The Gambia: Fourth Review Under the Extended Credit Facility Arrangement, Requests for a Waiver of Nonobservance and Modification of a Performance Criterion, and Financing Assurances Review—Debt Sustainability Analysis
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International Monetary Fund. African Dept.
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Publication Date:
27 Jun 2022
eISBN:
9798400214769
ISBN:
9798400214769
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English
Keywords:
GDP deflator; growth path; debt-service deferral; debt ratio; short-term debt; Debt sustainability
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THE GAMBIA

Abstract

THE GAMBIA

Title Page

THE GAMBIA

FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR A WAIVER OF NONOBSERVANCE AND MODIFICATION OF A PERFORMANCE CRITERION, AND FINANCING ASSURANCES REVIEW—DEBT SUSTAINABILITYANALYSIS

May 24, 2022

Approved By

Montfort Mlachila, Geremia Palomba (IMF), and Marcello Estevao, Abebe Adugna (IDA)

Prepared by the staffs of the International Monetary Fund and the International Development Association

The Gambia: Joint Bank-Fund Debt Sustainability Analysis

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The Gambia’s overall and external debt distress risk ratings remain “high” and public debt continues to be deemed sustainable, similar to the previous DSA prepared in the context of the third ECF review in November 2021.1,2 Under the updated macro framework, which incorporates the potential spillovers from the war in Ukraine, there are temporary breaches of the indicative thresholds for the PV of external debt-to-exports, external debt service-to-exports and external debt service-to-revenue ratios. These breaches primarily reflect weak export projections in the early years and rising debt service commitments in the medium term. The PV of overall debt-to-GDP ratio remains on a downward sloping path and drops below its benchmark of 55 percent of GDP by 2025, underpinned by fiscal consolidation and support from development partners. This path indicates that the public debt outlook remains sustainable. Downside risks are linked to a potential resurgence of the pandemic that could trigger a prolonged economic recession, and uncertainty over donor support disbursements as well as associated fiscal pressures that could adversely affect the debt profile.

Background

1. The COVID pandemic surge has abated, but the economic recovery remains soft and faces several challenges, in particular the spillovers from the war in Ukraine. The various waves of the pandemic have weighed on economic activity and The Gambia’s vaccination rate remains low at about 20 percent of the adult population. While there are nascent signs of improving activity, the outlook remains highly uncertain with significant downside risks. Inflationary pressures have risen in the wake of the Ukraine war, with upward revisions to fuel and food prices expected to have a significant impact on growth and inflation projections for 2022 and 2023, in particular (see section on Macro assumptions below). Meanwhile, fiscal outturns were weaker than expected in 2021, reflecting a shortfall in donor budget support and some slippage in spending. The current account deficit widened by less than anticipated in 2021, on the back of improving tourist activity towards the end of the year and lower-than-anticipated imports linked to infrastructure projects. Baseline projections for the key macroeconomic indicators are highlighted in Text Table 3.

Text Table 1.

The Gambia: External and Public DSAs: Coverage of Public Debt and Design of Contingent Liabilities Stress Test

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The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country’s public debt definition (1,), If it is already included in the government debt (1,) and risks associated with SoE’s debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%.

Text Table 2.

The Gambia: Decomposition of Public Debt and Service by Creditor, 2021–231

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As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA.

Debt is collateralized when the creditor has rights over an asset or revenue stream that would allow it, if the borrower defaults on its payment obligations, to rely on the asset or revenue stream to secure repayment of the debt. Collateralization entails a borrower granting liens over specific existing assets or future receivables to a lender as security against repayment of the loan. Collateral is “unrelated” when it has no relationship to a project financed by the loan. An example would be borrowing to finance the budget deficit, collateralized by oil revenue receipts. See the joint IMF-World Bank note for the G20 “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” for a discussion of issues raised by collateral.

Includes other-one off guarantees not included in publicly guaranteed debt (e.g. credit lines) and other explicit contingent liabilities not elsewhere classified (e.g. potential legal claims, payments resulting from PPP arrangements).

