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                                                                        June 2011


   I.       Introduction ............................................................................................................................ 1

   II.         Executive Summary ................................................................................................................ 2

   III.        Matrix of Reform Activities ................................................................................................... 7

   IV.         Macroeconomic Background and Context of Reforms ........................................................ 12
          1. Economic Developments .......................................................................................12
          2. Evolution of Total Public Debt and Publicly Guaranteed Debt .............................13
          3. Debt Sustainability and Debt Management Performance Assessment ..................15

   V.       First Pillar Of Reform: Consolidate The Directorate Of Loans And Debt Management .... 16
          1.     Organizational Structure and Business Plan ..........................................................16
          2.     The Middle Office..................................................................................................18
          3.     The Back Office .....................................................................................................20
          4.     Staffing and Training .............................................................................................23
          5.     Physical infrastructure of DLDM ..........................................................................26

   VI. Second Pillar Of Reform: Updating The Legal And Inter-Institutional Framework for Public
   Debt Management .......................................................................................................................... 26
          1.     Legal and Regulatory Framework .........................................................................26
          2.     Debt Management Advisory Committee (DMAC)................................................27
          3.     MOF-CBG Memorandum of Understanding .........................................................28
          4.     Service Level agreement (SLA) between MOF and CBG.....................................30

   VII. Third Pillar Of Reform: Design And Implement A Strategy For Development Of Domestic
   Market For Government Securities ................................................................................................ 31
          Current Arrangements and Issues Arising ...................................................................31

   Annex A: The Gambia—Suggested Medium Term Reforms ....................................................... 39
          1. Cash Management ..................................................................................................39
          2. Business Continuity ...............................................................................................41
          3. Internal and External Audit ....................................................................................42

   Annex B: Other Accounts Payable As Government Debt ............................................................. 44

   Annex C: Terms of Reference for Tripartite Working Group for Market Development and General
   Guidelines for Domestic Debt Market Development ..................................................................... 45

AfDB      African Development Bank
AFROSAI   African Organization of Supreme Audit Institutions
BCP       Business Continuity Plan
CAC       Cash Allocation Committee
COMSEC    Commonwealth Secretariat
CBG       Central Bank of The Gambia
CS-DRMS   Commonwealth Secretariat Debt Recording and Management System
DB        Directorate of Budget in the Ministry of Finance
DeMPA     Debt Management Performance Assessment
DLDM      Directorate of Loans and Debt Management
DMFAS     Debt Management and Financial Analysis System
DNT       Directorate of National Treasury
DRP       Disaster Recovery Plan
DSA       Debt Sustainability Analysis
EBF       Extra-Budgetary Funds
GBMAA     Government Budget Management and Accountability Act (2004)
GBOS      Gambian Bureau of Statistics
GMD       Gambian Dalasi
GOG       Government of The Gambia
GRA       Gambia Revenue Authority
HIPC      Highly Indebted Poor Countries
IDA       International Development Association
IFAD      International Fund for Agricultural Development
IFMIS     Integrated Financial Management Information System
IMF       International Monetary Fund
INTOSAI   International Organization of Supreme Audit Institutions
IT        Information Technology
LFC       Liquidity Forecasting Committee
MCC       Macroeconomic Coordination Committee
MDAs      Ministries Departments and (Budgetary) Agencies
MDRI      Multi-Donor Relief Initiative
MOF       Ministry of Finance
MOU       Memorandum of Understanding
MTDS      Medium-term Debt Management Strategy
NAO       National Audit Office
OMOs      Open Market Operations
SLA       Service Level Agreement
SSHFC     Social Security & Housing Finance Corporation
TA        Technical Assistance
TBs       Treasury Bills
TBC       Treasury Bills Committee
TMA       Treasury Main Account
TOR       Terms of Reference
UNCTAD    United Nations Conference on Trade and Development
UNITAR    United Nations Institute for Training and Research
WAIFEM    West African Institute for Financial and Economic Management
                                           I.    INTRODUCTION

In response to a request from the Government of Gambia (GOG), a World Bank mission visited
Banjul during the period of November 28-December 9, 2010 to provide technical assistance in
the design of a public debt management reform plan.

The mission comprised Elizabeth Currie (team leader, Lead Financial Officer, BDM), Alvaro
Manoel (Senior Economist, PRMED), Ian Storkey (Debt Management Expert, World Bank
Consultant), Balliram Baball (Senior Debt Management Expert, DMFAS Program, UNCTAD)
and Baba Musa (Director, Debt Management Department, WAIFEM).

The mission’s main objective was to help the Government of Gambia (GOG) design a Reform
Plan for strengthening public debt management. One of the inputs for the Reform Plan was the
Debt Management Performance Assessment (DeMPA) report of April 2010. Another essential
input was the stated need of the GOG to further develop the domestic debt market; almost all
marketable domestic government debt is issued as Treasury Bills (TBs) and the authorities wish
to consider alternatives that can help to reduce interest rate and refinancing risk associated with
this position.

The mission team discussed with the authorities the results of the DeMPA report of early 2010
and obtained updated information on the current situation of public debt and cash management,
as well as of the market for government securities. This was followed by a discussion of possible
components for a Reform Plan, taking into account the priorities outlined by the Minister of
Finance, in particular his concern to further develop the market for government securities. A
preliminary agreement was arrived at on the main components of the Plan, which were then
summarized in a presentation for the wrap-up meeting and shared with the ex-Director of the
Directorate of Loans and Debt Management 1 (DLDM), who fully supported the draft reform

The mission met the Hon. Abdou Kolley, Minister of Finance and Economic Affairs; Mr. M.L.
Cessay, Deputy Permanent Secretary; Mr. Mod K. Ceesay, ex-Director of DLDM recently
promoted to Deputy Permanent Secretary, and the Debt Management team; Directors of the
Budget Unit, the Directorate of the National Treasury, the Ministry of Finance (MOF) Internal
Audit and the IFMIS Project Manager, all from MOF. In addition, the mission met with the
Deputy Directors of the Central Bank of Gambia (CBG), Mr. Ismaila Jarju and Mr. Mbaye
Jammeh, the Director of the Social Security Housing Funding Corporation (SSHFC) and the
Chief Executive Officers of Standard Chartered Bank and Trust Bank.

 The Director had been promoted to Deputy Permanent Secretary and was in the process of leaving his post but
participated in almost all of the meetings.

                                 II.   EXECUTIVE SUMMARY

The authorities of The Gambia (hereafter Gambia) are interested in strengthening their public
debt management, as shown by their request for a DeMPA evaluation in early 2010 and a
subsequent request that same year for assistance in the design of a reform plan. Improvement of
debt management is needed given the pressure on the fiscal position and the need for more
efficient funding in terms of the cost-risk trade-off. The government wishes to ensure that debt
management move closer to international sound practice, within a strong accountability

The mission’s main recommendations are summarized below, while their sequencing and
prioritization are illustrated in the reform plan matrix. The reform plan is centered on three main
pillars, namely:

1. Consolidate the Directorate of Loans and Debt Management (DLDM), which will contribute
   to the unit’s capacity for design and annual review of the Medium-Term Debt Management
   Strategy (MTDS) and the corresponding Financing Plan;
2. Reform the legal and inter-institutional framework for public debt management;
3. Design and implement a strategy for development of the domestic market for government

The main pillars are described below. They comprise a reform plan that is an ambitious
undertaking and which, if successful, will entail a more likely achievement of the typical debt
management objectives, which in many countries comprise i) funding the fiscal deficit ii) at a
minimum cost within prudent risk limits for the medium-term, and iii) developing the domestic
debt market.

The mission recommends additional reforms in the medium term, namely, strengthening cash
management; creating a policy for dealing with operational risk, including business continuity
risk plan, and strengthening the audit function of public debt management.

First Pillar: Consolidate the Directorate of Loans and Debt Management (DLDM)
It is recommended that DLDM not only manage external debt but also incorporate domestic debt
into its current mission and functions; this consolidation will allow i) a comprehensive analysis
of the aggregate central government debt portfolio and ii) a single comprehensive database that
will include both domestic and external debt. DLDM already has a front, middle and back office
and it can fold the domestic debt activities into this functional structure. The 2011-2012 Business
Plan can establish in detail how this consolidation will be made. However, it is efficient to
continue delegating to CBG the domestic debt front and back office operational functions, and to
continue to tap the latter’s knowledge of the market (e.g. in discussing placement of new

It is recommended to strengthen staffing of DLDM so as to improve employees’ technical
profile, lessen staff rotation and reduce key person risk. One possibility is to explore salary and
benefits improvements. A complementary option is to obtain temporary external technical
reinforcements primarily tasked with training staff. It is advisable that office space, distribution
and conditions be improved.

It is recommended that the DLDM initially focus on strengthening its middle and back offices 2,
due to the importance of specific functions of those units. The middle office will have two major
tasks to undertake in the near term, namely:

    •    design of future MTDS and the corresponding Annual Financing Plans, which will
         include the analysis of the comprehensive debt profile –including the cost and risk-
         tradeoffs of different debt strategies under varying future scenarios– in addition to other
         factors such as macroeconomic and market constraints, and available funding sources;
    •    periodic analytical reporting on the debt structure, and on compliance with the MTDS
         and the Annual Financing Plan.

The back office also has two major tasks:

    •    production of high quality and timely data, a factor which has been a challenge in the past
         and has affected reporting, credibility and accountability;
    •    integration of domestic debt data profile –as well as guarantees and on-lending- into the
         current debt recording and registration system, CS-DRMS. This will allow the recording
         of both external and domestic direct and contingent liabilities, which can be subsequently
         analyzed and reported to major stakeholders. A good debt database is a major building-
         block for the DLDM and comprises a variety of components which need to be
         strengthened (registration, validation, reporting, statistical outputs, interfaces with other
         IT systems, etc.).

The design and implementation of a training program is essential for the improvement of the
technical capacity of the middle, back and front office staff. Significant training will be required
for the middle office staff; it is recommended that one of the training alternatives` involve a
World Bank-IMF MTDS mission, as it would involve hands-on training in the design of a MTDS
and the Financing Plan. All CS-DRMS users will require both theoretical and practical training
on its use, while back office staff will benefit from extensive training by the Commonwealth
Secretariat on the different aspects of running CS-DRMS.

 Subsequently the front office can be strengthened so it can better carry out transactions in foreign currency and
have a greater deciding role when overseeing the operational activities of CBG in domestic debt issuance.

Second Pillar: Reform of the Legal and Inter-institutional Framework for Public Debt
This reform pillar is made up of four components of different levels of importance: (i) design of
a new Public Debt Law; (ii) creation of a Debt Management Advisory Committee; (iii) review of
the MOF-CBG Memorandum of Understanding (MOU); and (iv) design of a MOU- CBG
Service Level Agreement (SLA).

Firstly, upon consolidation of DLDM as described above, it is recommended that attention be
given to the design of a new Public Debt Law which will provide the framework for more
strategic debt management, by including, among others: public debt management objectives; a
requirement for the design and annual update of the MTDS and Annual Financing Plans; the
establishment of a process for the design, discussion and approval of the MTDS and Annual
Financing Plans; and the requirement for comprehensive and periodic reporting to major

Secondly, it is recommended that the Debt Management Advisory Committee be created with
new Terms of Reference. It will be responsible for ensuring policy coordination; assuring
technical discussions of alternatives; providing advice to the Minister of Finance on the MTDS
and financing plan for his final decision; and monitoring MTDS/ financing plan implementation,
among others.

Thirdly, the mission recommends a review and update of the MOF-CBG Memorandum of
Understanding so as to improve inter-institutional coordination (e.g. recognize MOF as
responsible for public debt management strategy; recognize the role of the new Debt
Management Advisory Committee; reactivate the Liquidity Forecasting Committee, etc.).

Fourthly, it is recommended that the fiscal agent services supplied by CBG to MOF be spelled
out in a “Service Level Agreement” (SLA) to clarify expectations and responsibilities on both

Third Pillar: Design and Implement a Strategy for Development of the Market for
Government Securities

The mission recommends the creation of a tripartite working group involving MOF, CBG and
market participants with the mandate to undertake a major review of the government debt market
with the primary objective of determining the best approach to its continued development.

