June 29, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
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–December 31, 2001), supported under a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). This letter, which supplements our letter of November 27, 2000, reviews performance under the first half of the third annual PRGF arrangement approved by the Executive Board on December 11, 2000 (EBS/00/241; 11/28/00, cor. 1). It also outlines the government's objectives and policies for the balance of 2001. Against this background, it notes the progress made in implementing the program and requests waivers for the nonobservance of the end-March 2001 quantitative performance criteria with respect to (a) net bank credit to the central government; (b) net domestic assets of the central bank; (c) the basic primary balance of the central government; and (d) the floor on the net official international reserves. It also requests a waiver for the end-December 2000 structural performance criterion to establish and implement a comprehensive accounting framework to monitor poverty-reducing expenditure, including expenditure funded from debt relief under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative) (see paras. 7 and 8). The government intends to make the contents of this letter, and those of the attached technical memorandum of understanding (TMU), available to the public and authorizes you to arrange for them to be posted on the IMF website, subsequent to Board approval.

2.  The government is aware that overall performance under the third annual PRGF-supported program has been mixed so far. Notwithstanding robust real GDP growth, with low inflation and good progress in implementing a number of structural reforms, there were budgetary slippages during 2000 and in the first quarter of 2001, partly related to payments to Alimenta (a groundnut marketing company that is being compensated by the government). The government decided to take corrective measures to address policy slippages and consolidate the overall economic gains made through early 2001, in order to build a strong momentum for realizing its medium-term economic and financial objectives. Indeed, significant progress has already been made in implementing corrective measures, including structural reforms, notably those to strengthen budget implementation.

3.  In 2000, real GDP growth is estimated at 5.6 percent, slightly above the program target. With the benefit of good rains, agricultural expansion continued and groundnut production increased by 12.3 percent to about 138,000 metric tons; meanwhile, production of other crops increased by 16.2 percent. The good harvest in 2000 contributed to a further moderation in the end-of-period inflation (based on the low-income consumer price index—CPI) to below the program target of 2 percent. The gradual recovery in imports following the removal of the preshipment inspection (PSI) scheme in July, coupled with slower-than-expected reexport trade as a result of the cross-border difficulties, contributed to an increase in the external current account to 12 percent of GDP in 2000 from 11½ percent in 1999. Gross official reserves exceeded the end-2000 target as the Central Bank of The Gambia (CBG) curtailed sales of foreign exchange into the market ahead of the end-December payment to Alimenta. This outcome contributed to the depreciation of the dalasi by 4.8 percent in real effective terms in 2000, continuing the recent trend toward enhanced external competitiveness of The Gambia. However, the end-March 2001 quantitative performance criterion with respect to the floor on the net international reserves of the CBG was not observed, as the Central Bank attempted to address the buildup in demand for foreign exchange in the previous quarter.

4.  In 2000, the overall fiscal deficit (excluding grants) was reduced to 3.6 percent of GDP (close to the program target of 3.5 percent) from 4.8 percent of GDP, in 1999, reflecting a number of initiatives and corrective measures. The original budget for 2000 incorporated a reduction in the maximum external tariff from 20 percent to 18 percent and in the number of tariff brackets from eight to three, both effective July 1, 2000. The budget also provided for an average 20 percent increase in petroleum product prices, effective January 1, 2000. In the course of the year, the government implemented revenue measures amounting to D 45.7 million (0.8 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 duty-free prices of petroleum products, effective February 2000. The remaining gap was filled by abolishing the PSI scheme, effective July 1, 2000. However, by the end of the year, shortfalls in revenue from customs duty and sales tax on imports amounted to D 48 million (0.9 percent of GDP); the shortfalls were mainly on petroleum products, reflecting a delay in the further adjustment of their domestic prices.