Capacity constraints limit data availability. Plans to fill the data gaps will be discussed at subsequent program reviews.

Text Table 3:

The Gambia: Revised External Borrowing Plan, 2020–2023

(US$ millions)

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The nonconcessional debt is part of a concessional financing package for the port expansion.

Sources:The Gambian authorities; and IMF staff estimates.

2. Compared to the previous DSA in November 2021 (third ECF review), the current DSA uses updated end-2021 data as a starting point. The DSA uses a broader coverage of the public sector, which includes the central government, central bank and government-contracted debt pertaining to State-owned enterprises (SOEs)3-4 (Text Table 1). SOE debt linked to trade credit from the Islamic Trade Finance Corporation (ITFC) is accounted for in the government debt. This includes short-term external financing to the large SOEs, namely, the National Water and Electric Company (NAWEC) and the Gambia National Petroleum Company (GNPC).5 Additionally, the coverage for the contingent liabilities test uses default settings for financial markets (at the minimum of 5 percent of GDP), representing the average cost to the government from a potential financial crisis in a low-income country, and SOE debt (at 2.0 percent of GDP for debt not explicitly guaranteed by the government).6 Exposures to PPPs are set at zero, as PPPs in the Gambia are estimated to be marginal as a proportion of GDP. The DSA uses a currency-based definition of external debt. There is no significant difference between a currency-based and residency-based definition of external debt.7

Text Figure 1.
Text Figure 1.

The Gambia: Total Public Debt and Distribution by Creditor

Citation: IMF Staff Country Reports 2022, 195; 10.5089/9798400214769.002.A002

Sources:The Gambian authorities; and IMF staff estimates.

3. The Gambia’s total public debt-to-GDP ratio stood at 83.8 percent atend-2021, marginally lower than the 85.9 percent in the previous year. The external debt-to-GDP ratio declined to 48.4 percent from 49.5 in 2020. The debt stock figures for end-2021 are higher than the projections made during the third ECF review, with the increase attributed to further debt data reconciliation by the authorities.8 The outstanding government-guaranteed SOE debt owed to ITFC stood at US$14 million at end-2021, comprising external liabilities of SOE NAWEC. The total public debt profile remains on a downward trajectory and broadly in line with the previous DSA.

4. The breakdown of the external debt by creditor at end-2021 is relatively unchanged from the third ECF review. The Gambia’s external debt primarily comprises of concessional and semi-concessional loans from multilateral and plurilateral creditors, with creditors from the Middle East forming the single largest creditor sub-group. Around 66 percent of the Gambia’s PPG external debt is owed to multilateral creditors, with bilateral creditors (30 percent) and commercial creditors (4 percent) comprising relatively smaller shares among the creditor categories. While approximately 30 percent of the PPG external debt is owed to the IM F and M DBs, a combined 45 percent of debt is owed to various creditors from the Middle East (see Text Table 2 below). The Gambia has arrears on external debt owed to Libya and Venezuela. However, these arrears have materialized due to problems that are not an indication of debt distress. The discussions on debt reconciliation with Libya are ongoing, with the most recent correspondence in March 2022. Regarding the arrears to Venezuela, the Gambian authorities received a letter in January 2022 from Venezuela. The Gambian authorities plan to respond, considering the sanctions.

5. Debt service projections on existing debt in the latest baseline are broadly similar to projections during the third ECF review, while projections on undisbursed debt have changed. The latest debt service projections shared by the authorities are broadly similar, with some changes to the amortization profile in the early years.9 The overall debt service between 2022–2030 stands at a cumulative US$627 million, compared to US$610 million during the third review. Of the total debt service, amortization stands at US$564 million, with the remaining US$63 million in interest charges overthis period. Meanwhile, the amount of undisbursed loans was revised higher by authorities for end-2021, following the internal data reconciliation process. Total undisbursed loans stood at US$297.9 million at end-2021, compared to US$162 million as of end-2020. The sharp upward revisions are attributed to the debt data reconciliation mentioned above and the revised disbursement projections have been incorporated into the DSA. Relatedly, The Gambia benefited from debt service suspension from creditors to the tune of US$4 million under the DSSI10and total debt service relief from the 2019 negotiations with bilateral creditors to the tune of around US$129 million (7 percent of GDP). The Gambia is also receiving debt service relief under the Catastrophe Containment and Relief Trust (CCRT), expected to total SDR7.9 million.