Specifically, it is recommended that MOF and the tripartite working group analyze a number of
factors which could promote further market development, including the initiatives to:

   •   Establish a fixed-schedule government TB and bond program to meet GOG’s financing
       requirement for the next month, quarter and possibly financial year, which would enable
       investors to have greater certainty around future issuance.
   •   Map and continuously monitor the different investor profiles, so as to understand past and
       projected trends in asset growth; investment in government securities and in other assets;
       evolution of money market interest rates, etc.
   •   Develop benchmark bonds so as to extend the yield curve and eventually reduce the share
       of TBs outstanding.
   •   Develop a TB program that will allow the market to differentiate between issuance for
       monetary policy implementation and issuance for the fiscal deficit.
   •   Develop an investor relations program that includes direct contact in the form of periodic
       meetings by MOF/DLDM with primary dealers, other market participants, and investors.
   •   Develop a training program to educate primary dealers, other market participants, and
       investors on government bonds and the operations of a government bond market.

The outputs of a successful implementation of the three reform pillars will be:

A consolidated debt management department in the MOF with a strong analytical capacity and a
comprehensive and high-quality debt database (CS-DRMS), while continuing to delegate front
and back office domestic debt operational functions to the Central Bank of the Gambia (CBG).
The strengthened analytical capacity of DLDM will in turn allow the annual review of the
MTDS and the design of the Annual Financing Plan, elements which are central to public debt
management and which the MOF cannot delegate (although it can request input from the CBG).
In order to promote the continuity of MOF’s strategic policy-making role, the new legal
framework will establish clear debt management objectives and requirements that MOF design
the MTDS (with annual reviews) as well as the Annual Financing Plan. In turn, the updated legal
framework will set the framework for further clarification of the roles of MOF and CBG with
regard to public debt management, and a Debt Management Advisory Committee will monitor
compliance with the MTDS and advise the Minister during annual reviews of the strategy.
Finally, with many of these elements in place it will be possible for MOF, together with CBG
and market participants, to analyze and propose ways to further develop the domestic debt
market, in particular the primary market, although some aspects of this component will have
been included already in the MTDS and Annual Financing Plan.

In the medium term, and once the three pillars of reform have been successfully developed, the
authorities can consider reforming cash management; addressing operational risk and the need
for a Business Continuity Plan; and strengthening the audit function as related to public debt
management (Annex A). These modules are important for public debt management, but given
the urgency of the requirements described above, the mission recommends they be initiated in
the medium term i.e. after two years.

Section III below presents a matrix with a summary of the conclusions and recommendations of
this report, in terms of the specific reform activities for implementation, as well as their priority
and period of implementation.

Section IV briefly describes the macroeconomic background, while Sections, V, VI and VII
comprise the main body of the report which describes in greater detail the three most urgent
pillars of reform, by analyzing the current situation and main issues and then presenting
recommendations for reform.

                                                               III.     MATRIX OF REFORM ACTIVITIES

Issues/ Project        Actions                                        Priority   Timing           Expected Outputs of the         Expected Outcomes                  Budget
Components                                                            (H,M,L)                     Actions

                       Consolidation of DLDM by incorporation            H       Q3-2011 to       DLDM will manage total          1st Pillar: The consolidation of   External Technical Assistance
                       of MOF’s domestic debt within the                          Q1-2012         portfolio, i.e. both external   DLDM and strengthening of          for drafting new domestic debt
                       functional structure of DLDM.                                              and domestic debt and will      the middle and back office         functions and responsibilities
                                                                                                  have one consolidated debt      capacity creates necessary         of front, middle and back
                                                                                                  database.                       conditions for more strategic      offices, as well as job
                                                                                                                                  public debt management,            descriptions. Cost: US$50,000
                                                                                                                                  according to which external        for 2 weeks of TA from
                                                                                                                                  and domestic debt are managed      international expert, together
                                                                                                                                  as one single portfolio, and the   with World Bank at no cost.
                       New 2011-2012 Business Plan for                   H       Q4- 2011         New vision and mission that     portfolio structure is analyzed    International or local expert
                       DLDM, articulated with MOF’s general                                       incorporates domestic debt      in terms of cost and risk –        can facilitate a Change
                       business plan.                                                             and builds up institutional     taking into account market and     Management Workshop as
                                                                                                  capacity of DLDM                macroeconomic constraints- so      input for Business Plan design.
FIRST                                                                                                                             as to target specific desirable    Cost: US$25,000 for one week
PILLAR                                                                                                                            characteristics, which are then    of international expert
                       Strengthen staffing: explore mechanisms           H        Q3-Q4           Attracting and retaining        formalized in a medium-term        The more structural solution of
Consolidation of       for improved salaries/benefits for DLDM                     2011           senior staff to lead the        debt management strategy.          improving salaries/benefits for
DLDM and               to diminish rotation;                                                      DLDM program and mentor         In addition, a high quality        DLDM staff has budgetary
strengthening middle   Also, explore transitory expert                                            younger staff.                  database is necessary for          implications, to be
and back office        advisors/staffing e.g. secondments from                                    Obtaining additional expert     timely and reliable information    analyzed/quantified by MOF.
capacity               CBG for front office; renewal of AfDB                                      technical assistance in the     on the debt profile, and the
                       resident advisor for middle office; resident                               short term, as a temporary      development of the middle          The temporary solution would
                       advisor of US Treasury for domestic                                        solution.                       office will lead to better         not have a cost, as the different
                       market development                                                                                         reporting, thus ensuring more      entities involved would cover
                                                                                                                                  transparency and                   salaries and costs (i.e. CBG,
                                                                                                                                  accountability.                    AfDB, US Treasury).
                                                                                                                                  Finally, the incorporation of
                                                                                                                                  the domestic debt within
                                                                                                                                  DLDM’s functional structure
                                                                                                                                  will enable a stronger interest
                                                                                                                                  in active development of the
                                                                                                                                  government debt market,

Issues/ Project   Actions                                      Priority   Timing           Expected Outputs of the        Expected Outcomes   Budget
Components                                                     (H,M,L)                     Actions

                  Provide appropriate technical training for      H         Design         Trained DLDM staff can                             Training program of DLDM
                  DMU staff (priority for the middle and                   Q4-2011-        carry out new                                      staff will be designed by an
                  back offices, and then for front office).               Implement        responsibilities: analytical                       international .expert.Cost:
                                                                          ation Q1 -       functions and new                                  US$25,000 for one week’s
                                                                           2012-Q1         consolidated data base                             work
                                                                             2013          management, promoting                              The program will be
                                                                                           government debt market                             implemented during a 2-year
                                                                                           development.                                       period. (Cost: Internal Order)

                  Implement specific strategy design              H         2011           MTDS updated annually;                             DLDM can obtain Technical
                  training so that middle office will review                2012           Annual Financing Plan                              Assistance on MTDS design;
                  MTDS on a yearly basis and design                                        produced and formalized.                           later it will take a more
                  Annual Financing Plan.                                                                                                      proactive role and eventually
                                                                                                                                              carry out alone the design of
                                                                                                                                              MTDS and Annual Funding
                                                                                                                                              Provided by WB-Fund TA
                  Expand coverage and reporting of debt          M         Q1-2012         Produce freestanding annual                        External Technical Assistance
                  portfolio, including statistical bulletins                               report and periodic reports                        (ComSec, WAIFEM and
                  and analytical reports.                                                  within the year.                                   World Bank) can provide TA.
                                                                                                                                              Examples of sound practice.
FIRST                                                                                                                                         provided by World Bank TA:
(cont).           Strengthen back office by implementing          H       Q3-2011 to       Strengthened back office                           Training from ComSec on CS-
                  formal procedures:                                       Q2 2012         and secure and orderly flow                        DRMS is essential; also
                  -    Debt recording                                                      of information on debt.                            regional training (e.g.
                  -    Processing debt service                                                                                                WAIFEM) on debt recording,
                  -    Validating data                                                                                                        validation etc.
                  -    Accessing database                                                                                                     No cost.
                  -Monitoring government guarantees.

Issues/ Project        Actions                                    Priority   Timing         Expected Outputs of the         Expected Outcomes                  Budget
Components                                                        (H,M,L)                   Actions

                       Improve DLDM office space, distribution       H        Q1 2012       Remodeled and refurbished                                          To be contracted locally
                       and conditions.                                                      DLDM office.                                                       Cost: to be quantified by MOF
                                                                                            More comfort, a incentive
                                                                                            for staff, and less
                                                                                            operational risk.

                       Design a new Public Debt Law.                 H       Q2-2012        New debt law establishing       An adequate legal framework        Provided by World Bank TA
                                                                                            clear legal powers,             is essential for more strategic    Local team will also be
                                                                                            authorities and                 debt management.                   required, including legal
                                                                                            accountabilities, with clear    The creation of the DMAC will      counsel of Government.
                                                                                            objectives and requisites for   promote high level policy          (internal order, so no cost)
SECOND PILLAR                                                                               MTDS and Annual                 coordination, a transparent
                                                                                            Financing Plan.                 discussion of alternative debt
Updating the legal     Create a Debt Management Advisory             H       Q3-2011        DMAC is created and meets       strategies, provision of           Internal Order, so no cost
and inter-             Committee (DMAC).                                                    regularly during the year.      technical advice to the Minister
institutional                                                                               Ideally the creation of         on the choice of strategy,         Lead entity: MOF.
framework for public                                                                        DMAC and its ToR would          monitoring of MTDS
debt management                                                                             be included in the new          execution; etc.
                                                                                            Public Debt Law.                An updated MOU will improve
                                                                                                                            coordination at the policy and
                       Update MOU between MOF and CBG to            M        Q4-2011        An updated MOU that             technical level between the        Internal Order, so no cost.
                       improve coordination mechanisms, and                                 recognizes MOF’s new role.      MOF and CBG, particularly of
                       include central role of MOF in strategic                                                             domestic debt issuance.            Lead entity: MOF, but will
                       domestic debt management and in design                                                               The SLA will clearly lay out       coordinate with CBG.
                       of MTDS and Annual Financing Plan.                                                                   expectations and standards of
                                                                                                                            service to be met by CBG, and
                                                                                                                            will help institutionalize this

                       Establish a Service Level Agreement          M        Q3-2012        A SLA is drawn up.                                                 Internal order, so no cost.
                       (SLA) for debt and cash management                                                                                                      World Bank can provide
                       services supplied by the CBG to MOF.                                                                                                    examples of SLAs.

Issues/ Project       Actions                                    Priority   Timing        Expected Outputs of the         Expected Outcomes                  Budget
Components                                                       (H,M,L)                  Actions

                      Establish a tripartite working group          H       Q1-3 2012     A strategy will have been       These actions should result in a   International expert can
                      (MOF, CBG and market participants) for                              designed for further            more structured and strategic      provide technical assistance,
                      review of government debt market and its                            developing the market for       approach to the development of     along with a resident
                      further development.                                                government securities,          the domestic market for            representative of the US
                                                                                          which will then be              government securities. The         Treasury.
                                                                                          implemented.                    issuance calendar will provide     Costs: none for US Treasury.
                                                                                                                          greater certainty for investors    5 weeks of international expert
THIRD PILLAR                                                                                                              planning their investments.        with a cost of approximately
                                                                                                                          Mapping and monitoring of          US$100,000 for various
                                                                                                                          investor profiles will provide a   missions.
Designing and         MOF consider following elements for           H       Q1-3 2012                                     better understand by
implementing a        market development:                                                                                 MOF/CBG of investor
strategy for                                                                                                              demand, which will feed into
development of        Fixed schedule government bond                                      Issuance calendar for           strategy design. With an
domestic market for   program, for next month, quarter and                                Government bonds and TBs.       investor program, both
government            year.                                                                                               investors and PD will learn
securities                                                                                                                more about government plans
                      Mapping and monitoring of investor                                  Analyses of investor profiles   for domestic issuance, while
                      profiles                                                            that will be updated            MOF will better understand
                                                                                          periodically.                   market preferences.
                                                                                                                          Gradual creation of benchmark      .
                                                                                          Extension of yield curve        bonds will reduce the liquidity
                      Gradually develop benchmark bonds                                   with bonds.                     premium of bonds, and ideally
                                                                                          More liquid bonds, possibly     diminish the proportion of
                                                                                          more secondary market           TBs. Training provided to
                                                                                          trading.                        market participants on
                                                                                                                          government bonds should
                                                                                                                          reduce uncertainty, stimulate
                                                                                                                          demand and/or lower risk
                                                                                                                          premiums for government

Issues/ Project   Actions                                      Priority   Timing        Expected Outputs of the        Expected Outcomes   Budget
Components                                                     (H,M,L)                  Actions

                  Develop investor relations program                                    MOF will have more direct
                                                                                        two-way contact with
THIRD PILLAR                                                                            market participants,
(cont.)                                                                                 investors and PD and will
                                                                                        improve market knowledge.