5.  On the expenditure side, the government in 2000 (a) introduced enhanced expenditure reporting and control procedures; (b) initiated a program to eliminate cross arrears with public enterprises; and (c) collected (through automatic deductions) the 0.4 percent of GDP in salary advances to civil servants granted for the March 2000 Tobaski religious festival. Nonetheless, the impact of corrective expenditure measures was partly offset by a number of developments, including the payments to Alimenta. These developments kept the deficit above the program target and contributed to a higher level of domestic financing. Higher domestic interest payments (0.6 percent of GDP) resulted from a delay in the receipt of an external grant intended to repay domestic debt. At the same time, the government paid unanticipated allowances and transport costs for expatriate health workers, while pressures emerged from increased maintenance costs, especially following two years of inclement weather. In addition, under the terms of the settlement reached with Alimenta in October 2000, the government overpaid the initial installment by about US$1 million in late December from proceeds of a European Union (EU) structural adjustment grant—diverting that amount (with EU concurrence) from a reduction in domestic debt.¹ As a result, domestic debt increased to 31 percent of GDP, considerably in excess of the programmed level.

6.  During the first quarter of 2001, the government budget was adversely affected by a D 64.5 million payment (1.1 percent of GDP) to three commercial banks for nonperforming loans that had financed the 2000 groundnut crop.² The government also made another unscheduled payment of € 2 million (US$1.6 million) to Alimenta in February that facilitated the company's withdrawal of the property dispute from arbitration by the International Center for Settlement of Investment Disputes (ICSID) in March.

7.  Domestic credit expansion, driven by net credit to the government, significantly exceeded the program targets for end-December 2000 and through end-March 2001. Private sector credit growth peaked in mid-2000 and briefly recovered toward the end of the year, before declining through March 2001—broadly in line with trends in agricultural credit, which experienced a longer repayment period in 2000. Attempts by the central bank to mop up commercial banks' excess reserves through sales of treasury bills were not effective. Broad money grew by 35 percent in 2000; however, it moderated to 14 percent for the 12-month period ended March 2001. The treasury bill rate declined from 12.5 percent in December 1999 to 12 percent by end-2000 but returned to the previous level during the first quarter of 2001. The quantitative performance criteria for end-March 2001 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 (Appendix I, Table 1).

8.  The implementation of structural measures was somewhat behind schedule; in particular, the end-December 2000 structural performance criterion to establish and begin to implement a comprehensive accounting framework to monitor poverty-reducing expenditure, including such expenditure funded from debt relief under the enhanced HIPC Initiative was delayed. In the event, implementation was achieved by end-May 2001. Of the remaining six benchmarks, three were implemented on schedule, while the rest were implemented subsequently or will be delayed by a few months (Appendix I, Table 2).

9.  Progress on other key reforms has been encouraging. With the assistance of the Fund budget advisor, government accounts for 199–97 were closed. Parliament approved key pieces of legislation, and good progress has been made in implementing the poverty reduction strategy paper (PRSP) process (see details below).

Macroeconomic and budgetary framework for the balance of 2001

10.  The outlook for 2001 gives cause for optimism. Agricultural production will probably continue to benefit from improving groundnut marketing arrangements, particularly following the settlement with Alimenta. Moreover, with EU and International Fund for Agricultural Development (IFAD) assistance, the government will continue to give farmers access to better inputs and credit. The reexport trade is expected to continue recovering from the effects of the PSI scheme and should benefit from enhanced external competitiveness as a result of lower tariffs and the continued depreciation of the dalasi in 2000 and through May 2001. However, tourism is unlikely to recover as fast as had been envisaged, as the world economic outlook is now weaker than earlier projected. On this basis, real GDP growth is projected at 5.7 percent during 2001. Measured inflation is expected to increase to about 3.5 percent, largely owing to the continued depreciation of the dalasi and the increase in domestic petroleum product prices (see below). As detailed in paragraph 22, the external current account deficit (excluding grants) is projected to decline to 11¾ from 12 percent in 2000.

