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Tunis, 26 March 2008 – The Board of Directors of the African Development Fund (ADF), on Wednesday in Tunis approved debt relief of US$ 22.77 million in nominal terms for The Gambia, from January 2001 to July 2013, following the country’s qualification for the enhanced Highly Indebted Poor Countries Initiative (HIPC).
"The Gambia’s recent performance is highly encouraging. Today, you have the opportunity to support The Gambia in two important ways: authorizing debt relief which creates the fiscal space for priority development spending and endorsing an assistance strategy that provides new grant financing to deepen reforms, accelerate growth and reduce poverty," the Director of Operations, West Africa II, Ellen Goldstein, said in a presentation to the Board.
The assistance will come from the ADF, the Bank Group’s concessional window. The debt relief is expected to relieve The Gambia of up to 71% percent of its debt service obligation to the Bank Group each year from 2001 to 2003, and up to eighty 80% from 2008 to July 2013.
With the approval, the country qualifies for debt relief under the MDRI of a combined amount of US$ 357.89 million, including US$ 170.10 million from the Bank Group, in nominal terms spread over 43 years, from the World Bank (IDA), IMF and ADF under the MDRI.
The Gambia became the 19th regional member country (RMC) to reach completion point under the enhanced HIPC Initiative on 19 December 2007. As a result, the Boards of Directors of the IMF and the World Bank approved an HIPC assistance of US$ 66.6 million in end-1999 NPV terms.
Following the approval, its debt service-to-exports ratio after HIPC and MDRI debt relief would average 9% from 2007-2016, and 7.5 % from 2017-2026, well below the Debt Sustainability Analysis (DSA) threshold of 15 percent for a weak performing country. This indicates that its debt service is sustainable after the enhanced HIPC and MDRI relief.
The country had fulfilled all six key conditions to reach the completion point. These include: (i) preparing and satisfactorily implementing a full PRSP for at least one year, and improving poverty monitoring; (ii) maintaining macroeconomic stability; (iii) strengthening public expenditure management; (iv) using interim HIPC debt relief; (v) carrying out education and health sector reforms; and (vi) making structural reforms.
In an important step in donor harmonization in the Gambia, the AfDB Board also endorsed a Joint AfDB-World Bank Assistance Strategy (JAS) for the country for the period covering 2008-2011 based on two main pillars: (i) Strengthening the institutional framework for economic management and public service delivery, and (ii) Enhancing productive capacity and accelerating growth and competitiveness.
"The Gambia has turned a corner, with the government making laudable progress in controlling the fiscal deficit, curtailing money growth and inflation, improving transparency of fiscal and monetary accounts and accelerating real economic growth to 6 percent per annum," Ms Goldstein noted.
The objective of the first pillar is to strengthen governance and public service delivery structures, including education, health and energy. It is expected that strengthening budgetary procedures and fiduciary reforms will help improve expenditure efficiency as well as encourage the involvement of local governments and civil society organizations and optimize spending allocations.
The government, for its part, has committed to sustaining ongoing public financial management reforms. The 2003 Country Financial Accountability Assessment (CFAA) action plan jointly prepared by donors, various Public Expenditures Reviews by the World Bank, and a Country Governance Profile prepared by the African Development Bank Group, all helped to raise awareness of key challenges and necessary actions and to place reforms on the agenda of both the government and donors.
The second pillar deals with enhancing productive capacity and accelerating growth and competitiveness and will include support for agriculture, agribusiness exports, tourism and the private sector by both the AfDB and the World Bank.
The two pillars will be supported by on-going portfolios of both institutions as well as by new operations. Support will be in the form of budget support and project finance. With regard to funding, the International Development Association’s (IDA) indicative allocation during the JAS period is about US$15 million, while that of the ADF is expected to be at least $10 million under ADF 11. Collaboration with IFC on the World Bank Group side, and possible funding through the Private Sector Window on the AfDB side, will strengthen the impact on private sector development and support to micro, small and medium scale enterprises. The use of trust funds and other co-financing will be vigorously pursued. Finally, the JAS will, to the extent possible, make provisions to ensure that conditions put in place to finance regional programs under the next IDA and ADF financing cycle.
The assistance to the country is aligned with its strategy for poverty reduction contained in the second Poverty Reduction Strategy Paper (PRSPII) (2007 – 2011) which is based on five pillars: (i) improving the enabling policy environment to promote economic growth and poverty reduction; (ii) enhancing the capacity and output of productive sectors: agriculture, fisheries, industry, trade and tourism, with emphasis on productive capacity of the poor and vulnerable; (iii) improving coverage of basic social services needed by the poor and vulnerable; (iv) building capacity for local people-centered development through decentralization; and (v) mainstreaming poverty-related cross-cutting issues into the PRSP process.
There are, currently, 11 on-going Bank Group operations in The Gambia, totaling UA 58.33 million (about US$ 93.94 million) focusing on basic social services, agriculture, and capacity building.