bulletins and the Central Statistics Department's (CSD) publications. - The Gambia volunteered to serve as a General Data Dissemination System (GDDS) pilot country. - In November 1999, an STA technical mission helped develop GDDS metadata; the metadata are now available on the Fund’s Dissemination Standards Bulletin Board (DSBB). ### Real sector (national accounts and CPI) - Annual national accounts estimates are compiled on the basis of indicators in the absence of comprehensive information on various economic activities and are available only from the production side. - Reliable data on employment and labor costs are not available. - The breakdown by expenditure category is largely estimated by Fund staff. - Independent expenditure-side estimates should be possible for 1998, when a comprehensive household survey was carried out. - Improvements require adequate staffing of the CSD and improved data collection through surveys. - CSD planned improvements include: - move the base year from 1976/77 to a more recent year; - provide estimates of private final consumption; - change the framework of national accounts from the 1968 System of National Accounts (SNA) to the 1993 SNA. - CPI issues: - Currently, CSD publishes low-income CPI using weights based on the 1976/77 survey. - Price survey geographical coverage is limited to the greater Banjul area; consistency issues exist for nonfood item prices. - A new CPI (base July 1994-June 1995) for low- and middle-income population in the greater Banjul area was produced using 1992/93 household expenditure survey weights, but underlying household survey data are thought to be weak. - A large 1998 nationwide household survey mapping poverty could form the basis for new CPI weights. - CPI improvements also require adequate CSD staffing and better survey data collection. - STA assistance: - An STA real sector expert assisted on the CPI and national accounts in August 2001. - STA technical experts provided assistance on national accounts in November–December 1998. - During 2000, authorities published documentation on sources and methods for GDP by kind of economic activity and planned publications for FY 1995/96, FY 1996/97, and calendar years 1997 and 1998. ### Government finance - Authorities provide current information on central government revenue and expenditure. - Data on domestic government financing are available monthly with a short lag. - The three-year rolling public investment program has not been updated for some time; public investment execution needs closer monitoring. - The latest annual data reported for the Government Finance Statistics Yearbook and International Financial Statistics correspond to 1993. - Reforms and actions noted (in broader text): - Closing of public accounts for 1991/92-1999. - Development of an accounting framework to monitor expenditure on poverty reduction, including enhanced HIPC Initiative debt relief-funded expenditure. - Development of a framework to reconcile treasury cash books with central bank accounts. - Bringing a number of below-the-line accounts under budgetary control and reporting procedures. - Encouraged appointment of an Auditor General with substantive responsibilities to audit public accounts on a timely basis. ### Monetary data and central bank reporting - Monthly Central Bank of The Gambia (CBG) balance sheet data are available within two weeks after the end of the reference month. - Monetary survey data are available with a lag of one month. - Coverage of banks in the monetary survey is comprehensive; banks follow a uniform chart of accounts to report to the CBG. - Flash reports of key monetary data are sent from banks to the CBG on a weekly basis. - Over the past two years, CBG introduced several reclassifications of monetary accounts to improve sectorization, coverage, and harmonization with STA and AFR. - STA mission on monetary statistics in August 2001 recommended: - Inclusion of noncommercial bank depository corporations (Postal Savings Bank and Village savings and credit associations (VISACAs)) in the monetary survey. - Reclassification of several balance sheet items of commercial banks and the CBG. - Changes in reporting procedures to harmonize data between STA and AFR. - CBG has made some progress implementing recommendations; STA envisaged a follow-up mission later in the year. ### Balance of payments and external sector statistics - External transactions feature a large informal sector; bulk of reexport trade is unrecorded, requiring supplementation with informal sector estimates. - Central bank estimates reexports as a fixed share of total imports. - Tourism revenue is estimated from tourist arrival data from the relevant ministry. - Data on private capital flows are poor due to nonexistent survey data. - Data on official grants, loan disbursements and repayments are relatively good. - Gross and net international reserves of the central bank are available with a short lag. - Fund technical assistance: - TA on balance of payments statistics in June–July 1999 and September 2000. - 2000 mission noted significant advances and implementation of several 1999 recommendations. - CBG established a balance of payments unit, equipped with computer resources, and initiated surveys of the banking sector, insurance companies, travel and shipping agents, hotels, and foreign embassies. - Government computerized its external public debt stock and debt-service obligations database using the Commonwealth Secretariat’s debt-reporting and management system with World Bank