Political Background

A former British colony, The Gambia gained independence in 1965. In its early years of independence, the country preserved democracy and remarkable political stability. In 1981, however, there was a coup attempt, which was put down with the intervention of Senegalese troops. Between 1982 and 1989 the Gambia formed a short-lived federation with Senegal, called Senegambia.

In 1994, a military coup overthrew the president and Yahya Jammeh was installed as head of state. The new government banned political activity, but a new constitution and presidential elections in 1996 – won by Jammeh – followed by parliamentary balloting in 1997, have completed a nominal return to civilian rule.[1]

In elections held in 2001, which were widely considered as free and fair, Jammeh was able to defend the presidency against five contesters. The electoral campaign, however, had been marred by violence between rival supporters, as well as targeted attacks on opposition leaders, reportedly by government supporters. President Jammeh's electoral victory was followed by a further crack-down on the independent media, opposition supporters and human rights defenders. Freedom of expression remains severely limited in The Gambia.[2]

Economic background

About 75% of The Gambia’s population depend on crops and livestock for their livelihood. The country does not have any important natural resources, and industry operates on a small scale only. Unemployment and underemployment rates are extremely high.

The Gambia is one of the poorest countries in the world. It is ranked 160 out of 173 on the UNDP 2002 Human Development Index, and 64% of the population live below the poverty line (in accordance with UNDP 1999 Human Development Index).

In 2000, the GDP per capita (PPP US$) was $330. Human development indicators are also very low: 64% of the adult population (age 15 and above) are illiterate, and the net primary school enrolment is 43%. Life expectancy is 46 years, the under-five mortality rate is 128 per 1,000 live births, and the infant mortality rate is about 77,84 per 1,000 live births. 13,000 people, which is 1.95% of the adult population, live with HIV/AIDS.[3]

The Gambia and the HIPC process

1.       The Latest

The Gambia reached Decision Point in December 2000. Since then, progress towards Completion Point has been relatively slow. According to our debt sustainability analysis, The Gambia will need both total debt cancellation, plus significant increases in aid, if it is to have any hope of meeting the Millennium Development Goals by 2015.

Among the reasons for the delay is the dispute between the Government and the Swiss-based company, Alimenta. As very often happen in HIPCs, the processing and marketing of one of the major products of the country is in foreign hands. In this particular case, Alimenta controls the processing and the marketing of groundnut in The Gambia. The groundnuts industry in The Gambia provides the livelihood for almost 70 per cent of the population.

In 2001, Alimenta took The Gambian Government to the international courts and forced the country to pay $11.4 billion damages for lost earnings and investments. This is one of the reasons why The Gambia was not able to meet the Completion Points conditions.

The country’s high dependency on trade with neighbouring Senegal and on groundnut production makes The Gambia highly vulnerable to external shocks.

2.       Introduction

In December 2000, the International Development Agency (IDA) and the IMF agreed to support a debt reduction package for The Gambia under the enhanced HIPC initiative, worthUS$67 million in Net Present Value (NPV) terms. Debt relief was to be granted, if The Gambia could satisfy the following conditions:

• Continued commitment by The Gambia to following IMF and World Bank macroeconomic and structural conditionalities under the IMF’s Poverty Reduction and Growth Facility (PRGF) and World Bank structural adjustment loans

• Completion and satisfactory implementation for one year of a fully participatory Poverty Reduction Strategy Paper (PRSP).

• Implementation of an agreed set of measures in the context of the government's poverty reduction strategy.

• Confirmation of the participation of other creditors in the debt relief operation.[4]

The IMF and the World Bank assumed that The Gambia’s completion point, i.e. the date when the final debt write-off occurs[5], would be reached in December 2002. It is very unlikely, however, that this timeframe will still be kept. This is because in February 2002 a mission to The Gambia failed to finish negotiating a new PRGF programme. According to the IMF, the reasons included The Gambia's ‘expansionary’ fiscal policy, concerns over revenue collection, and problems with the implementation of agricultural policies.[6] Thus, a decision on a PRGF programme for The Gambia was delayed.

However, a new mission was sent to the country and in July 2002 the Executive Board of the IMF changed its opinion. The Fund saw a renewed commitment on the part of the Gambian authorities to strengthen fiscal performance[7] and thus gave its final approval of a three-year arrangement under the PRGF of about $27m.[8]

The completion point is now expected to be reached in mid-2003. However, it remains to be seen whether the IMF and the World Bank will be satisfied with The Gambia’s performance under the new PRGF programme. As of now, the country is denied the debt relief, which had been decided upon in 2000, because it cannot fulfil macroeconomic conditions, which have very little to do with the problem of debt payments.

