## ADDENDUM TO THE JOINT STAFF ADVISORY NOTE ON THE SECOND POVERTY REDUCTION STRATEGY PAPER

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### I. Background
- Evidence of satisfactory implementation of the strategy described in a Poverty Reduction Strategy Paper (PRSP) for at least one year is required for a country to reach HIPC completion point.
- The Gambian authorities produced two Annual Progress Reports (APRs) covering implementation of the first PRSP during 2002-03 and 2004.
- PRSP2 (covering 2007–11 and incorporating an APR for 2005) was issued to Boards in June 2007 and responds to shortcomings identified in previous JSANs, including:
  - a detailed action plan to achieve macroeconomic and structural targets;
  - closer linkage of objectives to the Millennium Development Goals (MDGs), including costed and time bound interventions to achieve each MDG.
- This addendum focuses on PRSP implementation during 2005 and is organized around four main themes: (i) macroeconomic stability and effective public resource management; (ii) promotion of pro-poor growth and employment through private sector development, particularly rural agriculture; (iii) improved basic social services and infrastructure; and (iv) capacity building of local communities and civil society organizations (CSOs).

### II. PRSP Implementation during 2005

#### A. Macroeconomic Policies and Public Resource Management — Key findings
- Macroeconomic environment:
  - stable exchange rate;
  - low single-digit levels of annual inflation;
  - real GDP growth at a respectable 5 percent.
- Fiscal outcomes:
  - fiscal basic balance recorded a deficit of 0.1 percent of GDP, compared to the original target of a surplus of 2.8 percent of GDP.
  - deterioration due to extra-budgetary expenditures in the first half of 2005 and a shortfall in revenues in the second half of the year related to a two-month closure of the border with Senegal.
  - authorities increased retail prices of petroleum products to avoid subsidization by the budget and instituted expenditure cuts in the second half of the year.
- External balance:
  - a wider-than-targeted external current account deficit reflected increased availability of external financing in the form of foreign direct investment and official concessional loans.
- Causes of missed targets:
  - persisting after-effects of past policy slippages and lower donor support;
  - slippages in the early-2000s increased public debt and led to donor disengagement following interruption of the PRGF-supported program;
  - high attrition in the civil service due to uncompetitive salaries reduced capacity;
  - lapses in fiscal discipline crowded out PRSP-related expenditures;
  - delays in addressing governance problems in the Central Bank of The Gambia (CBG) contributed to the PRGF-supported program remaining off-track.
- Remedial measures implemented in 2005:
  - Action Plan to strengthen internal controls at the CBG approved by the CBG Board and began implementation;
  - new CBG Act promulgated aimed at enhancing operational independence of the central bank;
  - establishment of the Monetary Policy Committee with representation from the Department of State for Finance and Economic Affairs to improve coordination between monetary and fiscal policy;
  - submission of audited government accounts for 1992–99 to the national assembly;
  - introduction of new codes for PRSP-related expenditures in the 2006 budget (formulated in 2005) to improve monitoring of such expenditures;
  - a Staff-Monitored Program (SMP) was successfully implemented during October 2005-March 2006 to re-establish the country’s record of policy implementation with the Fund.

#### B. Pro-Poor Growth and Employment — Key findings and recommendations
- Sector emphasis and performance:
  - staffs recommend greater focus on reforming the agriculture sector, drawing lessons from relative successes in education and health.
  - PRSP2 notes a new agriculture sector strategy under preparation to promote pro-poor growth and employment in the rural sector through private sector development.
- Public expenditure pattern in agriculture (2001–2005):
  - share of spending on extension services declined substantially;
  - spending on inputs (e.g., fertilizers) increased.
- Staffs’ concerns and recommendations:
  - concern about under funding of extension services;
  - agree that responsibilities for supply of inputs should be shifted to the private sector;
  - recommend Department of State for Agriculture concentrate on providing public goods and services.
  - reiterate earlier recommendation that the authorities prepare a comprehensive rural development strategy encompassing agricultural development, employment creation, and improvement of health, education and physical infrastructure.
  - such a strategy should draw on the 2006 agricultural public expenditure review to translate PRSP emphasis on agricultural research and extension and irrigation services into budgetary allocations.
- Divestiture program:
  - sale of government’s shares in the Senegambia Hotel was the main 2005 achievement;
  - attempt to privatize public sector groundnut processing plants during 2005-06 was unsuccessful;
  - a mid-term review of the divestiture program undertaken in 2005 made little difference to operations of the Gambia Divestiture Agency;
  - staffs recommend acceleration of the divestiture program.

#### C. Basic Social Services and Infrastructure — Key findings
- Education:
  - staffs support the focus of the new education policy (2004–15) on quality of education;
  - government implemented an extensive program expanding infrastructure, teacher training and school materials;
  - number of girls benefiting from government scholarships substantially increased in 2005;
  - enrolment rates at primary and secondary levels, especially for girls in rural areas, are reported to have risen considerably between 1998 and 2005;
  - however, enrollment dropped in some areas for boys at the lower basic school level (grades 1–6), and poor test results raised questions about education quality;
  - a public expenditure review for the sector carried out in 2002 is being updated to improve targeting of resources and to inform a ten-year education master plan.
- Health:
  - major challenges include high incidence of malaria and tuberculosis;
  - PRSP2 policy focus is access to quality health services for all citizens;
  - primary and secondary health care expanded significantly, particularly construction of health centers through donor financing;
  - investments in health centers have mostly been made in poorer regions;
  - expansion in coverage of immunization services has lowered mortality rates significantly;
  - survey results show substantial reductions in infant mortality and under-five mortality rates between 1993 and 2005:
    - infant mortality rate fell from 137 to 75 per thousand live births over the period.

#### D. Local Communities and Civil Society Organizations — Key findings
- In 2005, local communities and CSOs participated actively in a government-led dialogue on development priorities and strategies.
- With World Bank and UNDP support, a Strategic Planning Process and Community Scorecards gathered views from community leaders, religious leaders, CSO representatives, local government officials, and members of the national assembly.
- Outputs from these consultations informed preparation of PRSP2.

### III. Conclusions and Policy Recommendations
- Maintaining fiscal discipline remains vital for achieving PRSP objectives.
- Progress in 2005:
  - macroeconomic stability was sustained;
  - continued improvements in access to social services, especially education and health.
- Areas with less progress:
  - promoting rural development as the centerpiece of pro-poor growth;
  - advancement of the divestiture program.
- Specific staff recommendations:
  - APRs should be produced in a timely manner and lessons learned should be used to revise the strategy going forward.
  - APRs should be used to update the medium-term macroeconomic framework as well as annual sectoral plans to provide current benchmarks against which to measure performance.
  - staffs welcome authorities’ intention to produce the first APR on PRSP2 implementation (covering 2007) by mid-2008 to allow lessons from the first year to inform the formulation of the 2009 budget.
- Fiscal and budgetary priorities:
  - address lapses in fiscal discipline to avoid crowding out PRSP-related expenditures;
  - accelerate divestiture to strengthen private sector development;
  - re-orient agricultural spending toward extension and public goods while shifting input provision to private sector;
  - continue strengthening governance and controls at the CBG and maintain coordination between monetary and fiscal authorities.

*Prepared by the Staffs of the International Monetary Fund and the International Development Association; Approved by Hugh Bredenkamp and Matthew Fisher (IMF) and Obiageli K. Ezekwesili (IDA); December 14, 2007.*

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