                  Develop training program for primary                                  Create greater understanding
                  dealers, other market participants and                                in the market of government
                  investors on government bonds and                                     bonds, which are relatively
                  operational of bond market.                                           unknown.

                  Structure TB issuance in such a way that                              Alternatives can be analyzed
                  will allow the market to differentiate                                such as dedicating the
                  between issuance for monetary policy                                  shorter maturities to OMOs
                  implementation and issuance for the fiscal                            and longer maturity TBs for
                  deficit                                                               funding fiscal needs.


                                        1. Economic Developments 3

Gambia was able to maintain macroeconomic stability during the financial crisis as real
GDP growth averaged 6 percent a year during 2007-09 and inflation remained in single
digits, but important fiscal slippages took place. Fiscal discipline has deteriorated since late
2008, reflecting both unanticipated spending and more recently, revenue shortfalls. The global
crisis reduced tourism and remittances. Lower revenues and a shortfall of donor assistance
deteriorated the fiscal position, while high levels of costly short-term government debt had a
negative impact on debt sustainability. Gambia is considered at a high risk of debt distress.

In 2010 real GDP growth and the rate of inflation were projected at about 5.5 percent. 4 In
the medium-term, the main economic activity (agriculture) should continue with strong growth
and with the recovery of key sectors such as tourism and construction, growth should stabilize in
the range of 5 to 6 percent a year.

As a small open economy, Gambia is vulnerable to external shocks but some of the main
risks to the economy are domestic in origin. The economy is impacted by shocks in its terms
of trade or demand for its goods and services. In addition, financing problems can arise when
private remittances and officials transfers decrease. Finally, adverse weather conditions represent
a risk to Gambia’s predominantly rain-fed agriculture.

Gross international reserves increased in 2009 to a level equivalent to 6 months of imported
goods and services. This was due basically to the IMFs SDR allocation and budget support from
IFIs. Simultaneously the dalasi traded between 26-27 GMD/USD, although in mid-2010 it
depreciated to just over 20 GMD/USD, even though the CBG sold a moderate amount of foreign
exchange. In real effective terms, the dalasi depreciated by about 10 percent during 2009.

 See International Monetary Fund, “The Gambia—2010 Article IV Consultation”. IMF Country Report No. 10/274,
September 2010

    See IMF Article IV Consultation Sept.2010

             2. Evolution of Total Public Debt and Publicly Guaranteed Debt

Total public debt stock fell from US$886.1 million in 2007 to US$584.7 million in 2009 due
to the fall in external debt after the country reached Completion Point under the HIPC
Initiative (Table 1). The stock of external debt declined substantially at end-2008 following
HIPC and MDRI debt relief received in 2007. At the end of 2006, prior to completion point, the
stock of nominal external public debt was at high levels, namely US$612.7 million or
121 percent of GDP. After receiving debt relief, the stock of external debt dropped in 2008 to
US$352 million (41 percent of GDP) and in 2009 it remained at 40 percent of GDP (See Tables
1 and 2). Total debt in 2009 represented 61 percent of GDP, of which close to two-thirds was
external debt and one-third domestic debt.

Table 1. Gambian Total Public and Publicly Guaranteed Debt, 2005-10
                              (in millions of US Dollars)

                         2005         2006       2007       2008       2009 2010-Sep

External Debt            561.9        612.6      674.3      352.0      385.8      411.0
Domestic Debt            125.3        166.0      212.0      178.2      198.9      283.5
Total Public Debt        787.2        767.6      886.1      530.1      584.7      694.5
Source: Gambian authorities

Table 2. Gambia: Public Debt, 2005-09

                          (as percentage of GDP)
Public Debt Ratios            2005       2006        2007      2008       2009

External Debt                 121.7      120.5       80.4       41.1       40.2
Domestic Debt                  27.2       32.7       25.3       20.8       20.7
Total Public Debt             148.9      153.2      105.6       61.8       61.0

Source: Gambian authorities, Ministry of Finance

Multilateral creditors accounted for 82 percent of external debt, with IDA as the largest
creditor and representing 31 percent of external debt at end 2009. Prior to the HIPC relief in
2007, ODA funds (IDA, ADF/ADB, and IFAD) had accounted for about 65 percent of the debt
portfolio; however, by 2009 this share had declined to 37 percent of the external debt portfolio.
BADEA, Islamic Development Bank, Kuwait Fund, OPEC, and Saudi Fund which had

accounted for 23 percent of the debt portfolio in 2007 increased their share to 39 percent in 2009.
Most of the loans owed to this latter group were contracted within the last decade.
In terms of currency composition, the US dollar has the largest portfolio share, at 37
percent in 2009 (Figure 1) and 43 percent when the SDR is decomposed into its currencies.
The portfolio shows an increase in the proportion of Islamic Dinar and Kuwaiti Dinar at 13
percent and 7 percent respectively from the levels in 2007, due to increased borrowing from
Middle East agencies and governments during and after the HIPC process.

              Figure 1: Gambia - Currency Composition of
                     External Debt, December 2009
                              Yen 8%
                       Euro                 Dollars
                       11%                   37%
              Kuwaiti Dinar
                   Islamic Dinar

                   Source: Gambian authorities, Ministry of Finance

Total domestic debt stock stood at GMD 7,654.5 million equivalent to US$286 million as at
end-September 2010, showing a sharp increase in TBs. This amount includes CBG
revaluation losses covered by MOF and the outstanding amount of an overdraft account at the
Central Bank of Gambia (CBG) which was converted to a 30-years marketable bond in mid-
2010 5. By September 2010 there was a 43 percent increase over outstanding domestic debt in
end-2009, when it stood at GMD 6.1 billion (US$199 million) or 21 percent of GDP. The
significant increase in short term TBs since 2007 was due to the deterioration of the fiscal
position. The level of domestic debt would be significantly increased if budget arrears were also
considered; although there has been no official recognition of their amount, government
documents indicate a level equivalent to around 10 percent of GDP. 6

    Although the coupon was below market rates.

 See for example Gambia, Ministry of Finance, Directorate of Loans and Debt Management, Annual Public Debt
Report, 2009. Banjul, November 2010.

Currently, the debt portfolio risks include significant currency, rollover and interest rate
• Currency risk. As close to two thirds of total debt is denominated in foreign currencies, a
    depreciation of the local currency would imply higher debt servicing payments, although this
    is to a degree offset by concessionary financing terms of low interest rates and long
    amortization periods. However, the depreciation would affect the debt stock, which is already
    considerable as a proportion of GDP, as mentioned above.
• Refinancing risk. Approximately 33 percent of total debt is domestic, given that a large
    percentage of this corresponds to TBs, GOG is also exposed to refinancing risk. This risk is
    more complex because commercial banks can in theory not rollover their investment in short
    term government paper, but de facto prefer to invest in these securities due to their relative
    low risk and high yields, versus lending to the real sector which is considered much riskier 7.
    On the other hand, the ever expanding supply of TBs may result in market saturation; already
    in late 2008 holdings of TBs accounted for 52 percent of total liquid assets of the banking
    sector, although in terms of total assets the holdings represented 23 percent. In the case of the
    Social Security & Housing Finance Corporation (SSHFC) TBs holdings represented almost
    20 percent of total assets, while the figure was relatively lower for insurance funds, namely 9
    percent of total assets. 8 However, updated data is required to get a clearer picture of financial
    entities’ exposure to TBs and other public sector securities.
• Interest rate risk: This risk is not as significant for external debt as it is for domestic debt,
    because a large proportion of marketable domestic debt matures within one year (TBs) and is
    therefore exposed to potential re-fixing of interest rates. Moreover, domestic money market
    rates have been volatile in the recent past, and are considerably higher than external interest
    rates. For external debt, which is mostly concessional, there is no concentration of
    amortizations in the short term and on the contrary low interest rates are paid during very
    long maturities.

            3. Debt Sustainability and Debt Management Performance Assessment

Based on the most recent joint World Bank-IMF debt sustainability analysis completed in
January 2010, Gambia is classified as being at a high risk of debt distress. In the medium- to
long-term, estimates suggest that fiscal sustainability would require a positive primary fiscal
balance in the 1.5 to 2.0 percent of GDP range compared to projections for 2010 of about zero or
even negative results.

 One of the factors that provide a disincentive to bank lending is the weak legal environment, in particular lack of
commercial courts to enforce contracts, according to the Gambian MTDS document of 2010.

    Gambian MTDS.

A DeMPA exercise conducted in January 20109 concluded that Gambia has progressed in
several areas but there are remaining areas that need improvement where the minimum
requirements for effective performance in debt management had not been met. The
strongest challenges in debt management included (a) lack of coordination with monetary policy
and lack of a clear separation between the monetary policy operations and debt management
transactions; (b) weak cash management, in particular regarding information sharing and a clear
targeting and control of the cash balance; (c) high operational risk, including lack of control
mechanisms such as procedures manuals for debt negotiations and transactions—and for on-
lending and guarantees; and (d) need to strengthen debt recording and reporting of public debt.


                           1. Organizational Structure and Business Plan

Current situation and issues

Traditionally CBG was responsible for domestic debt issuance but now the main
responsibility lies with the MOF, which implies it needs to strengthen its institutional
capacity so as to take on the new role. MOF has been given the mandate for management of
both external and domestic debt, to be implemented under the umbrella of one MTDS. However,
it needs to further develop the domestic debt management capacity, in particular the analytical
capacity necessary for debt strategy design. For example, currently DLDM staff lack contact
with domestic investors inasmuch as de facto this function is totally delegated to CBG, which
carries out the meetings and seminars. If MOF intends to introduce new products in the market
as part of its debt management strategy, it is recommended it have closer and continuous contact
with the investors and promote a two-way information flow.

The domestic debt section and functions are not integrated into the current organizational
structure of DLDM. Currently there is no clarity regarding the structure or functions of the
MOF domestic debt group, as it is a separate unit from the Front, Middle and Back Office
structure which in effect is dedicated exclusively to external debt. The Middle Office produces
reports largely focused on external debt. The Back Office does not input the domestic debt data
into CS-DRMS, so that the integration of data of the external and domestic debt is only made
sporadically, and in an excel spreadsheet.

    See The Gambia: DeMPA Report, Washington, World Bank, April 2010.

A new organizational mission, vision, functions and structure are required for DLDM for
sound debt management and for further developing the domestic debt market and
extending the yield curve. It is unlikely that CBG will willingly relinquish its role as the main
entity responsible for domestic debt unless MOF’s institutional capacity is clearly strengthened;
CBG will wish to be assured of the availability of mechanisms for monetary policy
implementation. Also there is lack of clarity in MOF that domestic market development is one of
its main objectives.


•   It is recommended that the domestic debt section in the current organizational structure be
    grafted onto DLDM’s current functional Front, Middle and Back Office framework.
    Maintaining the domestic debt unit as a separate section or unit within DLDM makes it
    difficult for the aggregate debt portfolio to be analyzed and managed (e.g. in terms of the
    desired cost-risk tradeoff); a more integrated functional approach is required. The Front
    Office of the domestic debt could be kept separate from the Front Office of the external debt,
    given the different, specialized nature of its functions and the need to have a senior person in
    charge of each unit; however, it is important to have one Principal Loan Officer overseeing
    these two Front Offices. The operational aspects of domestic debt issuance, registration and
    payment would continue to be delegated to the CBG (with formal agency agreement as
    recommended in Section VI-4 of report). The Middle Office would be one and the same for
    dealing with both types of debt, as would the Back Office, which would however continue to
    rely on the CBG for some important back office functions related to domestic debt.

