The Gambia: Requests for Disbursement under the Rapid Credit Facility and Modification of Performance Criteria under the Extended Credit Facility Arrangement—Debt Sustainability Analysis
Author:
International Monetary Fund. African Dept.
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Publication Date:
23 Apr 2020
eISBN:
9781513541921
Language:
English
Keywords:
ISCR; CR; financing; RCF disbursement; ECF arrangement; Executive Board discussion; balance-of-payments shock; emergency financing request; COVID-19; Debt service; International reserves; Global; sustainability analysis; distress risk rating; sustainability framework; dynamics equation; public debt-to-GDP ratio; Debt sustainability analysis; Stress testing
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Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Gambia

Abstract

Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Gambia

The Gambia Joint Bank-Fund Debt Sustainability Analysis

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An updated DSA indicates that The Gambia’s overall and external debt distress risk ratings remain “High” and public debt is deemed sustainable. Under the revised macro framework, which reflects the impact of COVID-19 and the inclusion of the requested RCF loan, there are marginal breaches in the PV of external debt-to-exports and the external debt service-to-exports thresholds in 2020 and marginal breaches of debt service-to-revenue threshold in 2020 and 2026. The PV of overall public debt-to-GDP is still projected to drop below its indicative threshold by 2023. The Gambia’s debt sustainability is subject to elevated downside risks in the next few years, including potentially lower growth due to slower international recovery and larger domestic impact of COVID-19 than currently assumed under the baseline, and risks emanating from the weak financial position of some state-owned enterprises.

The macroeconomic outlook for 2020 has deteriorated compared to the previous DSA. Due to COVID-19, on current projections, GDP growth in 2020 is expected to drop from 6.3 percent projected earlier to about 2.5 percent and exports in 2020 are revised downwards by 4 percent of GDP due to the projected drop in tourism and re-exports. Lower economic activity is also expected to reduce domestic revenue collection by 1.0 percent of GDP. While these revisions lead to a deterioration of external debt service indicators in 2020, since the shock from COVID-19 is expected to be temporary, its impact on debt sustainability is small and does not change the overall assessment.

Due to the expected impact of COVID-19, some of the key financing assumptions have changed. As a result of the expected slowdown in project execution, project grant and project loan disbursements over 2020–22 are assumed to be lower by about US$30 million and US$18 million, respectively. Remittances and foreign direct investment are also expected to be lower due to the global slowdown. Compared to the most recent DSA (March 2020), there has been no change in the status of debt restructuring. The immediate financing needs created by these developments for 2020 will be met through a drawdown of gross international reserves, increased financing from the IMF (the requested loan under the exogenous shock window of the Rapid Credit Facility and a debt service relief grant under the Catastrophe Containment and Relief Trust), and additional (i.e., COVID-19-related) grant financing from the World Bank. Going forward, The Gambia is expected to seek additional grant financing to contain the in-country spread of the pandemic.

The Gambia’s risk of external and public debt distress remains “High” and its overall public debt is still deemed sustainable. The DSA indicates that under the revised macroeconomic framework, external and public debt indicators are largely unchanged, with a few exceptions. Due to the negative impact of COVID-19 on exports, in 2020, the PV of external debt-to-exports and external debt service-to-exports ratios breach marginally (i.e., by less than 10 percent of applicable threshold values) their indicative thresholds of 180 percent and 15 percent, respectively. Since the impact of COVID-19 is expected to be temporary, these indicators revert to being below their thresholds starting in 2021. The external debt service-to-revenue ratio also marginally breaches its indicative threshold of 18 percent in 2020 and 2026, partly due to the increased debt service to the Fund related to the proposed RCF. This breach highlights The Gambia’s limited space for additional borrowing, as the external debt service is expected to rise at the end of the debt deferral period in 2025. The impact of COVID-19 and the inclusion of the proposed RCF does not significantly alter the profile of the PV of overall public debt-to-GDP, which still drops below its indicative threshold of 55 percent by 2023.

Table 1.

The Gambia: External Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – p(1 +g)]/(1 +g + p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and p = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

The Gambia: The Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt. Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Figure 1.
Figure 1.

The Gambia: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 131; 10.5089/9781513541921.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Table 3.

The Gambia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includ es official and p rivate tra ns fers and FDI.

Figure 2.
Figure 2.

The Gambia: Indicators of Public Debt Under Alternative

Citation: IMF Staff Country Reports 2020, 131; 10.5089/9781513541921.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Table 4.

The Gambia: Sensitivity Analysis for Key Indicators of Public Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 3.
Figure 3.

The Gambia: Drivers of Debt Dynamics—Baseline Scenario

Citation: IMF Staff Country Reports 2020, 131; 10.5089/9781513541921.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

The Gambia: Realism Tools

Citation: IMF Staff Country Reports 2020, 131; 10.5089/9781513541921.002.A002

1

The DSA was prepared by IMF and World Bank staffs in collaboration with the authorities of The Gambia, based on the updated Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF).

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Cover IMF Staff Country Reports
The Gambia: Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Gambia
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2020: Issue 131
Publisher:
International Monetary Fund
ISBN:
9781513541921
ISSN:
1934-7685
Pages:
40
DOI:
https://doi.org/10.5089/9781513541921.002
  • Figure 1.
    View in gallery
    Figure 1.

    The Gambia: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

  • Figure 2.
    View in gallery
    Figure 2.

    The Gambia: Indicators of Public Debt Under Alternative

  • Figure 3.
    View in gallery
    Figure 3.

    The Gambia: Drivers of Debt Dynamics—Baseline Scenario

  • Figure 4.
    View in gallery
    Figure 4.

    The Gambia: Realism Tools

Figure 1.

The Gambia: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30
Figure 2.

The Gambia: Indicators of Public Debt Under Alternative
Figure 3.

The Gambia: Drivers of Debt Dynamics—Baseline Scenario
Figure 4.

The Gambia: Realism Tools