Gambia L,
Below is the copy of the letter sent to the IMF by the Gambia government
unedited and culled from the IMF website. it was a followup to Ebrima's
sources declaration!
Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street N.W.
Washington, D.C. 20431
U.S.A.
Dear Mr. Köhler:
1. In the context of its continued reform efforts to promote economic growth
and poverty alleviation, the government of The Gambia adopted a medium-term
economic and financial program (April 1, 1998-March 31, 2001), supported
under a three-year arrangement under the Poverty Reduction and Growth
Facility (PGRF).1 This letter, which supplements our letter of November 8,
1999, reviews performance under the first half of the second annual PRGF
arrangement approved by the Executive Board on November 19, 1999
(EBS/99/201; 11/8/99, Correction 1). It also outlines the government's
objectives and policies for the balance of 2000. Against this background, it
notes that most of the quantitative performance criteria for end-March 2000
and all of the structural performance criteria were observed and requests
waivers for the nonobservance of the end-March 2000 quantitative criteria
with respect to (a) net bank credit to the central government; (b) net
domestic assets of the central bank; and (c) basic primary balance of the
central government (see para. 6).
2. The government is aware that overall performance under the second year
PRGF-supported program has so far been mixed. Notwithstanding robust real
GDP growth with low inflation and good progress in implementing a number of
structural reforms, there were budgetary slippages during the fourth quarter
of 1999 through the first quarter of 2000. The government is therefore
determined to consolidate the overall economic gains made in 1999 and so far
in 2000 and undertake corrective measures to address the policy slippages in
order to achieve strong momentum toward realizing its medium-term economic
and financial objectives. In fact, significant progress has already been
made in implementing corrective measures, including structural reforms and
the posting of a long-term Fund budget advisor to Banjul to strengthen
budget implementation.
3. In 1999, real GDP growth, estimated at 5.6 percent, exceeded the program
target. There was better performance across the board, especially in tourism
with an estimated growth of 34 percent in visitors. In agriculture, good
rains contributed to an increase of 67 percent in groundnut production, to
about 123,000 metric tons, while production of other crops increased by 21
percent. The good harvest in 1999 contributed to a moderation in the
end-of-period inflation (based on the low-income consumer price index) to
below the program target of 2 percent. The decline in imports following the
introduction of the preshipment inspection scheme (see below) and the
depreciation of the real effective exchange rate of the dalasi by 2.3
percent, contributed to a lower external current account deficit (excluding
official transfers) of about 10½ percent of GDP during 1999, compared with
11½ percent in 1998. Gross official reserves were below the end-1999 target
by SDR 4.3 million, but the end-March 2000 quantitative performance
criterion with respect to the floor on the net foreign assets of the central
bank was observed as the central bank curtailed its intervention in the
foreign exchange market.
4. Budget implementation during 1999 suffered a number of setbacks despite
the introduction of midyear measures to consolidate the fiscal deficit.
Instead, the overall fiscal deficit (excluding grants) increased to 4.8
percent of GDP compared with the program target of 3.1 percent. The original
budget for 1999 was supsequently weakened by the larger-than-envisaged
adverse revenue impact of a reduction in the maximum import duty rate to 20
percent effective January 1, 1999, and by a cut in petroleum product prices
aimed at passing through the decline in world market prices. To rectify
this, the government adopted supplementary measures in June to strengthen
customs revenue collection and contain recurrent expenditure. However, there
was a supsequent shortfall in revenue from customs duty and sales tax on
imports during the fourth quarter equivalent to 1.2 percent of GDP,
following the introduction of the preshipment inspection scheme on imports
in October 1999.2 On the expenditure side, the wage bill for 1999 slightly
exceeded the target because of higher payments for statutory gratuities,
pensions, and the hiring of new teachers. Overall, other recurrent
expenditures exceeded the program target by D 46 million (0.9 percent of
GDP), including additional domestic interest payments. Thus, net government
borrowing from the banking system exceeded the program target by an
equivalent of 4¾ percent of the beginning-of-the-period money stock.