•   The organizational structure can be redesigned according to the (simplified) organizational
    chart below:


        Front                  Middle                  Back
    (Principal Loan        (Principal Loan        (Principal Loan
        Officer)               Officer)               Officer)
External and                  External and          External and
Domestic debt                 domestic debt         domestic debt

It is recommended that the Business Plan for 2011-12 be properly articulated so as to
incorporate the leading role of DLDM in public debt management and in particular, in
domestic debt market development. It will require (a) a new mission and vision which will
incorporate development of the domestic government debt market; (b) a consolidation and
formalization of the Front, Middle and Back Office organizational structure in DLDM, including
domestic debt functions; (c) adequate staffing with Principal (Loan) Officers responsible as
heads of the Front, Middle and Back Offices, with the Front Office activities of both external and
domestic debt under the responsibility of the Principal (Loan) Officer of the Front Office (see
figure above); (d) strengthening of the middle office; (e) improvements in debt recording and
reporting, with special emphasis on incorporating domestic funding into CS-DRMS; (f) the
design of a capacity-building training program; (g) a periodic formal performance evaluation for
all staff based on the results expected in the Business Plan; and in the medium term (h) design
and activation of an operational risk management program.

                                     2. The Middle Office

The middle office urgently needs strengthening so as to enable it to quantify risk-cost trade-offs
and design a MTDS, as well as an Annual Financing Plan with the help of the front office. It also
needs to produce periodic reports that will allow policy-makers to assess if the MTDS is indeed
being complied with.

Current situation and issues

The current MTDS 10 was developed by Commonwealth Secretariat (COMSEC) as in 2010
DLDM staff lacked the technical capacity to undertake such an analysis and to make
annual updates. Currently the Middle Office is made up of two relatively junior employees who
however wish to consolidate their knowledge with intensive training. The current MTDS was
designed by external consultants without much contact with the local team, and as there was no
transfer of know-how, the MTDS design and review is not sustainable. This is the issue of
formulating an MTDS designed by external consultants without investing time in training the
government team. Many of the benefits of a MTDS arise from carrying out the analyses that go
into the strategy design, and in the case of Gambia this is missing, even though a strategy is
formally in place.

Middle Office employees are not fully familiar with the reporting procedures. The reports
on the debt profile and its financial risks have been guided and coordinated by the resident
advisor; however, the advisor has left and Middle Office staff is not familiar with various aspects
of the reporting procedures; again, progress achieved is not sustainable.

Training of Middle Office staff is urgently required in various areas. One of the most
important is the area of modeling, risk quantification and analysis of cost-risk trade-offs, as well
as additional inputs for MTDS design (i.e. constraints set by macroeconomic policy and/or the
markets). Other areas requiring training include: i) monitoring and compliance; ii) reporting; and
iii) debt sustainability analysis (although the latter corresponds more to fiscal policy, it is normal
that the debt management unit participate in the exercise).


•    Consolidate staffing in the Middle Office, by hiring a highly technical and experienced head
     of the Middle Office upon organizational restructuring of the department, and by exploring
     the possibility of hiring an AfDB resident who would concentrate almost exclusively on
     training DLDM staff.

  The current MTDS for 2010-2012, approved by the Cabinet of Ministers in 2009, is expressed in terms of a
preferred direction in terms of foreign currency, interest rate and refinancing risk, namely, to reduce the proportion
of external debt and increase that of domestic debt. External debt is limited to concessional debt with a minimum
grant element of 35 percent. The strategy sets guidelines for reducing refinancing and interest rate risk by
diminishing the proportion of short-term debt (TBs) and seeking to extend maturities to 2 years and eventually to 5

•      Explore the possibility of having a World Bank/IMF mission to develop a new MTDS, this
       time with the active participation of the Middle Office.

•      Consolidate the technical know-how of the Middle Office staff, by providing priority training
       which could include, among others:
          World Bank/IMF MTDS courses
          IMF/WB MTDS mission scheduled for 2011, which includes specific training on the use
          of the analytical tool (now scheduled for June 2011).
          World Bank half-yearly hands-on training in public debt management strategy design
          (one week) and strategy implementation (one week), which in addition includes a module
          on reporting. The next workshop takes place in end-June 2011 in Vienna.

                                              3. The Back Office

The Back Office needs strengthening in debt recording/validation and statistical reporting.

                                     A. Debt Recording and Validation

Current situation and issues

There is no consolidated database of Government debt: external debt is recorded in DLDM
on the Commonwealth Secretariat’s CS-DRMS, while domestic debt is registered in the
Banking Department of CBG, using a book entry system (registry). The domestic debt
database is not linked to the external debt database, although CBG reports to DLDM on a weekly
and monthly basis. CBG has opted not to implement CS-DRMS, as this is viewed as duplication
with the other IT systems.

Government arrears to suppliers, estimated at approximately 10% of GDP, 11 are excluded
from domestic debt and total GOG debt. 12 These stocks are included in the international
definition of Government debt as other accounts payable (See Annex B). Although there are no
consistent consolidated figures of this component, officials indicate that it has been increasing
since 2005. In that year, an inventory of the stock of arrears was undertaken together with the
suppliers and the consolidated stock was converted into debt instruments which were repaid over
a five year period. Its exclusion from the debt data therefore can result in a significant
underestimation of domestic and total debt, and of the related measures of sustainability and risk.

     The Gambia - Debt Management Strategy, 2011-2013.

  Although arrears should be included in debt statistics, they are not part of the debt management strategy or the
definition of domestic debt from a debt management perspective. Nonetheless, the GOG must have a strategy for
dealing with the arrears.

Clear procedures for monitoring and processing government explicit contingent liabilities
and on-lending are lacking. For both of these categories, there appear to be no procedures for
processing or registration of the transactions, although loan guarantees are submitted to MOF for
DLDM for review. DLDM submits its recommendation to the Minister of Finance, who signs the
guarantee agreement, if approved. There is no consolidated information on stocks and flows of
explicit contingent debt liabilities and on-lending, nor is there information on projections on

There are no institutionalised validation 13 procedures for debt recording. Validation
comprises both computer software and non-computer software verification procedures. 14
Comprehensive efforts have been extended to updating and validation of the external debt
database. However, while there are in-built validation checks in CS-DRMS, non-system- routine
validation mechanisms are lacking. The database has been validated on an ad hoc basis, the most
recent being in the third quarter of 2010, in preparation for an IMF mission.

The planned integration of CS-DRMS with IFMIS further emphasises the need for
accurate, consistent and timely information. DLDM and IFMIS management are currently
considering the development of an interface between CS-DRMS and IFMIS, and COMSEC
recently provided an overview of the main issues to be considered. One important issue is that
while loan instruments and transactions are recorded on a timely and consistent basis,
disbursements’ recording is late, inconsistent and subject to duplication of entry15.

The introduction of a back office procedures manual is a positive step in efforts to promote
institutional memory, but requires guided support from experienced officials. A Back
Office Operations Manual was produced in October 2009, and a document on Procedures for
Regular CS-DRMS updates was produced in November 2010. However, these have not yet been


•    It is recommended to implement CS-DRMS for domestic debt recording and to integrate this
     data with GOG external debt for reporting on the aggregate portfolio. The responsibilities for

   Debt data validation can be defined as the process of ensuring that debt data is complete, accurate and consistent
in order to produce reliable and timely information to meet the needs of domestic and external institutions. The
validated database becomes even more critical as the debt database becomes integrated into financial management
systems, as the reliability of debt data becomes crucial as it is incorporated into broader fiscal reporting.

.14 Examples of non-computer specific validation checks include periodic reconciliation with creditor records,
budget allocations and expenditures, verification of guarantees and on-lending stocks and flows with related

  This is so, although implementing agencies have to obtain DLDM’s approval before disbursement requests are
processed, and relates primarily to late advices from the creditors such as Kuwait Fund, Saudi Fund and OPEC.

    this function can be established by MOF and CBG, and a formal agreement put in place for
    data sharing and reporting. (This could be undertaken with the support of COMSEC,
    WAIFEM and a Debt Adviser.)

•   It is recommended to create formal procedures for debt recording, data validation, and
    monitoring and recording of direct contingent liabilities and on-lending, including:
       Procedures for systematic collection of information on loan contracts, stocks and flows
       for loan guarantees and on-lending, and for non-financial public sector reporting. (This
       could be undertaken with the support of a Debt Adviser.)
       Development of a data validation calendar. While there are in-built validation checks in
       CS-DRMS, other types of routine validation mechanisms are required, such as periodic
       reconciliation with creditor records; budget allocations and expenditures; verification of
       guarantees and on-lending stocks and flows with related institutions. This should be
       monitored by the Principal Loan Officers.
       Procedures for collection of disbursement data from agencies. This should include a
       reporting form that will contain information which will be consistent with the data entry
       requirement of the CS-DRMS; agencies should be required to complete this form and
       submit to DLDM when applying for disbursements approval.
       Formal dissemination sessions of the procedures manuals produced and systematic
       monitoring to ensure that they are being implemented.

                                       B. Debt Reporting

Current situation and issues

Reports are late, generally with a lag of approximately one year. Reports produced contain
annual data, and no quarterly or monthly statistics are available. The first quarterly report was
produced in December 2009 with annual data up to 2008.

Domestic statutory reporting is late. There is a constitutional requirement for MOF to report
debt figures to the National Assembly annually or as required. The final draft of the first Annual
Public Debt Report with data of 2009 was produced in November 2010, for submission to the
National Assembly. No debt reports are available on the MOF’s website.

International contractual reporting obligations are not complied with. GOG is required to
provide reports to the World Bank on a quarterly and annual basis for the World Bank Debtor
Reporting System (DRS). However, no reports were submitted for 2008 or 2009. Gambia has

also subscribed to the General Data Dissemination System (GDDS), but reporting on GOG debt
and external debt is late. 16

To date, two public debt reports have been produced, but with the major input provided by
an outside consultant. The two reports are: (1) Quarterly Bulletin (December 2009), and (2)
Annual Public Debt Report, 2009 (November 2010). The first was only produced once, and
although intended to be quarterly, has been replaced by an annual report. However, both of these
were produced by the AfDB Debt Adviser as part of his contractual requirements, and he is
leaving; DLDM staff was only involved in the production of some tables used in the report.
These are good basic analytical reports, but they relate only to central GOG debt, do not contain
basis risk indicators and debt ratios 17, the definitions are not consistent with international
standards and importantly, they are not sustainable.


•    It is recommended to establish reporting priorities and sequencing so as to provide
     timely reports. A statistical bulletin should be produced by DLDM staff in the near term
     (possibly with some training). The bulletin can be initiated with GOG external or external
     and domestic debt and later extended to government guaranteed debt, once the data is
     consistently reported. The frequency can also be conservative, initially annual and then
     extended to quarterly. In turn, the middle office will produce analytical reports (see above).

•    It is advisable to resume reporting to the World Bank and provide timely information
     to GDDS. A validation exercise has been completed, and the database has been updated.
     Forms 1 and 2 of the World Bank should be reported for 2008 and 2009, and Form 1 for up
     to October 2010.

                                            4. Staffing and Training

Current situation and issues

Staff sustainability is an important issue. The Director is leaving the DLDM due to his recent
promotion to the post of Deputy Permanent Secretary; a number of middle-level staff are
studying abroad and newly hired employees are high-school graduates. DLDM has 14 staff

  In addition, it has been invited to participate in the Quarterly External Debt Statistics initiative coordinated by the
IMF and the World Bank, and Government officials have also received related specialized training at the COMSEC
GDDS/ QEDS seminar which was held in London during 1-3 December 2008. However, Gambia has not yet
subscribed to the QEDS initiative.

   Basic risk measures would include the following:· share of fixed-rate to floating-rate debt; share of short-term to
long-term debt; average time to interest rate re-fixing; share of foreign currency to domestic debt; currency
composition of foreign currency debt; average maturity of the debt; and maturity profile of the debt.

working in the Department, three others finishing postgraduate studies abroad, 18 -although one
will be returning to the office in the near term - two IT experts and one administrative assistant.
Of a total of 20 staff, six are junior staff with operational responsibilities such as data entry and
administrative work related with the processing of loan agreements. 19 The Senior Loan Officer
responsible for External Debt (largely multi- and bi-lateral debt) was hired 3 months before the
mission took place.

