Press Release No. 02/32

The Executive Board of the International Monetary Fund (IMF) today approved in principle 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 IMF's Board's decision will become effective after the World Bank Executive Board's review of The Gambia's Poverty Reduction Strategy Paper (PRSP), scheduled for July 16, 2002. Upon effectiveness of the IMF's Board decision, The Gambia will be able to draw SDR 2.89 million (about US$3.8 million) under the arrangement.

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

After the Executive Board's discussion on the Gambia, Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:

"The Gambian authorities have achieved a broadly encouraging economic performance under their previous PRGF arrangement, including sustained real GDP and per capita income growth, and low inflation. Notable achievements include the reforms in the financial sector, the substantial reduction and rationalization of external tariffs, the settlement of the property dispute with Alimenta, and the preparation of a comprehensive PRSP. However, fiscal slippages in 2001 and continuing through the first quarter of 2002 have partly undermined these positive achievements.

"The Fund therefore welcomes the authorities' renewed commitment to strengthen fiscal performance. The new PRGF-supported program aims at improved fiscal discipline, further progress in ensuring good governance, and the continued implementation of broad-based economic and financial reforms which are key to promoting private sector activity and reducing poverty. Better coordination of donor aid, including a comprehensive technical assistance program which will be presented to a donor conference, will help support the implementation of the PRSP. The Fund contributes to this effort, and the staff has prepared a Technical Cooperation Action Plan to improve macroeconomic policy formulation and implementation.

"The revised budget for 2002 provides for an appropriate strengthening of fiscal performance to reduce the fiscal deficit and the stock of domestic debt in line with the medium-term framework. To achieve the program's fiscal objectives, the authorities will press ahead with reforms to further strengthen revenue, including by improving tax administration; maintain strict expenditure controls, especially on the below-the-line accounts; and slow down the pace of implementation of certain projects. Broader budgetary reforms aimed at enhancing the transparency and accountability of public expenditure will also be crucial to support the emphasis on key social sector priorities, in line with the PRSP and HIPC Initiative objectives.

"The pursuit of a prudent monetary policy, while providing adequate private sector credit growth, will remain key to containing emerging inflationary pressures. The authorities should also act expeditiously in addressing the Continent Bank's financial problems, including finalizing a resolution plan for the distressed bank.

"Implementation of structural reforms, including measures to improve business legislation, continuation of the privatization program, and the creation of a sustainable marketing arrangement for groundnuts with minimal government involvement, will be essential to strengthen the foundations for private sector activity and accelerating poverty reduction," Mr. Aninat said.

ANNEX

Recent Economic Developments

Under the 1998-2001 PRGF arrangement supported by the IMF, The Gambia overall registered significant gains on the macroeconomic and structural policy fronts, although performance was somewhat uneven, especially towards the latter part of the program period.. A recovery in real GDP growth, led by improved agricultural performance, including in the key groundnut sector, helped reduce inflation. There was considerable fiscal and external sector adjustment, and exports and imports recovered significantly.

Economic performance during 2001 was mixed. Real GDP grew by 6 percent, underpinned by the strong performance of the agriculture, tourism, and construction sectors. Average annual inflation edged up to 4 ½ percent, driven by higher imported inflation and expansionary fiscal policies. In the fiscal area, the budget deficit before grants widened to 8 ¾ 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. In addition, revenue shortfalls, including in customs revenue, reflected weak tax administration and the financial problems of public enterprises. Overall, domestic revenue declined to 16.2 percent of GDP in 2001 from 18.2 percent in 2000.

To ensure that there is no recurrence of the recent slippages, the authorities have slowed project execution and maintained tighter expenditure controls. On the revenue side, there was a significantly enhanced revenue performance in the first quarter of 2002.

Program Summary

The PRGF arrangement is underpinned by macroeconomic adjustments, including fiscal measures and reforms to strengthen the financial sector that will help the poor.

Real GDP growth is projected at 6 percent for 2002. This outcome is supported by the expected privatization, and reforms in groundnut marketing; the continued recovery in the re-export and fishing sectors, and improved confidence.

After a surge from end-2001 through early 2002, annual average inflation is expected to stabilize at 5 ½ percent, following measures to tighten financial policies.

Fiscal policy aims at reducing the overall budget deficit to 5 percent of GDP, compared with the 4 percent in the original budget. This revised budget target is based on an expected recovery in revenue, the nonrecurrence of previous exceptional outlays in 2001, and measures to tighten expenditure controls. The revised budget reflects an emphasis on increased expenditure allocations for key sectoral priorities such as agriculture, health, and education.