5. Domestic credit expansion, both to the government and the private sector,
exceeded the program targets significantly by end-December 1999 and through
end-March 2000. The growth in private sector credit during the first quarter
of 2000 was entirely accounted for by financing of the marketing of the
groundnut crop, as credit to the rest of the private sector declined by 3
percent. Attempts by the central bank to mop up commercial banks' excess
reserves were not effective. The treasury bill rate declined from 14 percent
in December 1998 to 12 percent by end-March 2000, broadly in line with the
decline in inflation during the same period.
6. The quantitative performance criteria for end-March 2000 with respect to
net bank credit to the central government, net domestic assets of the
central bank, and the basic primary balance of the central government were
not observed (Table 1) largely as a result of the fiscal slippages in the
fourth quarter of 1999 and the mid-March salary advance to civil servants.3
However, the implementation of structural measures was encouraging. In
particular, a comprehensive survey of government arrears as of end-June 1999
and end-December 1999 was completed, earlier than programmed, by
mid-February, while the reconciliation of the Treasury accounts from
September 1997 to December 1999 with those of the central bank was completed
ahead of schedule by end-March 2000 (Table 2).
7. Other key reforms are generally on schedule (Table 2). The original
budget for 2000 incorporated a reduction in the maximum external tariff from
20 percent to 18 percent, effective from July 1, 2000, and the customs
department has been working out details to reduce the number of tariff
brackets from eight to three as envisaged in the program. The budget also
provided for an average 20 percent increase in petroleum product prices,
effective January 1, 2000, and granted the Secretary of State for Finance
the flexibility to adjust the petroleum product prices on the basis of an
existing formula without going back to parliament. The government privatized
the Atlantic Hotel in December 1999 and sold the Trust Bank Building in
February 2000. In response to the late 1999 crisis with groundnut marketing,
the government reached agreement with the European Union (EU) on the details
for the financing of the 1999/2000 groundnut crop without any direct
government involvement, while providing for EU to reimburse a part of the
marketing costs.
Macroeconomic and budgetary framework for the balance of 2000
8. The outlook for 2000 has been dimmed by a sharp decline in tourist
arrivals—originally triggered by the year-2000 (Y2K) anxieties in late
December 1999—and the weakness in the distributive trade sector as a result
of the preshipment exercise.4 There have also been problems in marketing the
large groundnut crop from 1999, with delays in evacuating the crop, and
paying farmers, and some reluctance by domestic banks to continue
participating in crop financing. On this basis, real GDP growth is projected
to ease to just below 5 percent during 2000. Measured inflation is projected
to continue at below 3 percent. As detailed in paragraph 20, the external
current account deficit (excluding grants) is projected to improve to 10¼
percent of GDP.
9. The fiscal program for 2000 was revised to take account of recent
developments. Thus, even though the budget for 2000 (approved by parliament
on January 5) incorporated revenue measures equivalent to 0.8 percent of GDP
in excess of the program target, policy slippages during the fourth quarter
of 1999 and other developments adversely affected the overall budgetary
projections for 2000.5 Accordingly, the original budget projections for 2000
were revised to reflect (a) lower customs duty receipts (D 48 million or 0.9
percent of GDP) as a result of the adverse impact of preshipment inspection;
(b) lower domestic sales tax owing to the lower hotel occupancy so far in
2000, the likely summer closure of a number of hotels, and the damage to the
Gambia Telecommunications Company Limited (GAMTEL) property during the
students' riots in April; (c) higher wages and salaries to cover the hiring
of, and double shifts for, teachers; and (d) higher other recurrent
expenditures, including domestic interest payments, to provide for growing
public services and the timely discharge of government payments. With these
changes, the overall fiscal deficit (excluding grants) would reach 3.8
percent of GDP and give rise to considerable government borrowing from the
banking system.