11.  The budget for 2001, approved by parliament on December 22, 2000, did not incorporate major revenue initiatives but focused instead on measures to improve compliance.³ It also included measures to improve tax administration through computerization (including full implementation of the automated system for customs data—ASYCUDA) and improved coordination among tax departments. On the expenditure side, the budget incorporated measures extending the reporting and control procedures to all expenditures, including the below-the-line (BTL) accounts that had previously operated without internal audit scrutiny.

12.  The fiscal program for 2001 was revised to take account of recent developments. As a result, the overall deficit (excluding grants) is now projected at 3.9 percent of GDP (1 percent, if grants are included); with the incorporation of the budget funded from HIPC Initiative debt relief (see below), the deficit will reach 5 percent of GDP. In March, the government implemented measures to strengthen the weaker-than-envisaged customs receipts, comprising higher gasoline prices (an increase of 9 percent) and diesel and kerosene (increases of 15 percent each), the curtailment of customs duty exemptions, and the collection of tax arrears. Moreover, in June, the Department of State for Finance and Economic Affairs (DOSFEA) appointed an advisor to oversee the delayed implementation of the ASYCUDA, which had benefited from an UN Conference on Trade and Development (UNCTAD) technical assistance mission in May.⁴ In April, a World Bank mission visited Banjul to appraise the Capacity-Building and Economic Management Project, a component of which will strengthen the revenue departments, including the full implementation of ASYCUDA II. On the expenditure side, modification of the budget entailed the incorporation of (a) an additional expenditure of D 60 million in domestic interest payments; (b) funding of D 8.4 million for local and presidential elections expected in late 2001, and for parliamentary elections planned for early 2002; and (c) the 2001 contingency budget funded from US$4.4 million (D 68 million) provided by the Fund, the World Bank, and the African Development Fund/Bank as interim debt relief under the enhanced HIPC Initiative. This budget will have to be submitted for approval to the Task Force and the High-Level Economic Committee—HILEC (as part of the PRSP process)⁵ and eventually to parliament. As agreed in the original program, the 2001 budget also incorporates the final payment to Alimenta of US$5 million by end-July 2001. This amount is also guaranteed (by the Standard Chartered Bank) as required under the terms of the settlement agreement.

13.  To support expenditure reforms, the government is benefiting from technical assistance, provided by the Fund budget advisor, to reform accounting practices and enable the comprehensive reporting and control of government expenditure, especially on the BTL accounts. 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 Accountant and Auditor General's Offices are now collaborating intensively to complete the delayed audit of the government accounts for 1992-99, an action that should facilitate timely auditing of public accounts in the future. The World Bank-funded capacity-building project will also assist with (a) the computerization of the Accountant General's office—a pivotal link in improving the management of public finances; (b) the strengthening of the macroeconomic unit in DOSFEA; and (c), in conjunction with the United Kingdom Department of International Development (DFID), the preparation of the public expenditure reviews (PERs) in the State Departments of Agriculture, Education, and Health to ensure a better linkage of sector policies to budgetary policies, starting in 2002. The PERs are, in this context, the first stage in moving to a medium-term expenditure framework (MTEF).

14.  In March 2001, as in previous years, the government granted civil service salary advances of D 19 million (0.3 percent of GDP) for the Tobaski religious festival. These advances will be repaid in full by end-September through automatic payroll deductions. Furthermore, the government is implementing measures to deal firmly with the reemergence of cross arrears between government and the public enterprises. As of end-March 2001, the government had accumulated arrears of D 23 million (0.4 percent of GDP) to public enterprises, while the latter had accumulated an estimated D 39 million in arrears to the government. A program for the mutual settlement of these arrears, with quarterly targets leading to their elimination by end-2001, is being implemented.