technical assistance. - Additional improvements: - Enhanced cooperation and coordination between CSD and Customs and Excise Department. - CBG received assistance from DFI (contracted by DFID) to support estimation of private capital flows. - CBG to establish a balance of payments committee including relevant government agencies, companies, and organizations to raise awareness and secure timely information provision. - A register of establishments has been compiled with the Gambia Chamber of Commerce and Registrar of Companies; a survey of these was undertaken (structural benchmark for September 30, 2001). ### Key macroeconomic figures and assessments (selected from IMF Public Information Notice) - Real GDP growth in 2001: 6 percent. - Average annual inflation (low-income CPI) in 2001: 4' /2 percent. - External current account deficit (excluding official transfers) in 2001: 14% percent of GDP (up from 12 percent in 2000). - Non-disbursement of donor grants (equivalent to 1.6 percent of GDP) contributed to decline in gross official reserves to SDR 81.4 million at end-2001 (against SDR 86.3 million in 2000), equivalent to about 4.9 months of import cover. - Overall fiscal deficit (excluding grants) in 2001: 8% percent of GDP (up from about 3% percent in 2000). - Deficit including grants in 2001: 7.6 percent of GDP (target was about 3 percent). - Customs revenue shortfall equivalent to 1.3 percent of GDP. - Through end-2001: - Net credit to government increased by 8.3 percent of GDP. - Credit to private sector increased by 12.8 percent. - Broad money growth: about 35 percent in 2000; moderated to 19.4 percent in 2001. - Treasury bill rate raised from 12.5 percent in August to 15 percent by October 2001. ### Policy recommendations and institutional priorities (Executive Board and staff observations) - Strengthen fiscal performance and adhere to targets: reduce overall deficit (excluding grants) to 5 percent of GDP in 2002 and to about 2 percent by 2005. - Improve institutional capacity of tax administration, including customs administration. - Strictly implement measures to eliminate tax and other arrears owed by public enterprises. - Continue reforms to improve tax efficiency and reduce tax exemptions. - Maintain tight controls over expenditures from below-the-line accounts. - Prioritize budgetary reforms to enhance transparency and accountability, including appointment of an Auditor General and development of a medium-term expenditure framework encompassing all major expenditure programs. - Central Bank of The Gambia to pursue prudent monetary policy to maintain low inflation and strengthen external reserves while allowing private sector credit growth. - Emphasize improved and expanded use of indirect monetary instruments, with Fund technical assistance. - Address financial problems of Continent Bank expeditiously, including completion of a resolution plan to establish full budget cost of recapitalization or liquidation. - Enact the anti-money laundering bill and strengthen central bank supervisory functions and independence. - Continue consolidation and broadening of structural reforms to stimulate private sector activity and reduce poverty; priorities include business legislation improvements, framework for regulation of public enterprises, continuation of privatization program, and progress toward sustainable groundnut marketing arrangements with minimal government involvement. - Improve macroeconomic and social data quality and reduce reporting delays; continue participation in GDDS. *Source: IMF staff report and Public Information Notice (PIN) on the Article IV consultation with The Gambia (as contained in the supplied content).* ### conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the ### Conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public ### IMF decision and financing - The Executive Board gave final approval of a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for SDR 20.22 million (about US$27 million) for The Gambia. - The first disbursement made available under the arrangement: SDR 2.89 million (about US$4 million). - The PRGF carries an annual interest rate of 0.5 percent and is repayable over 10 years with a 5 1/-year grace period on principal payments. ### Recent macroeconomic performance (highlights) - Real GDP growth: 6 percent in 2001; recovery supported by agriculture, tourism, and construction. - Average annual inflation in 2001: 4 % percent (text uses this phrasing). - Budget deficit before grants in 2001: widened to 8 % percent of GDP (revised program target was 5.9 percent). - Budget deficit including grants in 2001: increased to 7.6 percent of GDP from 3 percent in 2000. - Domestic revenue: declined to 16.2 percent of GDP in 2001 from 18.2 percent in 2000. - Groundnut production (thousand metric tons): 2001 = 141.4; 2002 projected = 161.0. - Gross official reserves (end of period): 2001 = 81.4; 2002 projected = 87.7 (in millions of SDRs: 69.6 in 1997 up to 87.7 projected in 2002). - External debt outstanding: 2001 = 126.9; 2002 projected = 130.7 (in percent of exports and travel income context shown). - Exchange rate (dalasis per SDR): 2001 = 20.7. ### 2002 developments and staff assessment - Information since Country Report No.04/42 indicates improving conditions but does not alter staff appraisal. - Agriculture: Adequate rains; expectations of increased groundnut production due to increased acreage, better inputs, new traders, rehabilitation of a processing plant and 21 barges. - Tourism: Political calm and increased