10. In order to address the deteriorating fiscal situation and restore
macroeconomic stability, the government has implemented revenue measures
amounting to D 65.7 million (1.2 percent of GDP), of which D 15.7 million
was covered by the further increase in diesel prices (8 percent) and an
average 28 percent increase in the duty free prices of petroleum products
effective February 2000. The remaining gap has been filled by (a) abolishing
the preshipment inspection scheme effective July 1, 2000 leading to an
estimated recovery of D 30 million in customs duty; and (b) selling the
Kombo Beach and Mariatou hotels, thereby permitting the government to
recover an estimated D 20 million in tax arrears. With these measures, the
overall fiscal deficit (excluding grants) will be brought back to 2.6
percent of GDP, with net government repayment to the banking system
estimated at 0.8 percent of GDP, both largely in line with the original
program.
11. To supplement these measures, the government has accelerated budgetary
reforms to improve performance. On the revenue side, in addition to the
external tariff reforms, the customs department will complete the
implementation of the automated system for customs data (ASYCUDA) in July
2000. Further steps have been taken to improve coordination between the
revenue departments and to effect the timely reconciliation of their
accounts with those of the central bank in order to facilitate revenue
collection. Moreover, the government is discussing with the World Bank a
capacity-building project under which they could receive long-term technical
assistance to strengthen the Central Revenue Department. On the expenditure
side, the government issued a circular on May 10 providing for a reform in
the accounting practices that would permit comprehensive reporting and
control of government expenditure, especially on the "below-the-line (BTL)
accounts" that have proliferated over the years. Timely information on these
accounts will also allow faster reconciliation of treasury and central bank
accounts, which, in turn, will facilitate macroeconomic policy coordination.
The Fund long-term budget expert expected to return to Banjul in July should
play a key role in these and other reforms to strengthen institutional
capacity.
12. Furthermore, the government is implementing measures to deal firmly with
the reemergence of the cross arrears of the government and the public
enterprises, which had been cleared in 1998. As of end-December 1999, the
government had accumulated arrears of D 26 million (0.5 percent of GDP) to
public enterprises, while the latter had accumulated an estimated D 21
million in arrears to the government. A program for the mutual settlement of
these arrears, with quarterly targets leading to their elimination by
end-2000, is being implemented.
13. A key objective of monetary policy during 2000 is to maintain low
inflation and strengthen external reserves. To these ends, the government
will pursue sustained prudent fiscal policies, and a tight monetary policy
(while providing adequate credit to the private sector), and promote greater
exchange rate flexibility, consistent with a further buildup of official
reserves. Accordingly, through sales of securities, the central bank will
seek to moderate the growth of broad money from an estimated 24 percent at
end-March 2000 to below 12½ percent by end-2000. In a broader context, the
participation of smaller banks in the financing of the marketing of the
1999/2000 groundnut crop reflects the greater competition that is developing
in the banking system. This development, in turn, should benefit the
arrangements that are being made to finalize the setting up of a short-term
liquidity forecasting system as well as the related arrangements to
transform the Treasury Bill Committee into an Open Market Operations
Committee, supported by the May 2000 technical assistance provided by a
short-term Fund expert.
14. The central bank is undertaking various measures to strengthen its
regulatory and supervisory role over the financial sector. These include the
finalization of the Financial Institutions Act and the Insurance Act for
their expected July presentation for parliamentary approval. With the
benefit of Fund technical assistance, further progress has been made in
preparing for the introduction of foreign currency deposits and improving
the reporting of financial data (monetary and balance of payments). The
monetary authorities will ensure that banks maintain full provisioning for
nonperforming loans and maintain their capital adequacy ratio above the
legal requirement of 8 percent.
15. In April 2000, The Gambia, together with five other countries in West
Africa,6 signed the "Accra Declaration" to establish a common currency
region by 2003. The primary convergence criteria specify that the six
countries must achieve inflation of under 10 percent by 2000 and 5 percent
by 2003 in a "fast-track" program to create a single currency. Other
criteria include a foreign currency reserve cover target of at least three
months of imports by end-2000 and six months by end-2003; a limit on central
bank financing of the budget deficit of 10 percent of the previous year's
tax revenue; and a budget deficit (excluding grants) target of 5 percent of
GDP by 2000 and 4 percent by 2002. Details of the specific measures that
will need to be coordinated to achieve these targets have yet to be
discussed and agreed by the relevant authorities.