Underlying Assumptions and Borrowing Plan

6. The DSA is consistent with the macroeconomic framework outlined in the staff report. The baseline scenario assumes the implementation of sound macroeconomic policies, structural reforms, and an ambitious infrastructure investment plan. In the wake of the Ukraine war, global fuel and food prices are estimated to rise by 55 percent and 14 percent in 2022 compared to the previous year, according to the latest WEO projections. While global fuel prices are expected to gradually decrease by 2027, they are expected to stay well above their 2021 average. Given these upward revisions to global commodity prices, macro assumptions on inflation and growth have been revised for The Gambia. The key macroeconomic assumptions (Text Table 4) are as follows:

  • Real GDP growth: GDP growth estimate in 2021 has been revised down to 4.3 percent, compared to 4.9 percent in the previous DSA. Meanwhile, projections for 2022 and 2023 have also been revised down to incorporate the shocks from the war in Ukraine. Credit to the private sector was also revised compared to the previous DSA. Longer-term growth projections are expected to be dampened relative to the previous DSA by three main factors: (i) delays in execution of key infrastructure projects (including Banjul port), reflecting both capacity constraints and debt sustainability concerns; (ii) a projected tapering of remittance inflows that have hitherto financed significant growth in private consumption and investment, partlydue to the spillover effects of the war in Ukraine on incomes in source countries; and (iii) anticipated monetary tightening to contain residual inflationary pressures from a plausible revamping of delayed projects and to maintain inflation at the central bank’s target.

  • Inflation: Consumer prices are expected to rise 8.5 percent (y/y) in 2022 and by 7.5 y/y in 2023, compared to the 6.2 percent and 6.0 percent respectively in the previous DSA Average inflation is expected to decline towards the central bank’s target of 5 percent in the medium term, similar to the previous DSA.

  • Fiscal deficit: Fiscal policy in 2022 is expected to help partly alleviate the sharp rise in global energy and food prices and address the expected shortfall in grants. Thus, the overall fiscal deficit in 2022 is estimated to widen by about 1.2 percentage points of GDP relative to the previous DSA. This widening of the deficit will be financed by an on-lending of the two ECF disbursements in 2022 and an increase in net domestic borrowing. Under this revised fiscal framework, the debt reduction path remains broadly in line with the previous DSA. The medium-term fiscal framework is geared towards achieving debt sustainability while appropriately addressing the lingering effects of the pandemic, navigating the economic fallout of the war in Ukraine, and supporting the economic recovery. The authorities are expected to continue their revenue mobilization efforts, including by: (1) implementing the GRA’s Corporate Strategic Plan; (2) further rationalizing tax expenditures through the implementation of the tax expenditure policy and revision of fiscal provisions of the GlEPA act; (3) digitalizing tax administration; and (4) broadening the tax base by tapping into the revenue potential of the hospitality, cable television, and real estate sectors. Spending rationalization efforts will help reduce primary current spending and domestically financed infrastructure spending between 2022–27 as pandemic-related spending are unwound and major projects are completed. This decline in spending will be supported by PFM measures to: (1) rationalize the wage bill through the use of the electronic payment and the Biometric Time and Attendance Register System to better control the payroll; (2) reign in subsidies and rationalize foreign missions; (3) control government consumption by adhering to strict procurement rules and regulations (in line with the GPPA Act), so that value-for-money of all government contracts is secured; and (4) improve the efficiency of public investment by using the project selection criteria through the Gambia Strategic Review Board.

  • Infrastructure projects: The current framework assumes that loan agreements and related disbursements for financing infrastructure projects will align with the external borrowing plan schedule. However, contract agreements and loan disbursements on some large infrastructure projects, such as the Banjul Port project and the Bertil-Harding highway road project, are materializing at a slower pace than originally anticipated.