charter flights; hotel renovations expected to contribute to at least a 15 percent increase in arrivals over 2001. - Inflation: Annual inflation through April 2002 about 5.6 percent, moderated from 8 percent at end-2001. - Exchange rate: Dalasi depreciated in nominal terms by less than 1 percent against the U.S. dollar since the elections in late April (text statement). - Fiscal position early 2002: Expenditure growth moderated, project spending slowed, overall expenditure and net lending appeared within range of end-June program target; revenue performance strong in Q1 2002 but slowed due to border problems affecting re-export trade. - Monetary aggregates: Annual broad money growth about 22¾ percent at end-April 2002 (declined from 25 percent at end-March); outstanding treasury bills at end-May D 1883 million compared with D 1919 million at end-2001. ### Program objectives, projections, and targets under the PRGF-supported program - Macroeconomic anchor: program underpinned by fiscal measures and financial sector reforms to help the poor. - Real GDP growth projected for 2002: 6 percent. - Annual average inflation expected to stabilize at 5 1% percent after surges at end-2001 and early 2002. - Fiscal target for 2002: reduce the overall budget deficit to 5 percent of GDP (revised from 4 percent in the original budget). - Monetary policy objectives for 2002: maintain low inflation and strengthen external reserves; monetary program targets reduction in end-period inflation to 3 % percent and maintenance of adequate gross official external reserves. - Policy stance: tight monetary policy while allowing adequate private sector credit and continuing exchange rate flexibility. ### Fiscal and structural policy recommendations (staff guidance emphasized) - Strengthen fiscal discipline to reverse 2001 slippages: improve revenue performance (including tax administration), maintain strict expenditure controls (especially on below-the-line accounts), and slow implementation of certain projects. - Enhance budgetary transparency and accountability to support social sector priorities in line with the PRSP and HIPC Initiative objectives. - Strengthen revenue administration measures planned: creation of a revenue project management unit and headquarters office; establishment of an Independent Tax Revenue Authority (pending); large taxpayer unit; self assessment; computerization; taxpayer identification number system; upgrading automated customs data system. - Address banking sector vulnerabilities: act expeditiously on Continent Bank’s financial problems and finalize a resolution plan for the distressed bank. - Continue structural reforms: modernize business-related legislation, improve regulation and public procurement, strengthen competition policy, and pursue public enterprise divestiture. - Implement groundnut sector reforms: privatization and creation of a sustainable marketing arrangement with minimal government involvement to support private sector activity. ### Donor relations, debt relief, and technical assistance - Paris Club: One Paris Club creditor reported long-standing technical arrears of about US$7 million and indicated willingness to provide rescheduling on Cologne terms to regularize arrears and provide interim HIPC relief; cash payments similar to program assumptions with no effect on the residual financing gap. - European Commission: Signed release of € 3.7 million and a Financing Agreement of € 4.255 million (including a 15 percent enhanced HIPC Initiative eligibility augmentation); funds expected to reduce government domestic debt and cover the residual financing gap for 2002. - Technical assistance: June 2002 joint Bank/Fund tax mission agreed a 2002/03 work agenda for tax revenue reforms; IMF to send an expert to Banjul in late summer to help draft a new Income Tax Bill; a follow-up central bank mission planned for late July 2002 under the Technical Cooperation Action Plan. ### Key selected statistics (preserved exactly as in source) - PRGF arrangement amount: SDR 20.22 million (about US$27 million). - First disbursement: SDR 2.89 million (about US$4 million); alternative phrasing in text: SDR 2.89 million (about US$3.8 million) in earlier press release wording. - Real GDP growth: 2001 = 6 percent; projected 2002 = 6 percent. - Consumer price index (period average): 2001 = 4.0; 2002 projected = 3.0. - Annual inflation through April 2002: about 5.6 percent. - Budget deficit before grants (2001): 8 % percent of GDP; revised program target = 5.9 percent. - Budget deficit including grants (2001): 7.6 percent of GDP (from 3 percent in 2000). - Domestic revenue (2001): 16.2 percent of GDP (from 18.2 percent in 2000). - Groundnut production (in thousand of metric tons): 2001 = 141.4; 2002 proj. = 161.0. - Gross official reserves (end of period, millions of SDRs): 2001 = 81.4; 2002 proj. = 87.7. - External debt outstanding: 2001 = 126.9; 2002 proj. = 130.7. - Exchange rate (dalasis per SDR): 2001 = 20.7. - Broad money growth at end-April 2002: 22¾ percent; at end-March 2002: 25 percent. - Outstanding stock of treasury bills: end-May D 1883 million; end-2001 D 1919 million. - Paris Club technical arrears reported by a creditor: about US$7 million. - European Commission release: € 3.7 million; Financing Agreement: € 4.255 million (including 15 percent enhanced HIPC augmentation). *Source: IMF Country Report conclusion and associated press releases and staff statements as provided in the supplied content.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0442.pdf_