The key objectives of monetary policy during 2002 are to maintain low inflation and strengthen external reserves. The monetary program for 2002 targets a reduction in end-period inflation to 3 ¾ percent and the maintenance of adequate gross official external reserves. In this context, the government will maintain a tight monetary policy, while providing adequate credit to the private sector, and continuing to promote exchange rate flexibility.

On the structural front, areas covered include the modernization of business-related legislation, the regulation and public procurement, the competition policy, and public enterprises divestiture.

The PRSP Process

The main objectives of The Gambia's PRSP are to promote growth and employment, enhance the provision of social services and mainstream cross-cutting policies for gender issues and the HIV/AIDS problem, as well as to improve the economic environment in order to accelerate poverty reduction.

The PRSP provides a clear set of indicators and targets for monitoring and evaluating the implementation of the strategy in the health and education sectors in an innovative approach. It proposes to integrate conventional quantitative approaches to monitoring with participative methods, involve civil society groups in the budget process to increase transparency, and include indicators on the new area of social capital along side the more traditional indicators of physical and human capital.

The Gambia joined the Fund on September 21, 1967. Its quota is SDR 31 million (about US$41 million), and its outstanding use of IMF resources as of April 30, 2002 is SDR 20.61 million (about US$27 million).

The Gambia: Selected Economic and Financial Indicators, 1997-2001 1/
	1997	1998	1999	2000	2001	2002
			Est.	Prel.	Prel.	Proj.
	(Annual percentage changes)
Domestic economy
Real GDP	4.9	3.5	6.4	5.6	6.0	6.0
Nominal GDP	9.3	6.1	11.0	9.4	10.6	9.3
GDP deflator	2.6	2.5	4.4	3.8	6.4	4.5
Consumer price index (period average)	2.8	1.1	3.8	0.9	4.0	3.0
Groundnut production (in thousand of metric tons)	78.1	73.5	123.0	138.0	141.4	161.0
	(In percent of GDP)
Gross fixed investment	17.2	18.4	17.8	17.3	17.7	19.4
Government	8.4	5.9	5.3	4.6	4.7	5.7
Private	8.8	12.5	12.5	12.7	13.0	13.7
Gross domestic savings	7.1	7.5	7.9	4.9	4.1	6.7
Gross national savings	13.5	15.3	13.5	12.6	13.7	14.3
Government	8.4	9.3	8.3	7.6	5.5	6.9
Private	5.1	5.3	5.2	5.0	8.2	7.4
	(In percent of GDP unless otherwise specified)
Financial variables
Government revenues	19.1	18.8	17.9	18.5	16.2	17.5
Current expenditures	17.6	18.0	18.0	18.3	20.2	17.6
Overall fiscal balance, excluding grants 2/	-7.8	-4.4	-4.8	-3.6	-8.7	-5.0
Overall fiscal balance, including grants 2/	-6.5	-2.4	-3.5	-1.4	-7.6	-2.2
Basic primary balance	4.9	5.6	4.6	4.6	-1.3	3.3
Current balance	0.1	0.7	-0.2	0.2	-4.0	-0.2
Change in broad money (in percent)	22.3	10.2	12.1	34.8	19.4	13.2
	(In millions of SDRs, unless otherwise indicated)
Exports, f.o.b.	78.8	95.8	87.9	95.8	110.3	119.4
Imports, f.o.b.	-127.9	-152.7	-141.5	-145.9	-171.9	-176.6
Current account balance
Excluding official transfers	-31.4	-35.6	-36.4	-38.7	-44.0	-40.6
Including official transfers	-11.0	-9.3	-13.5	-14.9	-20.0	-15.2
Current account balance
Excluding official transfers 3/	-10.6	-11.6	-11.7	-12.1	-14.8	-13.2
Including official transfers 3/	-3.0	-3.0	-4.4	-4.7	-6.7	-5.0
Overall balance of payments	4.7	7.1	2.3	1.0	-10.3	-13.8
Gross official reserves (end of period)	69.6	75.4	78.1	86.3	81.4	87.7
In months of imports, c.i.f.	5.6	5.1	5.8	6.1	4.9	5.1
External debt service 4/	13.5	11.4	11.4	8.5	16.0	11.9
External debt outstanding	107.5	97.5	101.6	110.0	126.9	130.7
Exchange rate (dalasis per SDR)	13.9	14.4	15.9	16.9	20.7	...
Sources: The Gambian authorities; and IMF staff estimates and projections.
1/ Until 1996/97, fiscal years (July-June); from 1997, calendar years.
2/ On a commitment basis.
3/ In percent of GDP.
4/ In percent of exports and travel income.