  • Gross financing needs: Average gross financing needs are projected at around US$42.8 million over the next two years.

  • Budget support: Significant changes to the budget support grants and official transfers from donors have modified the financing assumptions. The authorities are facing some important financing challenges, as reforms are delayed in some key areas. Budget support grants from donors fell in 2021 and will fall short of expectations in 2022, as related reforms were not completed, and donors are changing their own internal policies. Following a data reconciliation meeting on budget support and project grants with the authorities and donors, it is estimated that budget support grants for 2022 will be US$ 20.0 million, compared to US$50 million estimated in the third ECF review. Donors indicated that project grants for 2022 could be as high as US$150 million in 2022, though this amount was contingent on several factors such as project completion rates, conditional triggers, etc. Given the uncertainty around the project grant estimates and the wide range of possible outcomes, we have retained our conservative estimate of US$85.8 million in project grants for 2022, compared to US$179 million estimated during the third review. The baseline assumes that The Gambia will continue to benefit extensively from grants and loan disbursements from multilateral and bilateral creditors in the years ahead.

  • External financing mix and terms: The DSA assumes that the financing mix will be consistent with a prudent borrowing strategy, aimed at gradually increasing the share of domestic debt and only seeking new external financing on concessional terms. Financing needs originate mainly from the persistent health and economic implications of the COVID-19 pandemic, the delayed resumption of tourism activities, the support to the economic recovery, and the large infrastructure projects in preparation for the Organization of Islamic Cooperation (OIC) conference. Under the program agreement, an aggregate US$192 million in concessional external debt can potentially be contracted or guaranteed between 2020–23. Since there was no new external debt contracted in 2021, the remaining amount of concessional debt that can be contracted in 2022 and 2023 as detailed in the external borrowing plan below (Text Table 3).

  • Domestic borrowing: Net domestic borrowing (NDB) is expected to increase by 0.7 percent of GDP in 2022 compared to the previous DSA. With regards to the instruments used for domestic debt financing, the DSA assumes that over the next five years 80 percent of all new debt will be financed via T-bills, 15 percent via 3-year bonds and the remaining via 5-year bonds. This distribution is very similar to the actual issuance pattern seen over the past year (2021–2022). In the medium-term, the issuance is projected to gradually shift toward longer-term bond maturities.

  • Exports: Exports of goods and services as well as imports rose less than expected in 2021, leading to a higher-than-expected narrowing in the current account deficit. Exports are projected to rebound in 2022 and 2023, returning to pre-pandemic averages around 2023–24. Given the sharp drop in exports in 2020- 2021 due to the pandemic and the associated base effects, the average growth rate of exports between 2022–2025 is expected to be higher than that prior to the pandemic.

  • Current account deficit: The C/A deficit is estimated to have narrowed to 8.0 percent of GDP in 2021, compared to 12.5 percent projected in the previous DSA, on the back of stronger-than-expected remittances, and smaller-than-expected imports. The deficit is projected to widen to 13.3 percent of GDP in 2022 and average around 10.7 percent of GDP in the medium term, supported by the tourism sector and remittances.

  • FX Reserves: Gross foreign exchange reserves rose to US$530 million in 2021, equivalent to 6 months of imports, compared to US$496 million projected in the previous DSA. Reserves are projected to moderate in 2022 to US$465 million (or about 4.7 months of imports), in part due to the impact of the war in Ukraine, and average around US$475 million in the medium term.

Text Table 4.

The Gambia: Key Macroeconomic Indicators, 2021–27

(In percent of GDP, unless otherwise indicated)

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Sources: The Gambian authorities; and IMF staff estimates and projections.

Defined as the simple average of the last 15 years of the projection (2028–42).

In current dollar terms, including re-exports.

Includes worker’s remittances and grants.

Includes grants.