15.  Key objectives of monetary policy during 2001 are to maintain low inflation and strengthen external reserves. To these ends, the government will maintain prudent fiscal policies and a tight monetary policy (while providing adequate credit to the private sector), and promote exchange rate flexibility, consistent with a further buildup of official reserves. The avoidance of unprogrammed increases in net credit to the government associated with payments to Alimenta in 2000 will be an important objective for monetary policy in 2001, implying some increase in velocity to 2.8. Accordingly, through sales of securities, the central bank will seek to moderate the growth of broad money from an estimated 35 percent during 2000 to 8 percent by end-2001.

16.  For the nine-month period ended December 2001, the government will repay the banking system in order to accommodate an increase in private sector credit of about 23 percent for 2001. This will facilitate the expected privatization of a number of public enterprises and crop financing during the 2001/02 season. Moreover, the resolution of the Alimenta dispute should lead to increased private sector activity.

17.  Financial sector reforms include measures to improve the auctions for treasury and central bank bills, such as the introduction of a book-entry system, longer-maturity treasury bills, and preparations for licensing commercial banks to introduce foreign currency deposits by September 2001. The CBG received Fund technical assistance in April and May 2001 to assist in these tasks, respectively. The central bank is also taking various measures to strengthen its regulatory framework and supervision of the financial sector. These include final revisions to the Financial Institutions Bill and the Insurance Bill for their expected presentation for parliamentary approval in July. The government's payment to the commercial banks in February 2001 for the outstanding 1999/2000 crop financing loans averted a major deterioration in the financial position of these banks. Nonperforming loans declined to 12.6 percent of total outstanding loans in 2000 from 16.4 percent in 1999, and provisioning for nonperforming loans remained above 80 percent of such loans in 2000. The authorities will encourage banks to maintain their capital adequacy ratio above the legal requirement of 8 percent.

18.  In April 2000, The Gambia, together with five other countries in West Africa,⁶ signed the Accra Declaration to establish a West African Monetary Zone (WAMZ) by 2003. In 2001, the West African Monetary Institute (WAMI) was established in Accra, Ghana, including the secondment of key senior staff from member countries. WAMI is mandated to prepare the groundwork for the establishment of the West African Central Bank (WACB), which will function as the central authority of the WAMZ.

Structural and sectoral policies

19.  The modernization of business-related legislation and regulation has benefited from parliamentary approval of the Investment Act in February 2001, together with the formal establishment of the Gambia Investment Promotion and Freezone Agency. These will provide the legal framework and institutional support for the export processing zone that is to be supported by the proposed World Bank Trade Gateway project. Furthermore, the Regulatory Bill has been submitted to the cabinet, pending expected parliamentary approval later this year, which will establish an agency to regulate utilities that are expected to be privatized in the future. Since May 2000, the government has worked closely with the Commonwealth Secretariat with the aim of developing a competition policy; to this end, a study has been completed that will inform the Competition Bill, to provide an environment conducive to business activities. Finally, the EU has assisted the government with studies for, and the drafting of, a bill, expected to be approved by parliament by September 2001, that will, inter alia, set up a National Tourism Authority to promote the industry, including through the classification of hotels, and help improve the quality of service.

20.  Regarding the public enterprise sector, the Privatization Act formalized the establishment of the Gambia Divestiture Agency. The act duly recognizes the existence of a divestiture account at the central bank, into which the government intends to deposit the proceeds from privatization. In 2001, up to D 20 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 measures necessary to discourage a further accumulation of payment arrears, and insist that all public enterprises fully meet their tax, debt-service, and dividend obligations.

21.  In agriculture, implementing reforms in groundnut marketing to replace the transitional arrangements during the 2000/01 crop season remains a priority. These reforms should prevent a recurrence of direct government intervention in crop financing, while efforts have been intensified to recover funds owed by the exporters. Thus, 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 it will encourage ASPA to adhere to a schedule to publicly announce producer prices early in the planting season. The settlement of the Alimenta dispute and the proposed privatization of its processing plants and barges to competing and reputable firms should promote private crop financing while contributing to better earnings by farmers. The privatization program has been set in motion by the letter of May 11 from the President's office, authorizing the transfer of the Alimenta assets to the Gambia Divestiture Agency; meanwhile, experts provided through EU technical assistance are evaluating the assets for their expected offers of sale. Moreover, the proposed EU audit of the 1999/2000 operations of the trading companies will provide remedies to ensure proper internal control measures in compliance with industry standards. The government intends to make timely arrangements to improve seed varieties, fertilizer, and credit facilities to farmers, the latter through the US$10 million IFAD Rural Finance and Community Initiative. Significant support for the fishing sector is being provided by the recent completion of artisanal facilities and a cold storage in the country.