The DLDM is exposed to high key person risk. The ex-Director of the DLDM represents the
unit’s most important technical capacity as well as its institutional memory, having worked in the
DLDM for over 14 years 20. In particular, he has been the main technical loan negotiator for
external multi- and bi-lateral debt together with the Finance Minister and/or the Permanent
Secretary; other Front Office staff lack this experience. Secondly, a resident debt advisor
financed by AfDB that had been working with DLDM during the past two years is leaving in
December 2010 when his contract finishes. 21

Staff need to improve their technical capacity in order to carry out their functions. As
discussed above, DLDM staff need to strengthen their technical know-how so as to adequately
carry out their functions, especially if the Middle Office is to become engaged with the design of
MTDS and analytical work in general.


•      It is recommended that the technical level of staff be raised and that efforts be made to
       diminish staff rotation by improving conditions and to strengthen institutional memory with
       formal procedures and manuals.

•      It is important to discuss this initiative with the Civil Service unit that is planning to analyze
       potential increases in civil servants’ salaries; DLDM staff have specialized skills that are
       highly attractive to the private sector and all efforts should be made for them to receive
       higher salaries and/or improved benefits so as to retain trained staff.

  Two senior loan officers doing postgraduate studies abroad are obliged to return to DLDM or else pay for the cost
of their education abroad.

     For example, processing loan agreements with the Justice Department so as to obtain its legal opinion.

     And was one of the two staff that had been working in DLDM for more than 3 years.

     It is possible the external consultant may return in mid-2011 in a new capacity as short term consultant.

•   Staffing could include some outside temporary help to kick-start the process. It would be
    convenient to (i) strengthen the Front Office of domestic funding with two staff from CBG
    with a time-constrained leave (e.g. two years); (ii) contact AfDB to determine if another
    resident advisor with knowledge of the MTDS process and domestic debt market
    development could provide hands-on Technical Assistance (TA), and to include in that
    person’s Terms of Reference an explicit requirement for skills transference; (iii) inquire if the
    US Treasury could provide a resident advisor to assist with domestic debt market

•   As part of the training program, it is recommended to include in situ intensive and hands-on
    training so as to elevate the technical level of the Department as a whole. A workshop on
    elements of sound practice in public debt management should be delivered in Banjul to all
    staff of the Directorate. The workshop should address the following: Principles of sound
    public debt management; governance and functions of each of the major stakeholders
    (Assembly, MOF, CBG, DLDM, Debt Management Committee or Sub-Committee etc.);
    functions and interaction of units within DLDM (Front, Middle and Back Offices); principles
    and practice for further development of the domestic debt market; reporting of public debt
    management and management of investor relations; monitoring and compliance functions of
    the Middle Office (a new function for DLDM).

•   It is recommended to consider a study tour to countries similar in some ways to Gambia but
    ahead in the debt management learning curve and ideally with a more developed domestic
    debt market; intensive preparation on the part of staff going on the study tour, would be
    necessary and it would be expected that they transmit this information to the rest of the unit
    on return to Banjul.

•   Another training possibility would involve attachments for MOF staff in the CBG in the unit
    responsible for domestic debt market issuance

•   It is recommended that DLDM staffs attend COMSEC/WAIFEM training on CS-DRMS. The
    Back Office staff are incorporating domestic debt into the debt database and will need further
    training in this area. In addition, it requires training on all aspects of operational management
    of the database, as the quality and timeliness of the data has been a problem in the recent past
    (see above).

•   CS-DRMS training can be divided into training modules to promote immediate application
    after each training module. For example, after training on data validation, a validation
    exercise could be conducted; this could be undertaken with support of COMSEC, WAIFEM
    and/or a Debt Adviser.

                              5. Physical infrastructure of DLDM

Current situation and issues

Current working conditions are cramped and uncomfortable. Not only are the offices small
and in need of maintenance, but also the furniture is in a bad state. There is no “secure room” for
maintaining loan agreements and other important documents. The head of the DLDM is seeking
to enlarge the work space by incorporating an area next to the current offices.


It is recommended that office space, distribution and conditions of the DLDM be improved.
The overcrowding and lack of adequate furnishing most likely impair productivity. Moreover, if
closer contacts with the private sector investors are being planned, then the offices should reflect
the professionalism of the MOF. The mission also recommends that the Back Office physically
be separated from the Front and Middle Offices, and that access to the Back Office be restricted,
in particular access to a “secure room” dedicated to keeping loan records.


                             1. Legal and Regulatory Framework

Current situation and issues

The Government Budget Management and Accountability Act of 2004 (GBMAA) – which
is the main law for public debt management – does not establish objectives for public debt
management as typically found in sound practice, namely: a) funding the government’s fiscal
needs; b) minimizing medium to long-term cost within prudent risk limits; and c) developing the
government’s domestic debt market. Without clear objectives accountability is weakened.

While the legislation met with the minimum requirements under DeMPA Debt
Performance Indicator-1, the introduction of a new Public Debt Law could address some of
the weaknesses identified in the DeMPA exercise. The GBMAA lacks other sound practice
items typically established in the legal framework, including, among others, requirements for
(a) MOF to design and publish a medium-term debt management strategy that should be updated
on a yearly basis; (b) specification of the institutionalized process for doing so; and (c) provision
of a detailed annual report to the National Assembly on the debt profile, its risks and operations
and specifically compliance with the debt management strategy.

The legal framework does not establish clear debt management objectives for MOF; typical
objectives are to finance the government’s needs; reduce the medium term costs of the debt
portfolio within prudent risk limits; and develop the domestic debt market. The government
has expressed interest in diminishing its refinancing risk and interest rate risk by extending
domestic debt maturities. In the near term, however, there is a reluctance to place longer term
bonds at higher interest rates. If there was a legal objective to reduce risk and not only cost, the
MOF could pay more attention to issues such as extending maturities. Many countries have
found that the best way to reduce the cost of debt–and to manage various types of risk–is
precisely to develop the domestic debt market.


•   In the medium term, draft a new Public Debt Law, which would provide a legal framework
    for a more strategic public debt management.
•   In the near term a Ministerial regulation can establish the objectives and requirements
    mentioned above.

                     2. Debt Management Advisory Committee (DMAC)

Current situation and issues
With the present regulatory and institutional arrangements for public debt management in
Gambia, there is little focus on the cost-risk trade-off of different funding strategies for
managing debt. The MTDS needs to be further integrated into the policy and operations of
MOF and DLDM. Although an MTDS exists, there are remaining issues that need to be
•   inactivity of the Debt Management Committee responsible for advising the Minister of
    Finance on the choice of strategy and subsequently monitoring compliance in its
    implementation, among other functions.
•   incomplete implementation of the MTDS, as shown by a single bond issuance and thereafter
    issuance exclusively in TBs;
•   lack of operationalization of the MTDS into an Annual Borrowing Plan;
•   an incomplete MTDS, inasmuch as it does not address how the domestic debt market and the
    yield curve will be developed over the near and medium term (although it does state that
    issuance should begin in the 2-year and subsequently in the 5-year range);
•   lack of formal monitoring and reporting of the MTDS’s implementation;
•   a policy of not sharing the MTDS with the markets and the public (e.g. current MTDS is not
    on the website).


It is recommended that a Debt Management Advisory Committee (DMAC) be created and that it
carry out an advisory role to the Minister with regard to policy for public debt management,
including to: (a) advise the Minister (and/or Cabinet) on the MTDS and the corresponding
desired structure of the debt -based on proposals of the DLDM- so that the Minister/Cabinet can
take the final decision, and also advise on the Annual Financing Plan; (b) monitor
implementation of the MTDS and Annual Financing Plan; (c) discuss progress on development
of the domestic debt market; and (d) discuss risks arising from guarantees, other contingent
liabilities, debt in arrears and new instruments. In some countries central bank staff participates
in this Committee, while in other countries the central bank instead receives the draft MTDS for
formal comments before the Minister of Finance gives his final approval.

It is recommended that the membership of the DMAC include the following:
• Permanent Secretary, MOF (chair)
• Deputy Permanent Secretary, MOF (Mr. Mod Ceesay)
• Director of the National Treasury, MOF
• Head of Economic Management Policy Unit, MOF
• Director of Budget Directorate, MOF
• Representative of the CBG (as observer when requested)
• Secretary (head of DLDM), MOF

                          3. MOF-CBG Memorandum of Understanding

Current situation and issues

Although the separation of functions defined in the Memorandum of Understanding
between MOF and CBG 22, refers to the general macroeconomic (fiscal) policy role of MOF,
it makes no reference to its leading role in public debt management. An essential
responsibility of the MOF is to design and implement a MTDS including a domestic debt
component for funding the fiscal deficit and for further developing the domestic market. The
MTDS 23 –and the accompanying Annual Borrowing Plan 24– should be presented together with
   In 2007 a Memorandum of Understanding (MOU) between MOF and CBG established a cooperation framework
in the domain of domestic debt management and monetary operations, the main reason being that both the MOF and
CBG use the GOG TB as instruments for funding fiscal needs and Open Market Operations (OMOs). The MOU
specified (a) the roles and responsibilities of each institution and (b) the coordination mechanisms in terms of
different committees at different policy-making and operational levels.

  The MTDS is approved by the Minister of Finance and the Cabinet and presented to the Legislative Assembly for
informational purposes only, thus promoting transparency and accountability.

the proposed Budget and thereafter guide MOF funding; it constitutes the main coordinating
mechanism of the operational activities of CBG as the GOG’s fiscal agent for domestic debt
issuance. However, the MTDS was designed after the MOU was signed.

The current committees established by the MOU are either geared at coordination at a
high-level macroeconomic policy (fiscal and monetary policy) or at an operational level; the
latter corresponds to the Treasury Bill Committee which is largely limited to taking
decisions on the cut off level of the TBs auctions. What is missing is a Debt Management
Advisory Committee responsible for advising the Minister of Finance on the choice of the debt
management strategy for achieving a desirable debt structure, including:
•      composition of external versus domestic debt
•      composition of currencies in the external debt
•      mix of interest rates (fixed and floating)
•      possible currency or inflation-indexed debt versus nominal debt
•      amortization profile
•      management of public guarantees, on-lending and arrears.

The MOU specified that MOF should calculate and share with CBG monthly/weekly cash
flow forecasts. In early 2010 a Liquidity Forecasting Committee (LFC) was created with the
objectives of (a) undertaking periodic overviews of all central government revenues and
expenditures and (b) projecting cash flows on a rolling basis for the next quarter, including
required TB issuance. As the LFC was created after 2007, it is not mentioned in the MOU.
However, the LFC has not been active, possibly because the seniority of its participants
constitutes an obstacle to meeting on a weekly basis 25.

The authorities are concerned about the simultaneous use of TBs issuance for both OMOs
and fiscal funding, as this can potentially generate a conflict of interest. A proposal had been
made in the past of dividing the yield curve so that each entity would issue within certain
maturities (e.g. CBG issuing up to 65 days or so and MOF issuing from 90 days on) but it was
not accepted due to the lack of definition of what entity should cover the expenses of CBG’s
open market operations.

Other coordination issues have arisen due to non-compliance with the MOU:
•      Even though the MOU specified that MOF should calculate and share with CBG
       monthly/weekly cash flow forecasts, until now MOF has been unable to comply with this

  Although GOG currently has a MTDS, the strategy has not been translated into an Annual Funding Plan, a follow-
up that is urgently required to provide guidelines to the DLDM Front Office for day-to- day funding.

     An LFC meeting was held during the mission and the authorities’ intention is to continue to do so periodically

     requirement. This non-compliance should change with the activation of the Liquidity
     Forecasting Committee, but only if the latter meets periodically (e.g. monthly) to update the
     rolling quarterly cash flow projections.
•    Another area of non-compliance with the MOU is created from not ensuring that proceeds
     from the sale of TBs for liquidity management (OMOs) are maintained in a sterilized account
     at CBG; at times these revenues have been used for funding the government. The only truly
     sterilized account corresponds to the Sukuk Al-Salaam, but the amount is marginal.