Previous DSA numbers are taken from Third Review ECF

7. The realism of the macroeconomic framework is confirmed based on several metrics (Figure 4). The drivers of projected medium-term debt-creating flows for public debt are comparable to those underlying the historical outturns. While the forecast errors have been large even in the past, the relatively large residuals can be partly attributed to the debt data reconciliation mentioned earlier in the report. The projected fiscal adjustment for the next three years is in the top quartile of the distribution of approved Fund-supported programs for LICs since 1990. This relatively large magnitude of fiscal adjustment is underpinned by (i) an expected increase in development partners’ disbursements as the level was low in 2021 and partners enter a new financing cycle from 2022–23 to 2024–25; (ii) the projected phasing out of COVID-19 spending; and (Hi) the completion of large infrastructure projects related to the OIC conference in 2022. While donors have indicated the availability of funds as part of the new financing cycle, downside risks include the underperformance by authorities in meeting support triggers between 2022–2024, in which case the lack of donor disbursements would add increased pressures on the fiscal adjustment objectives. The contribution of government capital to real GDP growth is conservative and remains in the order of the historical magnitudes. Regarding the relation between fiscal adjustment and growth paths, the baseline projection in 2022 and 2023 deviates from the growth paths under the different fiscal multipliers. However, given the development partners’ projected support and the strong macroeconomic policies (including underthe IMF-supported program), the projected rebound in growth seems reasonable albeit with the caveat that the outlook is subject to high uncertainty and downside risks and dependent on the course of the pandemic The economic growth rebound is broadly consistent with projections in peer countries. Moreover, the projected per capita GDP growth path does not show any noticeable breaks.

Figure 1.
Figure 1.

The Gambia: Indicators of Public and Publicly Guaranteed External Debt Under Baseline and Alternative Scenarios, 2022–32

Citation: IMF Staff Country Reports 2022, 195; 10.5089/9798400214769.002.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 2032. 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.
Figure 2.
Figure 2.

The Gambia: Indicators of Public Debt Under Alternative Scenarios, 2022–32

Citation: IMF Staff Country Reports 2022, 195; 10.5089/9798400214769.002.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 2032. 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.
Figure 3.
Figure 3.

The Gambia: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2022, 195; 10.5089/9798400214769.002.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 2022, 195; 10.5089/9798400214769.002.A002

Text Figure 2.
Text Figure 2.

The Gambia: Economic Growth, 2010–26

(In percent)

Citation: IMF Staff Country Reports 2022, 195; 10.5089/9798400214769.002.A002

Sources: World Economic Outlook;and IMF staff estimates.

Country Classification and Determination of Stress Test Scenarios

8. The Gambia’s debt carrying capacity remains classified as “medium”. The classification of the Gambia’s debt carrying capacity is based on a Cl score of 2.95, which is marginally higher from the previous DSA (2.90) and the previous two vintages (2.78), but the classification remains the same as the previous round (Text Table 5). The import coverage of reserves is the most significant contributor to the Cl score, followed by the CPIA value, which reflects the quality of institutions and policies. TheCI score has been updated with the April 2022 WEO.

Text Table 5.

The Gambia: Debt Carrying Capacity and Thresholds

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9. Stress tests follow the standardized settings, with none of the individual tailored stress tests applicable for the Gambia. The standardized stress tests use the default settings, with the combined contingent liabilities test assuming a shock of 7.0 percent of GDP (5 percent of GDP forfinancing sector shock and 2.0 percent of GDP for non-guaranteed SOEs debt).

External DSA

10. Under the baseline scenario, three of the four external debt indicators temporarily breach the threshold for varying periods within the forecast horizon (Figure 1). The PV of external debt-to-exports breaches the threshold level of 180 in 2022 and 2023, before falling below the threshold and continuing to decline for the remainder of the projection period.11 The debt-service-to-exports ratio breaches the threshold level of 15 in 2022, and then again between 2025–29. The external debt service-to-revenue ratio breaches the threshold level of 18 in 2022 and then again between 2025–28, before falling below the threshold for the remainder of the forecast horizon. The reason for the breaches can be attributed to lower export growth in the near-term and higher debt service commitments in the medium-term. The PV of external debt-to-GDP remains within the threshold level of 40 for the entire forecast horizon.