External sector policies

22.  On the basis of the economic policies detailed above, the external current account deficit (excluding official transfers) is projected to decline to 11 ¾ percent of GDP in 2001. The volume of total exports (including reexports) is projected to increase by about 8 percent, reflecting further expansion in groundnut production, fruit and 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 5 percent as the reexport trade begins to recover as a result of the removal of the PSI scheme, improved cross-border relations, and the reduction in the external tariff in 2000. The terms of trade are projected to improve significantly by 6.2 percent in 2001. Receipts from tourism are projected to increase by 8.5 percent as the sector continues to recover from the sharp decline in 2000. Donor assistance is also projected to increase, contributing to gross official reserves of SDR 80.9 million in 2001, a level equivalent to about 5.3 months of import cover.

23.  The government remains committed to a liberal trade and exchange system. It will continue to assess the impact of the reduction in the external tariff to a maximum rate of 18 percent and the number of bands in the tariff system from ten to three in 2000, as well as the reforms in the neighboring West African Economic and Monetary Union (WAEMU) countries (maximum external tariff of 20 percent). Efforts have been intensified to improve the balance of payments data, based on the recommendation of a Fund technical assistance mission in September 2000, as well as the full introduction of ASYCUDA II to, inter alia, better integrate customs revenue and balance of payments data. The reduction in external tariffs, together with the pursuit of a market-based flexible exchange rate, should benefit The Gambia's external competitiveness.

24.  Since December 2000, the Gambia has begun to benefit from assistance under the enhanced HIPC Initiative in achieving sustainable external debt. As part of this exercise, measures have been taken to strengthen the external debt unit at DOSFEA with better staffing and equipment in order to improve the quality and timeliness of external debt data. Meanwhile, it is expected that by August 2001 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. Efforts are also under way to follow up with debt relief from all other creditors.

Developments in the PRSP process

25.  Since the completion of the interim PRSP in December 2000, broad-based efforts have continued to prepare the groundwork for the completion of a full PRSP. The key steps that support this goal include (a) nationwide consultation on the poverty reduction strategy presented in the Interim PRSP, which was conducted during March–April 2001 by nongovernmental organizations (NGOs) (the latter expect to produce a report by end-May as an input in the PRSP); (b) the training of facilitators for the Strategy Planning Process (SPP) to solicit grassroots input (through a sampling process to cover a sizable proportion of the population) in setting priorities and indicators during June-September 2001 that will be included in the PRSP; (c) a survey of baseline service delivery based on assessment from the participatory poverty assessment (PPA)⁷ and the SPP (technical assistance is being arranged to integrate the PPA results into the government decision-making process); (d) initiation of a household survey to provide a basis for a comprehensive consumer price index and improve data compilation on household poverty and the link between participatory assessment and household data; (e) the International Labor Organization's (ILO) assistance in integrating employment issues in the PRSP; (f) the preparation of three PERs in agriculture, education, and health; (g) preparation of a PRSP outline in May 2001; and (h) preparation of a comprehensive agenda with a timeline to complete the PRSP on schedule by the end of 2001. For the scheduled (about mid-2002) donor roundtable to mobilize external support for the PRSP, the government intends to work closely with various donors in developing a comprehensive technical assistance program to support the various reforms envisaged in the PRSP and the UN Integrated Preventive Strategy.