•    It is recommended that the MOU be reviewed and updated 26 so as to improve
     coordination between MOF and CBG and that the review include, among others, the
     following agreements:
          MOF is responsible for policy design of public debt management, including the design of
          a MTDS and the Annual Financing Plan that will in turn provide guidance to CBG when
          it executes transactions as fiscal agent of GOG.
          A Debt Management (Advisory) Committee will be created, with the CBG Governor
          invited to participate as a member.
          The Liquidity Forecasting Committee is reactivated and meets regularly; one month will
          probably be an adequate period for holding meetings, allowing the information on
          projected cash flows to be shared with the CBG.
          A decision on how to separate the use of TB issuance for fiscal funding from that done
          for OMOs (e.g. agree on shorter term of yield curve for OMOs only).
          Limits on the government’s use of overdrafts from the CBG
          A decision on how to use the funds obtained from TB issuance for OMO.

                   4. Service Level agreement (SLA) between MOF and CBG

Current situation and issues
CBG supplies a number of services to MOF. In Gambia the most important of these is as
banker, although CBG is also a fiscal agent (managing auctions) and registrar or paying agent in
respect of domestic debt. There is no formal documentation describing the exact services CBG
provides to MOF in the areas of debt and cash management, which would clarify expectations on
both sides and facilitate coordination.

  Towards the end of the mission we were informed that the MOU had been updated in March 2010, but that it did
not include these topics.

  •    The mission recommends the design and formalization of a SLA which will cover all debt
       and cash management services supplied by CBG to MOF.

  •    Box 1 gives an indication of the issues that might be covered by a SLA in the areas of debt
       and cash management.

                   Box 1: The Service Level Agreement between CBG and MOF

         Issues covered in relation to debt and cash management:

         The notice that both sides would give of any impending change in the auction pattern
         or timetable.
         The turnaround times by CBG in handling any relevant transactions – whether as
         fiscal agent, settlement agent or paying agent.
         Details of information flows in either direction. There needs to be agreement on the
         details and timing of regular exchange of cash flow forecasts. Eventually, under
         active cash management it will be important for MOF to have a view of flows across
         the government’s accounts in near to real time.
         The basis of calculation of fees paid for the services and the circumstances in which
         they might be changed.
         Provisions for compensation when the agreement is breached.
         Understandings about how operational risk is managed and to what standard. This
         will include the handling of any business continuity problem.


  Current Arrangements and Issues Arising

  Diminished fiscal discipline has led to deficits against a budget target of a small surplus,
  and this is reflected in greater domestic debt, almost all in TBs, with borrowing from CBG.
  In 2009 the deficit in the basic fiscal balance increased to nearly 2 percent of GDP due to large

spending overruns, and in early 2010 diminished revenues also led to fiscal slippages. These
deficits have been largely financed with costly short-term TBs, and CBG overdrafts.

Marketable interest bearing debt constituted 87 percent of the domestic debt portfolio as at
31 December 2009, of which 84 percent comprised TBs with maturities of 91-days, 182-
days and 364-days and 3 percent Sukuk Al-Salaam bills with maturities of 91-days. CBG
introduced the short-dated Sharia-compliant Sukuk Al-Salaam bills in November 2007, which
operate on similar terms and conditions as the conventional TBs 27.

Non-marketable interest bearing debt comprising a Government bond constituted another
4 percent of the domestic debt portfolio, which is essentially a perpetual loan issued from
CBG to GOG. The remaining 9 percent of the domestic debt portfolio is a non-interest bearing
government bond issued to cover revaluation losses of CBG. It should be noted that the
overdrawn balances at CBG are not treated as debt and therefore not included in the reporting of
domestic debt. The composition of domestic debt is set out in Table 3 below.

                                      Table 3: Outstanding Domestic Debt

     Type of Debt                        Million        Composition
                                         Dalasi             (in
                                          31 Dec          31 Dec         31 Aug      31 Dec       31 Dec       31 Aug
                                           2008            2009           2010        2008         2009         2010
     TBs                                      4,697             5,185       5,290        79.7         84.4         70.3
     Sukuk Al-Salaam                               76            160         145           1.3         2.6          1.9
     Government Bonds (3yr)                         -               -          25            -            -         0.3
     Government Bonds (30yr)                        -               -       1,825            -            -        24.2
     Government Bonds (non                      250              250         250           4.2         4.1          3.3
     Total Interest Bearing                   5,023             5,595       7,535         85.2        91.1          100

     Non Interest Bearing Treasury              873              547            -         14.8         8.9            -

     Total                                    5,896             6,142       7,535         100          100          100

     TMA Overdraft                                                             38

Source: MOF

   It is a financial transaction that involves two parties agreeing to carry out the sale and purchase of a notional asset
at a future date, but at a predetermined and prepaid price. In Gambia, gold is the notional asset, which CBG is
empowered to sell and issue Sukuk Al-Salaam bills on a book entry system. The title is surrendered back to CBG at
maturity in exchange of cost plus mark-up.

The Central Bank of Gambia Act allows CBG to extend credit as loans, advances, purchase
of TBs and securities together with money borrowed by GOG from CBG up to a limit of
10 percent of tax revenue of the previous year. The limit was temporarily increased to
20 percent 28 in 2009 when the limit was exceeded at the end of 2008. While the Act requires the
advance to be repaid within six months after it is advanced, this became a semi-permanent
overdraft facility which was not always repaid. The overdraft reached in excess of GMD2 billion
in 2010 before it was converted to long term government bonds. The use of overdrafts from CBG
has also resulted in substantial liquidity injections, which has led to the CBG mopping up of
excess liquidity, and this has aggravated certain unpredictability in the money market and TB

The responsibility for domestic debt issuance is assigned to CBG as set out in the MOU.
CBG issues Treasury and Sukuk Al-Salaam bills each week, with the amount determined the
previous week by the TBs Committee. DLMD has virtually no contact with the market and little
understanding of domestic debt issuance and management.

Information to investors on the issuance program is limited. CBG publishes a calendar of
Treasury and Sukuk Al-Salaam bills to be issued for the financial (calendar) year showing the
weekly auction dates (auctions are on Tuesday with settlement on Wednesday) but with no
amounts or maturities. The budget provides an aggregate borrowing requirement but this does
not translate into the amounts to be issued by each instrument or a borrowing program for the
financial year. Moreover, borrowing to meet unexpected financing needs of GOG is met through
additional issuance of TBs and financing from CBG. Therefore investors face considerable
uncertainty, although they do know the GOG is relying heavily on short-term domestic debt.

There have been two initiatives in regard to domestic debt in 2010:

•      On 23 February 2010, GOG issued 3-year fixed coupon government bonds using a fixed
       price auction. The amount offered was GMD50 million to be issued at par with fixed coupon
       rate of 14.5 percent per annum payable semi-annually, with a value date of 24 February 2010
       and maturity date of 20 February 2013. The terms and conditions were set by CBG following
       consultation with the market, although feedback from financial institutions during the
       mission suggested that there was widespread support for a 2-year and not 3-year maturity.
       Only one bid was received during the period of sale (15 to 22 February 2010) for
       GMD25 million. The conclusion drawn was that there was little demand for government
       bonds and as a result, the plan to offer such government bonds on a quarterly basis was put
       on hold. Unfortunately, this too showed little predictability and transparency of GOG
       issuance, as investors saw a discontinuation of an announced program.

     This limit of 20 percent has also been continuously exceeded. (IMF)

•      In September 2010, GOG issued GMD1.825 billion of 30 year government bonds with a
       6.5 percent coupon (set below market rate) to CBG to clear the overdraft 29. The GOG’s
       permanent recourse to CBG overdrafts has weakened the CBG’s balance sheet, and thus
       more recently temporary loans have been converted to an interest bearing instrument in line
       with the CBG Act.

The current domestic debt issuance strategy based almost entirely on TBs presents a
significant risk to the GOG. With more than GMD 5 billion in TBs outstanding, an increase in
domestic interest rates would result in an immediate impact on the budget in the form of higher
interest costs (most of which correspond to the domestic debt); interest costs already consume
one fifth of government revenues. 30 The weekly issuance of TBs needed to rollover the debt and
finance the budget is around GMD130-150 million.

The risk of the domestic debt portfolio is well understood by the authorities in both MOF
and CBG. However, recent attempts to introduce government bonds have not been successful
and therefore the policy of relying on TBs continues (see below). This is a challenge the
government has faced since at least 5 years ago, and which has become more significant through
time 31.

Investors in government paper include commercial banks, and to a lesser degree, pension
funds and insurance companies. In mid-2009 for example, commercial banks were the main
investors in TBs (68 percent of TB purchases), followed by parastatals (pension fund) with 17
percent and other non-banks, including insurance companies (15 percent). The holdings of
government paper by commercial banks have increased, from 51 percent in early 2007 to 68
percent in mid-2009, possibly due to the entrance of new banks in the financial system 32. Banks
typically prefer to invest in the shorter end of the yield curve, while other investors should in
theory be interested in medium and long-term securities so as to match longer term liabilities.

  According to the IMF Article IV report of 2010, the prolonged period of government’s resorting to advances and
overdrafts from the CBG for financing over and above the statutory limit had compromised the CBG’s balance
sheet. Thus as a corrective action, the MOF securitized its net obligation to CBG with a fixed term instrument. The
IMF suggested that at least part of the claim on government could be met with marketable TBs, so as to facilitate
CBG’s introduction of Repo instruments, but this did not take place.

     The Gambia- 2010 Article IV Consultation, September 2010, IMF Country Report No. 10/274.

  “The Government should hold consultations with key investors and discuss the possibility of issuing longer term
securities. The lengthening of the maturity will reduce the refinancing and rollover risk associated with shorter term
instruments such as TBs.” Country presentation on domestic debt: current practices and key issues in The Gambia.
ComSec Regional Workshop on Domestic Debt Management, July 2006.

     The Gambia: Medium-Term Debt Management Strategy 2010-2012. MoF.

The number of banks doubled between 2007 and early 2010, rising to 14 and competition
has increased costs and risks. Most of the new banks are foreign-owned (Nigerian). One
positive effect is that financial intermediation has grown substantially. However, weaker
earnings from crisis-hit tourism and construction 33 have eroded banks’ earnings, credit quality,
and capital adequacy 34. In addition, intense competition among banks in a relatively small
market has contributed to increased risks to the banking system (e.g. relaxation of lending
standards, which has increased the proportion of Non-Performing Loans). Competition for
deposits, loans and qualified staff has intensified significantly and in 2009-10 led to a sharp rise
in the cost of funds, provisions and staff remuneration. High TB yield increased the cost to banks
of attracting large investors, and this cut into their profitability. 35

During the mission, meetings were held with market participants such as Trust Bank,
Standard Chartered Bank and Social Security & Housing Finance Corporation (SSHFC).
Concerns were expressed about the lack of information on the borrowing requirement and the
government’s financing plans and debt program activities. Also, the market had expected that the
government bond that was issued in February 2010 was to be continued on a quarterly basis and
little if any information has been provided to indicate why this did not continue and what the
government’s future intentions are for further issuance of government bonds. Feedback also
supported a more consultative process to develop the market, particularly for government bonds.
Moreover, as government bonds and a regular bond program are new for Gambia, there was a
strong request for training that would educate the primary dealers, other market participants and

Feedback from the market participants suggested that there was demand from an
increasing number of investors provided the yield/price was at market rates. For example,
SSHFC indicated that they would be very interested in government bonds but made it clear that
their decision is driven almost entirely by yield. If this yield was to be calculated on a risk-
adjusted basis, then a lower yield compared to more risky assets may suggest that government
bonds would be justified (assuming market yields) not only from a risk-adjusted basis but also
from an asset-allocation basis with a diversified portfolio. This sentiment was also reflected to a
slightly lesser degree by the two banks suggesting there may be demand for bonds from a
broadening investor base which remains untapped. This would be for the tripartite working party
to examine and determine the potential demand at different maturities.

     Construction is mostly financed with remittances.

     The Gambia- Article IV.

     The Gambia – Article IV.