11. Under the stress test scenarios, all the indicators breach their thresholds for varying periods along the forecast horizon. The PV of debt-to-GDP breaches the threshold level of 40 in 2023 and falls below the threshold in 2031. The PVof debt-to-exports breaches the threshold level of 180 in 2022 and remains above the threshold for the remainder of the forecast horizon. The debt-service-to-exports ratio breaches the threshold level of 15 in 2022, remains above the threshold for the remainder of the forecast. The debt-service-to-revenue ratio breaches the threshold level of 18 in 2024 and remains above the threshold forthe duration of the forecast horizon. For the PVof debt-to-exports and debt service-to-exports ratios, the exports shock is the most severe, while forthe PVof debt-to-GDP and debt service-to revenue ratios, the combination shock is the most severe.

12. The Gambia’s risk of external debt distress remains “high”, but sustainable. The weakness in exports, primarily driven by the tourism sector, continues to weigh on the export-related external debt service indicators in the nearterm. As highlighted in the third ECF review, the sharp slowdown in tourism and the associated decline in exports of good sand services is expected to normalize over the next couple of years. Additionally, the breaches of the debt-service thresholds in later years reflect the period when debt-service deferrals negotiated with creditors are expected to expire, potentially leading to higher debt-service payments coming due in those years. These breaches highlight The Gambia’s limited space for additional borrowing in the nearterm, as well as emphasize the need to continue to build ample buffers to face the increased debt-service burden that lies ahead.

Public DSA

13. Under the baseline scenario, the PVof total public debt-to-GDP ratio is temporarily in breach of its benchmark in the nearterm. The PV of total public debt-to-GDP breaches the benchmark level of 55 between 2022–24 but falls within the benchmark level in 2025 and continues to decline thereafter throughout the forecast horizon. Two other indicators of public debt, namely the PVof debt-to-revenue and debt service-to-revenue are on a declining trend for the entire duration of the forecast horizon in the baseline scenario. Under the stress scenario, the PVof total public debt-to-GDP remains above the benchmark until 2029. The non-debt flows shock is the most extreme forthe PVof total public debt-to-GDP ratio under the stress scenario.

14. The Gambia’s overall public debt position is also assessed at high risk of debt distress but remains sustainable. The PV of total public debt-to-GDP continues to follow a firmly downward sloping path, remains within the benchmark from 2025 onwards, continuing to decline thereafter. 12This path is underpinned by fiscal consolidation and support from development partners. Since the indicator falls below the benchmark within 3 years of the projection horizon and remains under benchmark thereafter, the overall debt position is deemed sustainable. This assessment, however, is subject to downside risks stemming from a resurgence of the pandemic that potentially causes a prolonged economic recession, and uncertainty over the donor support disbursements and associated fiscal pressures that could adversely affect the debt profile.

Risk Rating and Vulnerabilities

15. Risks to the assessment are tilted to the downside. The uncertainty over the economic outlook remains elevated, with downside risks linked to the evolution of the pandemic, the global economic recovery, the resumption of tourism, and sustained donor support. The uncertainty around the donor disbursements in the near term and the upcoming increase in debt service in the medium term highlight the need to continue to build ample policy buffers and adhere to the agreed borrowing plan. Additionally, the recent strong capital inflows from remittances and donor support might not necessarily persist and could add additional pressures on debt servicing. As highlighted in the third ECF review, in a downside scenario, with a resurgence of the pandemic and continued global travel restrictions, tourism could be subdued until end-2025. Under such a scenario, growth could fall to 4.0 percent (2.0 percent below the baseline). The fiscal deficit would widen due to higher health-related spending and lower revenues, increasing financing needs and pushing PV of total public debt to fall below the benchmark level of 55 two years laterthan under the baseline.