Statistical issues

26.  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. Moreover, data on the social sectors and poverty need to be substantially improved and better integrated with mainstream economic data. The government has benefited from the recommendations of various recent Fund technical assistance missions to strengthen the compilation of economic data, including (a) the upgrading of the 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 1998 from the prevailing 1976/77 base year, which is expected to be completed by end-June 2001; (c) the proposed conducting of a household expenditure survey to provide a basis for the compilation of a comprehensive price index; (d) the full implementation of ASYCUDA II to, inter alia, improve balance of payments data compilation; and (e) participation in the Fund's General Data Dissemination System (GDDS) and use of the framework to improve the quality, timeliness, and transparency of data provision. The Gambia has also benefited from the provision of recent Fund and World Bank technical assistance to strengthen the external debt data. Several donors, including the UN Development Program (UNDP), DFID, ILO, EU, and various NGOs, are also heavily engaged in developing critical poverty and social data that should help to integrate sector and macroeconomic policies and planning. While these steps are likely to yield significant improvements, the government faces much greater challenges in gathering the broader-quality data essential for successful pursuit of an enhanced poverty reduction strategy, and it is determined to intensify efforts in this area.

Program monitoring and review

27.  To monitor policy implementation under the program, prior actions and quantitative performance criteria for end-September 2001 and benchmarks have been established (see Appendix I, Table 1). The prior actions entail (a) the establishment and implementation of a comprehensive accounting framework to monitor poverty-reducing expenditure, including such expenditure funded from debt relief under the enhanced HIPC Initiative; and (b) submission of the contingency budget for 2001 funded from the enhanced HIPC Initiative to parliament. The proposed benchmarks for end-June 2001 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 floor on the basic primary balance of the central government, defined to exclude interest payments and foreign-financed investment spending; (d) the nonaccumulation of external payments arrears of the central government; (e) a floor on the minimum level of net official international reserves; (f) a ceiling on new nonconcessional external debt contracted or guaranteed by the public sector for maturities of over 1–12 years; and (g) a zero ceiling on the outstanding stock of short-term external debt owed or contracted by the public sector (excluding normal import-related credits). The criterion on the nonaccumulation of external payments arrears applies on a continuous basis. Limits on items (a)-(g) above for end-September 2001 will serve as quantitative performance criteria. In addition, the reform measures indicated in Table 2 of appendix I have been adopted as structural benchmarks for the second half of 2001. Furthermore, quarterly financial indicators will be established on total government revenue and the wage bill. The second review under the third annual arrangement will be completed no later than December 11, 2001.

28.  The government believes that the policies described in this letter are adequate to achieve the objectives of the economic and financial program during 2001 but will, if necessary, take any further measures deemed appropriate for this purpose. During the remaining period of the third 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.

29.  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.

Yours sincerely,

The Gambia: Technical Memorandum of Understanding

May 16, 2001

I.  Introduction

1.  This memorandum sets out the understandings between the Gambian authorities and staff of the International Monetary Fund (IMF) regarding the definitions of quantitative and structural performance criteria and benchmarks for the third annual arrangement under the Poverty Reduction and Growth Facility (PRGF), as well as the related reporting requirements. A table with the latest actual data for the monetary aggregates, as well as the preliminary estimates for March 2001 used for the derivation of the flows for the program period, is attached (Tables 6 and 7 of the Staff Report).

II.  Quantitative Performance Criteria: Definitions and Reporting Standards

A.  Net International Reserves of the Central Bank of The Gambia

2.   Definition. Net international reserves (NIR) are defined as reserve assets less liabilities to foreign residents of maturity of one year or less and less borrowing from the IMF. Gold holdings will be valued at U.S. dollar market prices, together with foreign currency holdings, at the bilateral exchange rates prevailing on March 31, 2001. The NIR shall be converted into dalasis at the exchange rate prevailing on March 31, 2001 (estimated at D 19.087 per SDR). Reserve assets are defined for this purpose as external assets readily available to, or controlled by, the Central Bank of The Gambia (CBG). Pledged or otherwise encumbered reserves assets, including, but not limited to, reserves assets used as collateral or guarantee for third-party external liability, are to be excluded.