Structural and sectoral policies
16. The modernization of business-related legislation and regulation needs
to be speeded up, and the government is pushing for additional reforms in
the judicial system to reduce the backlog of court cases, including those in
the commercial branch of the high court, by increasing the number of high
court judges by 50 percent by October 2000 to facilitate the opening of four
regional courts. Following the October 1999 cabinet approval of an interim
procurement code to enhance transparency and efficiency in government
purchases, the government is taking steps to expedite access to technical
assistance in order to complete the drafting of a new comprehensive code
that meets the latest international standards. Pending a comprehensive tax
reform, the government has drafted an interim Investment Bill—currently
under review in the Department of State for Justice—which will also provide
the legal framework for the export processing zone that is to be supported
by the proposed World Bank Trade Gateway project. During May 2000, the
government initiated discussions with the Commonwealth Secretariat, with the
aim of developing a competition policy, and eventually drafting a
Competition Bill, to provide an environment that is conducive to competitive
business activities.
17. Regarding the public enterprise sector, the Privatization Agency Bill,
which was supmitted to the cabinet in April 2000 and will be supmitted to
parliament for approval in June 2000, provides for the establishment of an
agency that will oversee privatization. This bill duly recognizes the
existence of a divestiture account at the central bank into which the
government intends to deposit the proceeds from privatization. In 2000, a
minimum of D 24 million will be transferred from the divestiture account to
pay some of the government's domestic debt. In the meantime, the government
intends to rigorously implement the terms of the memoranda of understandings
(MOUs) that were agreed upon with a number of public enterprises in 1998.
Thus, the government will take the necessary measures to prevent any further
accumulation of payment-arrears, and insist that all public enterprises
fully meet their tax, debt-service, and dividend obligations. With regard to
GAMTEL, in April 2000, the cabinet decided to separate GAMTEL's broadcasting
activities from the telecommunications business as a first step toward
privatizing the enterprise.
18. In agriculture, implementing the institutional reforms in the marketing
arrangements of the groundnut crop to replace the ad hoc arrangements during
1999/2000 remain a priority. In this regard, the government intends to
continue to work with the EU and the Agri-Business Service Plan Association
(ASPA), comprising farmers and buyers, to improve the marketing of the
groundnuts and encourage ASPA to adhere to a schedule to publicly announce
producer prices early in the planting season; timely crop financing
arrangements will also be promoted. The government intends to make timely
arrangements to provide suitably improved seed varieties, and fertilizer and
credit facilities, the latter through the IFAD Rural Finance and Community
Initiative. Significant support for the fishing sector will be provided by
projects, funded by some US$8 million, to build cold storage and artisanal
facilities in The Gambia.
19. With regard to governance, in March 2000, the government held a
roundtable meeting on governance in Banjul, and committed itself to (a)
strengthening the constitutional and electoral processes; (b) strengthening
the parliamentary structures and processes; (c) promoting civic education
and enhancing civil participation in the political process (d) improving the
legal and judicial processes; (e) decentralizing and reforming the local
government system; and (f) improving the management and transparency of
public finances. Within this broader framework, the government has continued
to seek the settlement of the seizure of the Gambia Groundnut Corporation
with its parent company, Alimenta. Senior government officials met with
Alimenta's representatives in Geneva in February 2000, and the International
Center for the Settlement of Investment Disputes (ICSID) held its first
meeting on this dispute in March 2000; bilateral contacts are continuing to
expedite settlement of the matter.