16. Factors that could affect future assessments indude data revisions, availability of concessional financing for infrastructure projects, and the potential decline in donor support. As highlighted in previous ECF staff reports, further efforts are needed to bolster data collection and reconciliation, both for debt as well as external sector statistics. Uncertainty over data quality and delivery could hamperfuture assessments in a timely and comprehensive fashion. Strengthening interagency coordination and data sharing on public debt and grants data would be important to address data collection and reconciliation issues. The WBTA supported finalization of a validated, reconciled end-2021 public debt stock as well as better understanding and use of the Commonwealth Meridien (CM) system through an on-ground Commonwealth Secretariat specialist in March 2022. The mission highlighted the need to enhance capacity building in the use of CM, upgrade IT infrastructure around CM, expand the coverage to all debts in a phased manner, and undertake data validation and reconciliation at least once every year. Last year, the TA had also supported formulation of the annual borrowing plan for 2021, whose implementation has been within the parameters13, and of the government guarantees framework. Meanwhile, the execution of several large public investment projects are underway, including the extension of the Port of Banjul and the Bertil Harding highway. Financing plans with respect to these projects should remain within the ceilings on the external borrowing plan. Any deviation from the borrowing plan could pose risks to the debt outlook. Additionally, any significant change in future disbursements of donor grants towards budget support or key infrastructure project financing will also have ramifications for The Gambia’s debt profile. The World Bank will continue to support debt management, SOEs, and public investment management under the planned WB Public Administration Modernization Project (PAMP, P176924) with reform actions complemented through the pipeline Development Policy Financing operations and SDFP.

Authorities’ Views

17. The authorities acknowledged the challenges with trying to reduce the overall debt burden and address the sustained high risk of debt distress. In addition to the COVID pandemic, the mounting infrastructure investment needs in the Gambia continues to add upward pressure to the debt stock. And the expiry of the DSSI and CCRTpose even more challenges ahead, given the upcoming wall of debt service commitments beyond 2025. The authorities remain committed to reducing debt vulnerabilities and aim to achieve this objective with sustained restraint in new borrowing and a strong medium-term fiscal framework. They also acknowledged ongoing data challenges and the sharp upward revision in recent debt stock and disbursement data owing to the debt data reconciliation process. However, they expressed confidence that the most recent reconciliation process, with technical assistance from the World Bank, will ensure stable debt projections going forward. Separately, the data reconciliation meeting with donors on budget support and project grants was also deemed useful in reconciling grant projections for 2022 and 2023. On external arrears, they continue to make progress in discussions with the Libyan authorities on reconciling the debt owed to Libya and have been recently approached by the Venezuelan authorities to re-engage on the discussion on arrears.

Table 1.

The Gambia: External Debt Sustainability Framework, Baseline Scenario, 2019–42

(In 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 – ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = 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/ Includes relief under CCRT. 5/ Current-year interest payments divided by previous period debt stock. 6/ Defined as grants, concessional loans, and debt relief. 7/ 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). 8/ Assumes that PV of private sector debt is equivalent to its face value. 9/ Historical averages are generally derived over the past lOyears, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

The Gambia: Public Sector Debt Sustainability Framework Baseline Scenario, 2019–42

(In 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/ Includes relief under CCRT. 3/ 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. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 5/ 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. 6/ 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. 7/ 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 3.

The Gambia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2022–32

(In 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.

Includes official and private transfers and FDI.

Shock set at 8.7 percent of GDP (5 percent of GDP represents a financial sector shock and 3.7 percent of GDP accounts for non-guaranteed SOEs debt).

Table 4.

The Gambia: Sensitivity Analysis for Key Indicators of Public Debt, 2022–2032

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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.

Shock set at 8.7 percent of GDP.

1

Overall assessment remains unchanged due to similar readings of mechanical risk signals.

2

The Gambia’s Composite Index is estimated at 2.95 and is based on April 2022 WEO update and 2020 WB CPIA that was published in July 2021; the debt carrying capacity remains medium.

3

The projects financed by these loans are implemented by SOEs, and the capital assets acquired through these projects, with a few exceptions, are held on the balance sheets of the SOEs. Some of the external loans were on-lent by the Government, with a formal agreement signed with the SOE and the liability recorded on the SOE balance sheet, but for several loans there is no formal on-lending agreement (Source: World Bank. 2022. The Gambia Integrated State-Owned Enterprises Framework (iSOEF) Assessment).

4

The outstanding external loans contracted by the Government for SOEs amounted to 14.7 percent of GDP at end-2021.

