The executive board of the International Monetary Fund (IMF) has completed the fourth review of the Gambia's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement, and approved an increase in financial assistance under the arrangement in an amount equivalent to SDR 6.215 million (about US$ 9.2 million) to help mitigate the impact of the global slowdown.
According to a press release from the IMF, the completion of the review allows for the immediate disbursement of an amount equivalent to SDR 5.11 million (about US$7.5 million)—including SDR 3.11 million (about US$4.6 million) from the augmented amount, bringing total disbursements under the arrangement to SDR 13.11 million (about US$19.3 million).
The press release added that the IMF executive board have also approved the authorities' request to waive the nonobservance of the fiscal basic balance performance criterion, and to modify quantitative performance criteria for end-March 2009.
The PRGF arrangement for The Gambia was approved on February 21, 2007 for an amount of SDR 14 million (about US$20.7 million).
Following the executive board's discussion, Murilo Portugal, deputy managing director and acting chair, said: "The Gambian authorities are to be commended for the satisfactory implementation of their PRGF-supported program and their commitment to prudent economic policies, which have contributed to robust growth and moderate inflation. Nevertheless, The Gambia has not been spared from the effects of the global economic crisis, with international reserves declining and the current account deficit widening as a result primarily of reduced income from tourism and remittances.
"The authorities remain committed to achieving sustained growth and poverty reduction by maintaining fiscal discipline, reducing the still high debt level, and promoting private sector development. The authorities will increase the share of budgetary resources allocated to poverty reduction, in line with the priorities of their poverty reduction strategy, and in order to make faster progress toward achieving the Millennium Development Goals (MDGs). The authorities intend to review the system of investment incentives to improve the climate for private investment while maintaining fiscal prudence.
"Fiscal policy is being strengthened to ensure long-term fiscal sustainability. The authorities have appropriately scaled back their expenditure plans to partially compensate for the contraction of revenues. They have also maintained the retail prices of petroleum products at current levels to allow for some recovery in government revenues. Going forward, it will be important to improve the revenue base, rationalize taxation, better align the budget with PRSP priorities, and further strengthen public financial management.
"The commitment of the Central Bank of the Gambia (CBG) to maintain a monetary policy designed to keep inflation at single-digit levels is commendable. The authorities are appropriately planning to rebuild international reserves in order to provide a stronger buffer against adverse external developments, and the augmentation of access under the PRGF arrangement will provide helpful support in this regard.
"The Gambia remains at high risk of debt distress, even after receiving HIPC and MDRI debt relief, due to high levels of debt in relation to exports and vulnerability to external shocks. It is important to expedite the formulation of a national debt strategy to guide government borrowing decisions and ensure long-term sustainability. As much as possible, there should be reliance on grants to finance the country's development programs," Mr. Portugal said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are 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 5½ -year grace period on principal payments.
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