External sector policies
20. On the basis of the economic policies detailed above, the external
current account deficit (excluding official transfers) is projected to
narrow slightly to about 10¼ percent of GDP in 2000. The volume of total
exports (including reexports) is projected to increase by about 15 percent,
reflecting a recovery in groundnut production, fish exports, and the
reexport trade. It is also expected that the groundnut exports will contain
a larger proportion of high-quality nuts. Import volumes are projected to
grow by about 7 percent largely because of the recovery in the reexport
trade following the removal of the preshipment inspection scheme and the
reduction in the external tariff. The terms of trade are projected to remain
virtually unchanged in 2000. Receipts from tourism are projected to decline
by 6 percent because of the anticipated low summer activity. Assistance from
donors is projected to increase, resulting in an increase of gross official
reserves of SDR 9.8 million in 2000 to a level equivalent to about six
months of import cover.
21. The government remains committed to a liberal trade and exchange system.
To this end, it will further reduce the external tariff to a maximum rate of
18 percent effective July 1, 2000 and number of bands in the tariff system
from eight to three, thereby cutting the import-weighted average tariff rate
from 12 percent to 11.8 percent (neutral revenue scenario). These measures,
together with the pursuit of a market-based flexible exchange rate, should
benefit The Gambia's external competitiveness and facilitate the recovery in
the important reexport trade. To further improve its debt-service profile,
The Gambia will need to continue to manage its external debt prudently and
rely exclusively on external grants or long-term loans on highly
concessional terms. Moreover, the government will continue to meet its
external debt-service obligations in a timely manner. It has also made
progress in collaborating with the Fund staff in improving the data that
will be used for the debt sustainability analysis (DSA) in order to assess
The Gambia's eligibility under the enhanced HIPC Initiative and looks
forward to a favorable outcome. Meanwhile, it is expected that by August
2000 agreement will be reached on the debt owed to the Norwegian export
guarantee agency arising from a government-guaranteed loan to the Senegambia
Beach Hotel.
Social and poverty reduction policies
22. On May 8, the government convened a meeting on the poverty reduction
strategy (PRS) and the PRSP process for donors and nongovernmental
organizations (NGOs) in Banjul. The discussion focused on (a) the role of
the World Bank, the Fund, donors, and NGOs in facilitating the PRSP process;
(b) preparations for the various intermediate steps, such as the
organization of participating fora and a donor roundtable meeting on the
poverty reduction strategy; (c) the establishment of a task force (including
government agencies, donors, representatives of the private sector, and
NGOs) to oversee the work of the Strategy for Poverty Alleviation
Coordination Office (SPACO) in coordinating the National Poverty Alleviation
Program (NPAP) and the various aspects of the PRSP process; and (d) the
reactivation of the High-Level Economic Coordinating Committee (HILEC) to
oversee the NPAP. During the meeting, SPACO elaborated upon its ongoing
efforts to update the NPAP based on a number of studies, including the first
annual report on the Participatory Poverty Assessment (PPA). The PPA, in
particular, should provide community action programs that are expected to be
incorporated in the NPAP. The government has received favorable commitments
from donors and NGOs to support its efforts in this area through December
2000. These contributions, along with output from other sources, should
inform the interim PRSP, expected by the last quarter of 2000, while a full
PRSP is planned for mid-2001. The updating of the comprehensive poverty
reduction strategy will place a considerable burden on institutional
capacity and necessitate further reforms to improve the delivery and
monitoring of enhanced public services. In this regard, the government
intends to intensify collaboration with donors, including the Fund, to
ensure timely access to technical assistance.
Statistical issues
23. The Gambia's economic and financial statistics remain in need of
improvement, especially with regard to the major components of the balance
of payments, the national accounts and prices, public investment, the public
enterprise sector, and employment. The government has benefited from the
recommendations of various recent Fund technical assistance missions to
strengthen the compilation of economic data, including (a) the establishment
of a balance of payments-unit in the central bank and the improved bank and
financial sector reporting of balance of payments and monetary data; (b) the
proposed rebasing of the national income accounts to a more recent date than
the prevailing 1976/77, base year; (c) the proposed household expenditure
survey to provide a basis for the compilation of a comprehensive price
index; (d) the full implementation of ASYCUDA, inter alia, to improve
balance of payments data compilation; and (e) the participation in the
Fund's General Data Dissemination System (GDDS) and use of the framework it
provides to improve the quality, timeliness, and transparency of data
provision. The Gambia has also benefited from recent Fund and World Bank
technical assistance to strengthen the external debt data. While these steps
are likely to yield significant improvements, the government faces much
greater challenges in meeting the broader quality data essential for
successful pursuit of an enhanced poverty reduction strategy and it is
determined to intensify efforts towards this endeavor.