3.       Debt Burden  

In the Decision Point Document on The Gambia from November 2000[9], the IMF and the World Bank expected The Gambia’s net present value (NPV) of total external debt to develop as shown in the chart below. At completion point, which was assumed to be reached in 2002, the country’s total debt should be reduced by 26%. However, by 2010-2019, the average level of debt was projected to be actually 5% higher than it would have been without assistance under HIPC. Interestingly, the Decision Point Document does not discuss the reasons for this strange prediction. Thus, how this forecast was reached, will remain one of the mysteries of the IMF and the World Bank.

The Decision Point Document on The Gambia included projections on the country’s total debt service due after enhanced HIPC relief. These projections, however, were modified in 2002 in the IMF’s and the World Bank’s joint report on the implementation of the HIPC initiative[10]. As can be seen from the plot on the next page, projections from 2002 were consistently worse than those from 2000. According to the new projections, the enhanced HIPC initiative will result in debt relief for The Gambia of 26.6% from pre-HIPC levels in 2002, while the initial projections predicted a reduction of 32.1%. Thus, the World Bank and the IMF had to admit that the HIPC initiative would not be as successful as they initially announced it to be.

4. Debt sustainability indicators

As the plot below shows, projections on the HIPC initiative’s main sustainability indicator – the debt to exports ratio – follow a similar pattern as those on debt service: projections made in an IDA report on the enhanced HIPC initiative from March 2002[11] are again consistently higher than those from 2000.

Looking at the assumptions underlying the predictions made in 2000, one must reach the conclusion that they were unduly optimistic. This is particularly true of GDP growth: growth was expected to accelerate to around 5.6% from 2002 onwards, while the average growth rate during the period from 1989 to 1999 was 2.8% only. Similarly, the terms of trade were projected to improve in 2001 and to remain stable thereafter. In the 1990s, however, the terms of trade followed a declining trend.[12] 

According to the new projections made in 2002, The Gambia’s ratio of debt to exports will be constantly above 150%. Thus, the data suggests, that the HIPC initiative will fail to achieve its own goal – i.e. to reduce The Gambia’s debt to exports ratio to 150%.

As far as the ratio of debt service to government revenues is concerned, a drop from 23% in 2002 to 12% in 2003 is predicted (assuming that debt service takes place and taking into account the new projections on debt service from 2002). As the graph below shows, the ratio will remain around that level for the following years.

5.       Comparison of social expenditure and debt service payments

The Decision Point Document suggested that before debt relief the ratio of debt service to social expenditure would be very high. It was projected to remain at around 80% from 2003 through 2005. Taking into account the 2002 projections on debt service, the ratio is expected to drop from 70% in 2002 to 38% in 2003 and to remain at that level for the following years.

The burden of debt service is made clear even more strikingly, if one splits up social spending: under the assumption that The Gambia had received full debt relief due under the HIPC initiative in 2002, the country’s debt service in the same year would still be 123% of its expenditures on Education ($13m) and 178% of its expenditures on health ($9m).[13]

 6.       Conclusion

The data published by the World Bank and the IMF give a very mixed picture of the HIPC initiative’s impact on The Gambia. On the one hand, HIPC relief would considerably decrease the country’s debt burden. On the other hand, however, the main goal of the HIPC initiative, i.e. to bring the ratio of debt to exports down to 150%, would by no means be achieved.

Furthermore, even if debt relief occurred unconditionally and immediately, the envisaged reductions would not be enough for The Gambia to be able to implement the Millennium Development Goals (MDG). In the Jubilee Research report “Relief Works”[14], The Gambia is classified as a country that cannot afford to spend any of its resources on debt service payments if it is to achieve the MDGs. Even under a weaker proposal, that would limit debt service payments to 10% of government revenues, The Gambia would need additional debt relief.

Yet, The Gambia is even denied the insufficient debt relief under HIPC, because so far it has not been a good enough pupil in the World Bank’s and IMF’s macroeconomic classroom. Forcing one of the poorest countries in the world to pay more on debt service than on health and education, because it cannot fulfill some conditions made up in Washington, is an intolerable situation and has to be changed as soon as possible. 

Millennium Development Goals Sustainability Analysis

We use a ‘human development’ definition of debt sustainability. Under this approach, debts are only considered ‘sustainable’ when the debt service burden leaves the HIPCs with sufficient funds to meet their human rights obligations under the internationally agreed Millennium Development Goals (MDGs).

This definition of debt sustainability has gained wide acceptance - not only in the non-governmental community, but also in the United Nations, amongst African governments, HIPC Finance Ministers, and even creditor governments. The Irish Government has formally come out in favour of an MDG-based DSA for poor countries. The latest Human Development Report produced by the United Nations Development Programme (UNDP), for example, argues that ‘debt servicing capacity should be assessed relative to the country’s needs for achieving the Goals.’ For many countries this will require full debt cancellation. The HIPC debt-export measure of debt sustainability has little to do with the needs of poor people.’

Therefore we present some calculations.  For full details on the calculations and the methodology behind it please see the “Real Progress Report on HIPC” published in September 2003.

Footnotes