TBs have three key roles in Gambia, two for government debt and cash management and
one for implementation of monetary policy. First, they provide an instrument at the short-end
of the yield curve to finance the government’s fiscal needs. This can have an obvious cost saving
if it is judged that current short-term rates are lower than forward re-financing rates. However,
this comes with an increased refinancing and rollover risk. Second, they provide a short-maturity
instrument necessary for GOG’s liquidity or cash requirements. This provides the tool to smooth
out government expenditure and revenue flows. Third, they can be used by CBG for
implementation of monetary policy.

  i.    TBs for Debt Management (Regular Program): These are TBs that are issued
        regularly (normally weekly) to maintain a constant amount outstanding under a steady
        state condition as a proportion or percentage of total domestic debt. It would be sound
        practice to ensure that the level of TBs outstanding is maintained at prudent levels; for
        example, a number of countries have requirements to limit the percentage of TBs to no
        more that 25 percent of total domestic debt. As is the case in Gambia, it is normal
        international practice to use 91-day, 182-day and 364-day TBs for debt management, as
        these cover the short end of the government yield curve. It is also normal practice to
        establish a program that creates an even distribution in order to have a relative constant
        rollover of TBs each week.

  ii.   TBs for Liquidity or Cash Management: The second consideration is to determine
        what TBs are required to meet GOG's liquidity and cash requirements, covering
        expenditure shortfalls when revenues are low, with the flexibility to reduce the level of
        TBs during significant revenue inflows. As cash management has a short-term focus, it is
        normally met by issuing shorter dated TBs that will vary from week to week, depending
        on cash flow forecasts. To the extent that the budget deficit is contributing to the funding
        requirement, this would be met from the government bond program (or from external
        funding sources) or an increase in the regular program TBs. Therefore, TBs for liquidity
        and cash management would be typically limited to between 28-day and 61-day
        maturities, but may have odd-period maturities to match the expected revenue flows. The
        actual level of issuance each week would result from the weekly cash flow forecasts that
        are prepared by MOF. During the period where there is excess revenue over expenditure,
        it may be necessary to repurchase TBs. In the medium to long term, and as cash
        management becomes more active, it may be possible to move to a daily cash position
        and move from weekly issuance of TBs to possibly daily or at least several times a week.

 iii.   TBs for Monetary Policy Management: TBs also provide an instrument for CBG to use
        in managing its monetary policy obligations. CBG often adds to the regular issuance of
        TBs (normally weekly) for monetary policy implementation, in addition to those sold to
        meet the GOG's funding needs. These “add-ons” may confuse the market, since

      participants may not be aware of what portion of the auction will be used for
      implementing monetary policy and what portion to meet the GOG’s funding needs. This
      can be overcome through greater transparency by announcing the amount of CBG add-
      ons. Separating the issuance of TBs for liquidity or cash management purposes, possibly
      by maturity and/or the timing of issuance can also help this process. This can be
      examined by the tripartite working group.


  •   GOG should consider creating a tripartite working group involving MOF, CBG and
      market participants to undertake a major review of domestic market for government
      securities with the primary objective of reducing the rollover and interest rate risks by
      lengthening the duration of the debt portfolio through issuing government bonds
      (suggested Terms of Reference for the Working Group are set out in Annex C, together
      with some generic guidelines for developing the government’s bond market).

  •   To address the shortcoming of the domestic market and develop the market for
      government securities, the mission advises that that MOF and/or the Working Group
      analyze a number of initiatives recommended by the mission:
         Integrate domestic debt strategy into the MTDS and prepare an Annual Financing
         Map and continuously monitor the different investor profiles, to analyze –by type of
         investor, and by the largest entities- the past and projected trend in asset growth; the
         proportion over time of assets invested in government securities; the trends of
         investment in other assets (e.g. SSHFC in bank deposits); the trends in money market
         interest rates, etc.
         Establish a fixed-schedule government TB and bond program to meet GOG’s
         financing requirement for the next month, quarter and possibly financial year to
         enable investors to have greater certainty around future issuance and to prepare their
         monthly, quarterly and -over time as the market develops- annual investment plans
         Develop benchmark bonds (e.g. with 2-year maturity) to create greater liquidity and
         to promote secondary market trading and gradually reduce the size of TBs
         Develop an investor relations program that includes more direct contact in the form of
         periodic meetings by MOF/DLDM with primary dealers, other market participants,
         and investors.
         Develop a training program to educate primary dealers, other market participants, and
         investors on government bonds and the operations of a government bond market.

•   In seeking to separate TB issuance for fiscal funding and cash management, from TB
    issuance for monetary policy implementation, over the short term, MOF can continue to issue
    91-day, 182-day and 364-day TBs for debt and cash management. CBG would then issue
    TBs of less than 75 days for monetary policy management. Over the medium term and as the
    market develops, CBG can begin to use repos for monetary policy implementation. This is
    yet another issue that should be analyzed by the tripartite working group.


                                     1. Cash Management

Current situation and issues

Recent increases in capital and payroll expenditures, associated with shifts in tax collection
and shortfalls in additional external support, have put pressure on the fiscal position. This
in turn has led to an increased strain on government cash management and increased the need for
tight and well organized cash management operations.

Currently in Gambia, cash management and budget cash flow implementation are the
responsibility of several government units, which do not coordinate effectively:
•   the Directorate of Budget (DB) in MOF, in consultation with line ministries, prepares
    monthly expenditure forecasts, with the following breakdown: personnel, development
    (investment) and other charges (recurrent);
•   the Gambia Revenue Authority (GRA) supplies monthly forecasts of domestic revenue;
•   the DLDM prepares monthly forecasts of external debt service;
•   the CBG prepares monthly forecasts of government domestic debt service because as fiscal
    agent it manages the registration and accounting of GOG domestic debt;
•   the Directorate of National Treasury (DNT) is responsible for ensuring that there is sufficient
    cash to cover all central government expenditures, including debt service;
        o Government tax revenues are consolidated in the Treasury Main Account (TMA),
            which works as a treasury single account and these resources are used for all
            payments and transfers related to budget allocation.
        o DNT also is responsible for bank account reconciliation, which is done daily and in
            an automated fashion (with a soft-copy file provided by CBG) for direct input to

Critical functions of debt, cash flow forecasting and cash management are not fully
integrated and effective coordination is lacking among the various units involved. Good
cash management implies several important functions: (a) reliable forecasts of future revenue
and expenditures; (b) decisions on what to pay and how much to borrow for short periods; (c)
decisions on a target level of cash surplus; (d) decisions on how to invest the surplus. Some of
these functions have not been entirely institutionalized in Gambia because:
•   There is no government entity which systematically consolidates projections of total
    revenues and expenditures so as to produce an aggregate fiscal table which would provide
    solid inputs for debt management and decisions on how to finance the eventual fiscal deficit.
•   The Liquidity Forecasting Committee established in May 2010 with the objective of
    consolidating fiscal information, especially for cash management purposes, and integrated by

    high-level officials from DB, GRA, DLDM, CBG, DNT and the Fiscal Policy Unit has not
    been meeting periodically and is not institutionalized.
•   Although the TMA is functioning well –inasmuch as it consolidates all tax revenue and line
    ministries make payments through the TMA-, the consolidated balance does not show the
    true cash position of the government since transfers to the TMA are made twice a week, thus
    allowing idle money to be held at regional treasuries.
•   Automatic transfers of government funds and tax collection only will be made in the future
    when improvements in electronic transactions and connections between commercial banks
    and the CBG are fully implemented.

Several factors have hampered MOF’s efforts to define a clear precautionary (cushion)
target for cash balance in the government account at CBG. These include an enormous
pressure on the fiscal position, the fact that the budget has resorted to CBG loans to finance the
overall fiscal deficit, and more importantly the lack of coordination among the units responsible
for cash balances and debt management.


•   There is a clear need to improve the preparation of a monthly/weekly aggregate fiscal
    position. It is recommended to revamp and institutionalize the Liquidity Forecast Committee
    (LFC) with (a) clear definition of participants and roles (chairman, activities, etc.); (b)
    definition of objectives, and periodicity of meetings (given the policy-oriented nature of this
    committee it should meet monthly instead of weekly);

•   When institutionalizing the LFC, the GOG should establish a clear set of deliverables i.e. a
    prospective cash position with a discussion of alternatives for funding the fiscal deficit such
    as issuing new debt, postponing expenditures, CBG financing, etc. It should necessarily
    include a complete aggregate fiscal table with the following information:

       above the line budget revenues (domestic tax, customs, and non-tax revenues) and
       expenditures (preferably with an economic classification);
       fiscal (overall) deficit and primary deficit indicators;
       below the line funding (e.g. financing from new domestic/external borrowing, CBG
       loans, etc);
       information of last year’s results, the current year’s budget, real results up to last month
       (or the most recent information available) and forecasts for the following month and for
       the rest of the fiscal year;
       flash technical notes for the Minister of Finance discussing the main issues surrounding
       the monthly cash flow and suggesting alternatives for filling any potential gaps;
       an indication of potential areas where expenditures could be constrained and/or
       postponed in case financing is not feasible at certain points in time.

•   The current emphasis should continue to be on monthly/weekly forecasts, although in due
    course daily forecasts will be necessary. However, when substantial payments are due then
    the precise date is important.

•   There should be a regular process of rolling forward the forecasts. Weekly forecasts for 3
    months ahead, which are rolled forward for 3 or 6 weeks at monthly intervals, would be one

•   Although the mission acknowledges that it is challenging to hold a precautionary cash
    balance in the current constrained context which has led to a rationing process, it
    recommends that in the medium-term, MOF should start targeting a cash balance as an
    insurance against unanticipated fluctuations. The size of that cash balance will depend in part
    on the confidence that can be placed in the cash flow forecasts. Good cash flow forecasts will
    also be needed to support the development of more active cash management.

                                    2. Business Continuity

Current situation and issues

Business continuity means maintaining the uninterrupted availability of all key business
resources required to support essential DLMD activities, even under crisis conditions.
DLMD’s business strategies and decisions are based on an assumption of the business
continuing. An event that violates this assumption is a significant occurrence in the life of any
debt management office, impinging directly on its ability to fulfil its business objectives and the
reputation of the MOF and the Government. Among other things, business continuity planning is
about putting in place measures that seek to prevent business interruption events from occurring
in the first place. It also encompasses establishing appropriate responses should such an event
occur. Business continuity planning is therefore that part of operational risk management that
establishes cost-effective measures should an event occur.

The DeMPA report elucidates the availability of procedures manual for back-office
operations, which includes the procedures for recording and checking payment
notifications with internal records before a debt-servicing payment is made, access controls
and audit trails. However, the existing Back Office manuals require review, updating and
implementation. The DeMPA report noted the need for further development of the operational
risk framework as most of the procedures for debt service processes were manual, and no
electronic interfaces had been developed between DLDM and CBG. There is also no
independent confirmation of all data with external creditors and the major domestic investors.

There are minimum actions taken to protect documentation of loans, but more could be
done. Hard copies of loan agreements (originals) are stored at MOF in a cabinet and scanned
copies are stored electronically in CS-DRMS and included in the daily backup; in addition, hard
copies are kept at the Ministry of Justice. However, debt administration records such as
correspondence with the lenders etc along with the original loan agreements, are kept in a cabinet
which is not fire-proof and thus cannot be considered to be in a secure filing system.

Notwithstanding the good controls surrounding CS-DRMS at DLDM, there is no separate
risk management and compliance unit in DLDM and no staff is assign to monitor it. This is
an important gap as risks arise in other areas of DLDM’s work and these are likely to grow as the
sophistication of analysis and operations develop.


•   It is recommended that GOG prepare a business plan to promote the culture of risk control,
    professionalism and focus on objectives. This could be facilitated by consultancy support to
    develop templates and concepts, facilitate the initial risk workshops, and improve risk
    awareness (including by training the “risk champion” a dedicated staff of DLMD). The
    consultant should put in place a framework for a comprehensive business continuity plan
    (BCP) although this will need to be developed in the context of business continuity planning
    for MOF as a whole. DLMD do not have direct managerial control of the IT staff within
    MOF. It will be important that a dedicated IT staff be assign by the ministry to serve as
    operational risk manager “risk champion”.
•   It is recommended that IFMIS/COMSEC develop electronic interfaces between MOF,
    DLMD and CBG to reduce manual processes and the level of operational risk.
•   DLMD should ensure that from mid-2011 backups of key debt transactions record such as
    creditors’ advices, approvals etc are stored in electronic format such as PDF format in the
    saver computer.
•   MOF should provide a secure room with limited access to other MOF staff dedicated for
    keeping loan records.
•   The risk mitigation proposals will also involve IT: to reduce manual processes and develop
    electronic interfaces (including with CBG). In addition, the copies of the loan agreements
    and backups are to be kept in a secure and fireproof location.