Program monitoring and review
24. To monitor policy implementation under the program, prior actions and a
number of quantitative benchmarks have been set, the latter for end-June
2000, as well as quantitative performance criteria and benchmarks for
end-September 2000 (see Table 1). The prior actions entail (a) the setting
up of a monitoring program for the payment of government arrears to public
enterprises and the observation of the end-June 2000 target leading to the
elimination of such arrears by end-2000; (b) issuance of a government
circular to curtail the creation of BTL accounts (which lack reporting and
control measures) and to impose monitoring and control safeguards on
existing BTL accounts and; (c) abolition of the preshipment inspection
scheme. The proposed benchmarks will comprise the following: (a) a ceiling
on net bank credit to the government; (b) a ceiling on net domestic assets
of the central bank; (c) a ceiling on the basic primary balance of the
central government, defined to exclude interest payments and foreign
financial investment spending; (d) the nonaccumulation of external
payments-arrears; (e) a minimum level of net official international
reserves; (f) a limit on new nonconcessional external loans contracted or
guaranteed by the government in the maturity ranges of 1-5 years and 1-12
years; and (g) a zero ceiling on the outstanding stock of short-term
external public debt (excluding normal import-related credits). The
nonaccumulation of external payments arrears will be applied on a continuous
basis. Limits on items (a)-(g) above for end-September 2000 will serve as
quantitative performance criteria. In addition, the reform measures
indicated in Table 2 have been adopted as structural benchmarks for the
second half of the year.
25. The government believes that the policies described in this letter are
adequate to achieve the objectives of the economic and financial program
during 2000 but will, if necessary, take any further measures deemed
appropriate for this purpose. During the remaining period of the second
annual PRGF arrangement, The Gambia will continue to consult with the
Managing Director on the adoption of any measures that may become
appropriate, at the initiative of the government or whenever the Managing
Director requests such a consultation.
26. The government of The Gambia will provide the Fund with such information
as the Fund requests in connection with the progress made in implementing
the economic and financial policies and achieving the objectives of the
program.
27. The government of The Gambia intends to make these understandings public
and authorizes you to arrange for this document to be posted on the IMF
website, supsequent to Board approval.
Yours sincerely,
/s/
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Famara L. Jatta
Secretary of State for Finance
and Economic Affairs /s/
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Momodou C. Bajo
Governor
Central Bank of The Gambia
Attachments
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1 By the decision of the IMF Executive Board in November 1999, the Enhanced
Structural Adjustment Facility (ESAF) was replaced by the Poverty Reduction
and Growth Facility (PRGF).
2 A preshipment inspection scheme was introduced at the government's
initiative on a six-months trial basis. In the event, BIVAC introduced the
scheme without adequate preparation, and administrative delays and high
charges (1.4 percent of c.i.f. value or a minimum of US$250, without
exemptions) adversely affected imports and reexports.
3 In March 2000, the government awarded a one-month salary advance of D 19.8
million to civil servants for the Tabaski religious festival, which was not
discussed with the staff in September 1999 for incorporation into the
program. While this advance had an adverse impact on the end-March
quantitative performance criteria, it should not significantly affect the
2000 budget outturn, as repayments are effected through automatic salary
deductions and should be completed by end-September 2000.
4 The slow tourism recovery in 2000 also reflects concerns arising from
civil disturbances during the period through April 2000.
5 The program had provided for an average 6 percent increase in the domestic
petroleum product prices, while the 2000 budget raised these prices by an
average of 20 percent. The budget also incorporated miscellaneous nontax
measures, which accounted for the balance of the revenue in excess of those
in the program target.
6 The other countries are Ghana, Guinea, Liberia, Nigeria, and Sierra Leone.
Mori
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