Warns of debt distress
By Kemo Cham
The Executive Board of the International Monetary Fund
(IMF) has thumbed-up the Gambian authorities for their ‘‘satisfactory’’ economic policies, while at the same time advising the Gambian government against its inclination to domestic borrowing.
This development came as the IMF Executive Board completed its sixth review of Gambia’s economic performance under a program supported by the Extended Credit Facility (ECF).
“The Gambian authorities are pursuing satisfactory economic policies that have contributed to robust economic growth and low inflation,’’ Deputy Managing Director and Acting Chair of the IMF Executive Board, Murilo Portugal, was quoted by a press release issued Friday 19th February, 2010.
Mr Portugal however warned that ‘‘even after extensive debt relief, The Gambia remains at high risk of debt distress. High yields on Treasury Bills—largely as a result of fiscal slippages and the government’s recourse to domestic borrowing—have added to the domestic debt burden. The government’s efforts to strengthen its debt management strategy are, therefore, welcome.’’
The IMF boss also stressed that until the country’s debt burden is reduced, it will remain important that the government continues to limit external borrowing to highly concessional loans.
According to the IMF statement, the Board’s decision means that the Gambian government can request a further disbursement of up to SDR 2.0 million (about US$ 3.0million), bringing total disbursements under the ECF to The Gambia to SDR 20.2 million (about US$30.8 million).
The statement went on to say that the Fund’s Executive Board also approved an extension for one year and an augmentation by SDR 4.67 million (about US$ 7.1 million) of The Gambia’s ECF arrangement, originally approved on February 21, 2007.
According to the press release, the Fund also approved a waiver for the nonobservance of the fiscal performance criterion based on corrective actions, notably the government’s 2010 budget approved by the National Assembly, which aims for a near-zero basic balance.
“The government’s budget for 2010 appropriately targets a near-zero basic balance that will return The Gambia to a path of declining domestic debt. Fiscal restraint will ease pressure on T-Bill yields and eventually generate fiscal savings for other spending priorities,’’ Mr Portugal said. ‘‘Disciplined budget execution will be key to achieve these results, and the government’s new action plan to improve public financial management will help achieve such discipline.’’
He went on, “The authorities are committed to maintain low inflation and to take steps to ease pressure on interest rates. The reinforced banking supervisory framework, including the phased-in increase in the minimum capital requirement, will contribute to ensuring continued soundness in the banking system.”
The ECF, according the IMF, has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.