3.   Adjustment clauses. The floor on the net international reserves of the central bank will be adjusted upward (downward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the budget (Appendix I, Table 2).

4.   Supporting material. Net international reserves of the central bank will be transmitted on a weekly basis within ten days of the end of each week; the net foreign assets of the commercial banks and external budgetary support will be transmitted on a monthly basis within six weeks of the end of each month.

B.  Net Domestic Assets of the Central Bank

5.   Definition. The net domestic assets of the central bank are defined as the difference between reserve money (the sum of currency outside banks and all deposits of the commercial banks, excluding deposits of the central government) and the net foreign assets of the central bank, converted at the foreign exchange rate specified in paragraph 2. Net foreign assets are defined as NIR plus other claims on, and liabilities to, foreign residents.

6.   Adjustment clauses. The ceiling on net domestic assets of the central bank will be adjusted downward (upward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the budget (Appendix I, Table 2).

7.   Supporting material. Net domestic assets of the central bank will be transmitted on a monthly basis within four weeks of the end of each month.

C.  Net Claims on the Central Government by the Central Bank of The Gambia

8.   Definitions. The net claims on central government by the central bank are defined as claims on the central government by the central bank less deposits of the central government with the central bank.

9.   Adjustment clauses. The ceiling on net claims on the central government by the central bank will be adjusted downward (upward) by the amount of disbursed external budgetary support (comprising non-project-related loans and grants) at the end of each quarter in excess (in shortfall) of the programmed amounts in the central government budget (Appendix I, Table 2).

10.   Supporting material. Data on cumulative government revenue and expenditure, on the net central government position with the central bank, and on treasury bills outstanding, as well as data on external loans and grants to the government, will be transmitted on a monthly basis within six weeks of the end of each month.

D.  Basic Primary Balance of the Central Government

11.  The basic primary balance is defined as government domestic revenue (tax and nontax) minus total expenditure and net lending, excluding interest payments and externally financed capital expenditure.

E.  External Payments Arrears

12.   Definition. External payments arrears are defined as the stock of external arrears on loans contracted or guaranteed by the public sector (as defined below in paragraph 14), except on debts subject to rescheduling or a stock-of-debt operation.

13.   Supporting material. An accounting of nonreschedulable external arrears by creditor countries (if any), with detailed explanations, will be transmitted on a monthly basis within four weeks of the end of each month. This accounting would include, separately, arrears owed by the central government and other public sector entities to Paris Club creditors, non-Paris Club creditors, and other creditors.

F.  New Nonconcessional External Debt Contracted or Guaranteed by the Public Sector

14.   Definitions. In this memorandum, the public sector consists of the central and regional governments and other public agencies, including the Central Bank of The Gambia. This performance criterion is on the contracting or guaranteeing of external debt with original maturity of 1–12 years by the public sector.¹ Excluded from this performance criterion is debt with a grant element of at least 35 percent. The grant element is to be calculated by using currency-specific discount rates reported by the OECD (commercial interest reference rates): for maturities of less than 15 years, the grant element will be calculated based on six-month averages of commercial interest rates, and, for maturities longer than 15 years, the grant element will be calculated based on ten-year averages.

15.   Supporting material. A comprehensive record, including a loan-by-loan accounting of all new concessional and nonconcessional debt contracted or guaranteed by the public sector, with detailed explanations, will be transmitted on a quarterly basis 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 contingent or otherwise on concessional terms.

G.  Outstanding Stock of External Public Debt

16.  This performance criterion is the outstanding stock of external debt with original maturity of less than one year owed or contracted by the public sector.² Excluded from this performance criterion are normal import-related credits.

17.   Supporting material. A comprehensive record of all external debt with original maturity of less than on year owed or contracted by the public sector, with detailed explanations, will be transmitted on a quarterly basis within four weeks of the end of each quarter.