5

The outstanding debt to ITFC amounted to 1.6 percent of GDP at end-2021. The Gambia Groundnut Corporation (GGC) has exited the facility after paying its last obligation due in 2021Q2 and NAWEC renewed the facility in late 2020 for two years but is now honouring its obligations up to six months ahead of schedule. Fiscal risks from this credit facility are expected to decline over the near to medium term (WB, 2022).

6

The 2020 Consolidated SOE Financial Performance Report prepared in April 2022 by the Directorate for SOE Oversight, MOFEA positioned the total SOE liabilities at 19 percent of GDP for end-2020. Accounting for the on-lent, guaranteed external and domestic debt pertaining to SOEs already covered in the public debt for this DSA, the unguaranteed SOE debt approximates to 2.0 percent of GDP.

7

Locally-issued LC-denominated debt held by non-residents and locally-issued FX-denominated debt held by residents are insignificant.

8

The authorities, with the help of a World Bank consultant, engaged in an extensive debt conciliation exercise to correctly record the new loan agreements agreed with creditors during the debt restructuring process in 2019. The government-guaranteed debt owed by SOEs to ITFC was also reconciled and recorded correctly.

9

The implied interest rate on external debt is lower in 2023 compared to the current year, as the rolling ITFC loan, which carries a higher-than-the-average interest rate, is assumed to be repaid in full in the current year.

10

including relief by the ECOWAS Bank for International Development (EBID) worth US$1.4 million.

11

The breaches in the PV of debt-to-exports ratio and higher values of the indicator in later years compared to the previous DSA can be attributed to the data reconciliation process (explained above in paragraph 3 and footnote 8), which resulted in upward revisions to the PV of external debt profile.

12

While the public debt service-to-revenue ration exceeds 100 percent in the near term, the authorities are addressing this issue by implementing a debt management policy that reduces roll-over risks,including the substitution of costly borrowing with loans that have lower interest rates and longer maturity (given the recent decline in T-bills and bonds interest rates).

13

Deviation between domestic debt issuance and annual borrowing plan in 2021 was 4 percent. This practice is ongoing for 2022 with the ABP for 2022 and monthly issuance calendars published up till April 2022.

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Cover IMF Staff Country Reports
The Gambia: Fourth Review under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance and Modification of a Performance Criterion, and Financing Assurances Review - Press Release; Staff Report; and Statement by the Executive Director for The Gambia
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 195
Publisher:
International Monetary Fund
ISBN:
9798400214769
ISSN:
1934-7685
Pages:
115
DOI:
https://doi.org/10.5089/9798400214769.002
  • <sup>Text Figure 1.</sup>
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    Text Figure 1.

    The Gambia: Total Public Debt and Distribution by Creditor

  • <sup><xref rid="RA002fig03" ref-type="fig">Figure 1.</xref></sup>
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    Figure 1.

    The Gambia: Indicators of Public and Publicly Guaranteed External Debt Under Baseline and Alternative Scenarios, 2022–32

  • <sup>Figure 2.</sup>
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    Figure 2.

    The Gambia: Indicators of Public Debt Under Alternative Scenarios, 2022–32

  • <sup>Figure 3.</sup>
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    Figure 3.

    The Gambia: Drivers of Debt Dynamics – Baseline Scenario

  • <sup><xref rid="RA002fig06" ref-type="fig">Figure 4.</xref></sup>
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    Figure 4.

    The Gambia: Realism tools

  • <sup>Text Figure 2.</sup>
    View in gallery
    Text Figure 2.

    The Gambia: Economic Growth, 2010–26

    (In percent)

Text Figure 1.

The Gambia: Total Public Debt and Distribution by Creditor
Figure 1.

The Gambia: Indicators of Public and Publicly Guaranteed External Debt Under Baseline and Alternative Scenarios, 2022–32
Figure 2.

The Gambia: Indicators of Public Debt Under Alternative Scenarios, 2022–32
Figure 3.

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

The Gambia: Realism tools
Text Figure 2.

The Gambia: Economic Growth, 2010–26

(In percent)