                                3. Internal and External Audit

Current situation and issues

The Internal Audit in MOF is in the early stages of consolidation and technical capacity for
auditing public debt management is relatively weak. Currently, the only professional in the

department is the Internal Auditor, who is in the process of hiring staff and designing a training
program. To date, ten staff have been hired and the next six months will be spent on capacity-

External audit (The National Audit Office (NAO)) has been focusing on clearing the
backlog of accounts being submitted to the Finance and Public Accounts Committee of the
National Assembly. It has carried out annual audits of the financial reports of the DLDM, as
part of the MOF financial statements. In the medium-term it may turn its attention to specific
areas including public debt management.

There is no internal audit of DLDM and external audit of public debt management is
limited to financial statements, so it is recommended that other control and monitoring
mechanisms be strengthened. Other control mechanisms refer to areas such as debt data
validation; reporting and transparency; monitoring and compliance by the Middle Office;
development of procedures manuals for the Front and Middle Offices; development of the ethics
code and conflict of interest guidelines for DLDM. Although CBG has a system of internal
control and external audit, it also lacks an ethics code and conflict of interest guidelines for debt


•   The recommended reforms are not of the highest priority for DLDM and so can be carried
    out in the medium term.
•   It is recommended that the Internal Auditor coordinate with the External Auditor in the
    design of a joint training program for performance audits of public debt management. They
    should contact INTOSAI/AFROSAI to identify training available in the next two years. The
    long-distance UNITAR courses on auditing for public debt management can be obtained.
•   The current training on the role of the IFMIS in auditing should be extended to the area of
    public debt management within the IFMIS
•   It is advisable that both the external and internal auditors participate in courses given in
    Gambia on financial topics, in particular those on design of a MTDS, risk management,
    development of a domestic debt market and financial instruments for managing refinancing
    risk and extending maturities.
•   It is recommended that NAO inform internal audit on its pilot studies on performance
    auditing and lessons learned.
•   Other control mechanisms for public debt management can be strengthened in the short term,
    including design and implementation of procedures manuals; monitoring and compliance by
    the Middle Office; debt data validation; ethics codes and conflict of interest guidelines; and
    adequate reporting.


The following are debt instruments:
• Special Drawing Rights (SDRs);
• Currency and deposits;
• Debt securities;
• Loans;
• Insurance, pension, and standardized guarantees schemes; and
• Other accounts payable/receivable.

Other accounts payable/receivable consist of trade credits and advances and miscellaneous
other items due to be paid or received. All such liabilities and assets should be valued at the
amount the debtor is contractually obliged to pay the creditor to extinguish the obligation.

Trade credit and advances include:
• trade credit extended directly to purchasers of goods and services; and
• advances for work that is in progress or to be undertaken, such as progress payments made
   during construction, or for prepayments of goods and services.

Such credit arises both from normal delays in receiving payment and from deliberate extensions
of vendor credit to finance sales.
Source: Draft Public Sector Debt Statistics Guide for Compilers and Users, Chapter 2.C,



The lack of a deep and liquid domestic market for government securities in Gambia is a major
shortcoming not only as an option for funding the government’s budget and revenue shortfalls
but also as a risk-free instrument for pension and mutual funds, insurance companies,
commercial banks and financial market participants more generally.

The MOF wishes to examine what are the impediments to a deep and liquid market for
government securities and to find solutions to develop the domestic market to fund GOG’s
financing requirement and debt repayments through regular TBs and Government bond tenders
with a program schedule announced in the Budget at the beginning of the fiscal year. The timing
of individual tenders would to a large extent be set by net expenditure and revenue flows. Actual
tender details (maturity and amount) would be announced one week prior to the tender but MOF
that is responsible for government debt management would look to signal its intentions with the
Budget announcement and media releases during the year. This process would ensure
transparency and provide more certainty for all market participants.

To the extent there is short-term variability in expenditure/revenue flows, this would be managed
through the issuance and buy-back of TBs on a weekly basis. These activities would be
undertaken by the CBG as the agent for MOF. It is the intention of MOF and CBG to put in
place a formal agency agreement for operational efficiency, noting however that the debt
management policy decision-making rests with MOF. This agreement will include Government
bond and TBs tenders, government liquidity “open market” operations, and registry services.

Terms of Reference for the Tripartite Working Group for Market Development: Review of
the Domestic Government Bond Market

To reduce the risks of financing the government’s budget and short-term revenue and
expenditure shortfalls, MOF has decided to undertake a major review of domestic government
debt with the primary objective of determining the scope to further develop the market for TBs
and government bonds.

The MOF has decided to constitute a Working Group from both the government and private
sector financial market participants to assist with the review of the domestic government
securities market and formulate recommendations to develop the market for consideration by the

The Working Group will undertake a review to address the more critical issues and prepare a
report setting out details of the review, the conclusions and recommendations.

The Terms of Reference requires the Working Group to examine and report on the following:

•   Impediments to a deep and liquid market for government securities.
•   Solutions to develop the domestic market to fund GOG’s financing requirement and debt
    repayments through regular TBs and Government bond tenders with a program schedule
    announced in the Budget at the beginning of the fiscal year.
•   The development over the medium-term of “benchmark” government bonds to create greater
•   Review the existing TBs tender program including the objective and structure of the program
    and the timing, structure, and size of TBs tenders, frequency of issuance, and maturities on
    offer at each tender.
•   The scope to develop a Government bond tender program including the objective and
    structure of the program and the timing, structure, and size of Government bond tenders,
    frequency of issuance, and maturities on offer at each tender.
•   The scope to reduce the volume of TBs outstanding and increase the volume of government
    bonds outstanding and suggested timeline to adjust the structure of the debt portfolio.
•   Other issues such as:
        o efficiency of the primary dealer system
        o impediments to the development of the domestic market
        o infrastructure to support the domestic market
        o current investor base and how this can be broadened
        o other measures that may be possible to create liquidity, increase the investor base and
            reduce costs
        o quality and completeness of documentation for investors

The report will be submitted to the Permanent Secretary of MOF. Any recommendations will
require the approval of the Minister of Finance.

Membership of the Working Group
The members of the Working Group will be:
• Head of the Directorate of Loans and Debt Department, Ministry of Finance, Chair
• Directorate of Loans and Debt Department, Ministry of Finance
• Central Bank of The Gambia
• Representatives from 2-3 commercial banks
• Representatives from investment institutions (end investors)

Other members may be seconded to the Working Group if required. The Directorate of Loans
and Debt Department of MOF will act as secretariat.

Developing the Government Bond Market 36

Government Debt Issuance Program

In order to minimize cost and risk over the medium term, MOF needs to ensure that their
debt policies and operations are consistent with the further development of the government
bond market. This will promote the development of a mechanism to finance at least part of
GOG expenditures in a way that diminishes in part the reliance on external debt, TBs and CBG
overdrafts. Moreover, by promoting the further development of a market for its government
bonds, MOF in conjunction with CBG, supervisors and regulators of financial institutions, and
market participants, can achieve lower debt service costs over the medium- to long-term as the
liquidity premium embedded in the yields on government bonds wane.

Implementation of a government bond program in The Gambia has been difficult because
of the investor preference for shorter dated TBs and the higher cost to issue government
bonds. While CBG consults with the market to identify potential market demand, fiscal policy
seems to have constrained the issue of bonds due to the impact the higher interest rate demanded
by investors would have on budget debt service costs.

GOG can improve market access and transparency by providing high-quality information
about debt structure, funding needs, and debt management strategies to market
participants and the public at large. This can be achieved through the publication of the
MTDS and regular (e.g. quarterly and/or monthly) publications on market activities. MOF
should solicit investors' and market makers' views on the current strategy and plans for change.
In this way, MOF will better understand the sources of demand for government bonds and have a
better notion of how to act to remove barriers obstructing investment in them. GOG can
demonstrate its commitment to borrow through the market by early acceptance that government
bonds must be priced at market rates, even though this may increase debt-servicing costs in the
short run. A proactive approach to market development requires MOF to develop a
comprehensive strategy in consultation with CBG and market participants. While market
participants tend to advise MOF from their own self-interested viewpoints, a lot of common
ground can be discovered through consultation, leading to win-win outcomes.

A sound and prudent debt management operation is also central to the government's
credibility as an issuer. The principal components of sound debt management are based on the

 This section is primarily drawn from IMF and World Bank (2001) Developing Government Bond Markets: A

importance of having clear debt management objectives, proper coordination between debt
management and monetary and fiscal policy, a prudent risk management framework, an effective
institutional framework, and a strong operational capacity enabling efficient funding and sound
risk management practices. In The Gambia, the main objective for public debt management is "to
ensure that the government's financing needs and its payment obligations are met at the lowest
possible cost over the medium to long run, consistent with a prudent degree of risk."
Development of the domestic debt market should be included as a prominent objective for the

Increased Transparency

More transparent dealings with the market not only reduce the long-term cost of
borrowing by promoting a more efficient and low-risk market, but also are often an end in
themselves. Transparency can enhance good governance through greater accountability of CBG
and MOF. Transparency involves publicly disclosing the debt management objectives, pre-
announcing borrowing programs, as well as maintaining professional relationships with market

Building and Diversifying the Investor Base

GOG should strive to broaden its investor base for its domestic government bonds. MOF
can follow international sound practice by seeking to understand investor preferences and to
develop relationships with “end” investors. Any initiative of MOF to meet with financial
institutions and investors in addition to or along with CBG should be encouraged. In this way,
MOF can factor in investor preferences in making decisions on new debt issuance. Also, MOF
can use these relationships to promote new debt instruments and initiatives that GOG may wish
to introduce. MOF should seek to strengthen demand for government bonds under all market
conditions by building and diversifying the base of investors. This also involves providing a
supervisory, regulatory and legal environment that encourages and rewards innovation, providing
even-handed and transparent dealings with the market, and trying to avoid that a few participants
dominate the market.

Developing the Primary Market for Government Bonds

MOF’s operations in the primary market should be transparent and predictable.
Regardless of the mechanism used to raise funds, experience suggests that borrowing costs are
typically minimized and the market functions most efficiently when government operations are
transparent – for example, by publishing borrowing plans well in advance and acting consistently
when issuing new bonds – and when GOG creates a level playing field for investors. The terms
and conditions of new bond issues should be publicly disclosed and clearly understood by
investors. Also MOF should maintain an ongoing dialogue with market participants and monitor
market developments so that they are in a position to react quickly when circumstances require.

To the extent possible, government bond issuance should use market-based mechanisms,
such as competitive auctions, tap issues, or syndications. In the primary market for
government bonds, sound practice would require GOG, where feasible, to use market-based
mechanisms to raise funds. This normally involves auctions of government bonds, although tap
issues and syndications have been successfully used by borrowers that do not have a need to
raise funds on a regular basis, or are introducing a new instrument to the market.

GOG should rarely cancel an auction because of market conditions, or cut off the amounts
awarded below the pre-announced tender amount in order to achieve short-run debt
service obligations. Such practices can affect credibility and damage the integrity of the auction
process, causing risk premium to rise, hampering market development, and causing long-run
debt service cost to increase.

In developing the supply of government bonds, the key elements for establishing an
efficient primary market include:
• establishing clear objectives for government bond issuance and debt management;
• developing basic projections of the government’s liquidity needs;
• creating safe and efficient channels for the distribution of government bonds (e.g. auctions
    and possibly syndications) targeted to investor needs;
• progressively extending the maturity of government bonds;
• consolidating the number of bond issues and creating standardized bonds with conventional
    maturities with a view to eventually provide market benchmarks;
• moving to a predictable and transparent bond issuance program, with pre-announced issuance
    calendars and greater disclosure of funding needs and auction outcomes.


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