III.  Prior Actions and Quantitative Performance Criteria and Benchmarks

18.  To monitor policy implementation, a prior action and a number of quantitative benchmarks have been proposed over the course of the program, as well as quantitative performance criteria and benchmarks for end-September 2001 (see Appendix I, Table 1). The prior actions entail (a) the submission to parliament of the supplementary budget measures, including the contingency budget to be funded from interim debt relief under the enhanced HIPC Initiative; and (b) the establishment and implementation of a comprehensive accounting framework to monitor expenditure on poverty reduction, including expenditure funded from enhanced HIPC Initiative debt relief. The proposed benchmarks for end-June 2001 will comprise the following: (a) a ceiling on net bank credit to the central government; (b) a ceiling on net domestic assets of the Central Bank of The Gambia; (c) a floor on the basic primary balance of the central government, defined to exclude interest payments and foreign-financed investment spending; (d) the nonaccumulation of external payments arrears; (e) a floor on net official international reserves; (f) a ceiling on new nonconcessional external loans contracted or guaranteed by the public sector for maturities of 1–12 years; and (g) a zero ceiling on the outstanding stock of short-term external public debt owed or contracted by the public sector (excluding normal import-related credits). The criterion on the nonaccumulation of external payments arrears will be applied on a continuous basis. Limits on items (a)–(g) above for end-September 2001 will serve as quantitative performance criteria. In addition, the reform measures indicated in Appendix I, Table 2 have been adopted as structural performance criteria and benchmarks for the program.

IV.  Structural Performance Criteria and Benchmarks

19.  Lastly, the authorities will notify the African Department of the Fund of developments with respect to structural performance criteria and benchmarks as soon as they occur. The authorities will provide the following documentation, according to dates in Appendix I, Table 2, elaborating the steps taken to (a) establish and begin to implement a comprehensive accounting framework to monitor expenditure on poverty reduction, including expenditure funded from enhanced HIPC Initiative debt relief; (b) extend the mandate of the external debt unit of the Department of State for Finance and Economic Affairs and have it start to also compile publicly guaranteed external debt, other external contingent liabilities of the government, and domestic debt; (c) complete the full installation of the automated system for customs data (ASYCUDA II) and use it also to generate trade data reclassified by economic categories; (d) complete the rebasing of the national accounts to 1998; (e) establish the regulatory framework, issue guidelines, and authorize commercial banks to establish foreign currency deposits; and (f) introduce the book-entry system for treasury bill auctions and finalize plans for introducing longer-term treasury bills and government bonds.

V.  Other Elements of the Program

A.  Program-Monitoring Committee

20.   Definition. The Gambian authorities shall establish a program-monitoring committee composed of senior officials from the Department of State for Finance and Economic Affairs (DOSFEA), the CBG, and other relevant agencies. The committee shall be responsible for monitoring the performance of the program, recommending policy responses, informing the Fund regularly about the progress of the program, and transmitting the supporting materials necessary for the 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

A.  Production and Prices

21.   Reporting standard. The monthly disaggregated consumer price index will be transmitted within four weeks of the end of each month.

B.  Government Accounts Data

22.   Reporting standard. A consolidated budget report of the central government comprising (a) the revenue data by each major item, including that collected by the Commissioner of Taxes and the customs department, as well as privatization's transfers to the budget; (b) details of the recurrent and capital expenditure of the central government; (c) details of budget financing (domestic and external), which will be transmitted on a monthly basis within six weeks of the end of each month; and (d) details on the government's outstanding arrears outstanding, as of end-March 2001, 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). The government's arrears amounted to D 23 million as of end-March 2001, while public enterprises owed the government about D39 million.

C.  Monetary Sector Data

23.   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.

D.  External Sector Data

24.   Reporting standard. The following standard will be adhered to: (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; and (c) balance of payments data will be transmitted on a quarterly basis within six weeks of the end of each quarter.