The Gambia: Fifth Review Under the Extended Credit Facility Arrangement, Requests for Augmentation of Access, Waiver for Nonobservance of a Performance Criterion, Modification of a Performance Criterion, and Financing Assurances Review—Debt Sustainability Analysis Update
Author:
International Monetary Fund. African Dept.
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Publication Date:
21 Dec 2022
eISBN:
9798400228148
ISBN:
9798400228148
Language:
English
Keywords:
distress risk rating; short-term debt; debt carrying capacity; commodity price shock stress test; debt ratio; Debt sustainability analysis; Debt service; Public and publicly-guaranteed external debt; Global
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THE GAMBIA

Abstract

THE GAMBIA

Title Page

THE GAMBIA

FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR AUGMENTATION OF ACCESS, WAIVER FOR NONOBSERVANCE OF A PERFORMANCE CRITERION, MODIFICATION OF A PERFORMANCE CRITERION, AND FINANCING ASSURANCES REVIEW—DEBT SUSTAINABILITY ANALYSIS UPDATE

November 29, 2022

Approved By

M. Mlachila, G. Palomba (IMF), M. Estevão, A. Adugna (IDA)

Prepared by the staffs of the International Monetary Fund and the International Development Association1

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,2 similar to the previous DSA. Under the updated macro framework, there remain breaches of the indicative thresholds for the PV of external debt-to-exports, external debt service-to-exports and external debt service-to-revenue. These breaches primarily reflect continued weakness in export projections in the early years and rising debt service commitments in the medium-term. Similar to that estimated in the previous DSA, the PV of overall debt-to-GDP ratio remains on a downward sloping path and drops below its threshold by 2025, underpinned by fiscal consolidation and support from development partners, indicating that the public debt outlook remains sustainable. Downside risks are linked to the protracted war in Ukraine and the path of the COVID-19 pandemic that could weaken economic recovery, intensify fiscal pressures, and adversely affect the debt profile.

Public Debt and Background

1. The coverage of debt remained the same as in the previous DSA (Text Table 1). Similar to the June 2022 DSA, the current DSA reports the broader coverage of the public sector, which includes the central government, central bank and government-guaranteed debt pertaining to State-owned enterprises (SOEs). As in the previous DSA, SOE debt linked to trade credit from the Islamic Trade Finance Corporation (ITFC) is accounted for in the government debt. The contingent liabilities test uses default settings for financial markets (at default setting 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). Exposures to PPPs are set at zero, as PPPs in The Gambia are estimated to be marginal as a proportion of GDP.3 The DSA uses a currency-based definition of external debt.

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%.

2. The Gambia’s total public debt to GDP stood at 83.8 percent and external debt to GDP at 48.4 percent as of end-2021 (Text Figure 1). The debt stock figures for July 2022 are broadly similar to the projections made during the fourth ECF review. The total public debt profile remains on a downward trajectory and broadly in line with the previous DSA. Nominal external debt in July 2022 marginally fell compared to the end-2021 figures, by around 2 percent to US$949 million on the back of repayments of principal on existing loans from some large creditors (e.g., Kuwait Fund, IsDB, IDA, etc.). Similar to the previous DSA in June (fourth ECF review), the current DSA uses end-2021 debt stock data as a base year. The Gambian authorities continue to make progress in discussions on reconciling the debt owed to Libya and have been contacting Venezuela to re-engage on discussions over arrears.4 The Gambia’s external debt primarily comprises of concessional and semi-concessional loans from multilateral and plurilateral creditors (32.6 percent of GDP). Bilateral creditors and commercial creditors comprise relatively smaller shares among the creditor categories. Domestic debt reached 35.4 percent of GDP at the end-2021, which is issued mostly in the form of T-bills (18.5 percent of GDP) and bonds (16.9 percent of GDP).

Text Figure 1.
Text Figure 1.

The Gambia: Total Public Debt and Distribution by Creditor

Citation: IMF Staff Country Reports 2022, 385; 10.5089/9798400228148.002.A002

3. Debt service and undisbursed debt projections on existing debt in the latest baseline are broadly similar to projections during the fourth ECF review. The latest debt service projections shared by the authorities are broadly similar, with some minor changes to the amortization profile in the early years. The overall debt service between 2022–2030 stands at a cumulative US$620 million, compared to US$627 million during the fourth ECF review. Of the total debt service, amortization stands at $557 million, with the remaining US$63 million in interest charges. Meanwhile, the amount of undisbursed loans stood at US$286 million in July 2022, compared to US$298 million in end-2021.

Macro Forecasts

4. The key assumptions underpinning the macroeconomic and financing projections are as follows (Text Table 2):

  • Growth and inflation: The 2022 and 2023 GDP growth projections have been revised downwards to reflect the repercussions of the war in Ukraine and the lingering impacts of the pandemic. Although the tourism sector is rebounding, it remains significantly below pre-pandemic performances.5 The Gambia faces double-digit domestic inflation, triggered by surging global food and energy prices, freight cost increases, and the strengthening of the US dollar vis-à-vis the Dalasi. Remittances have slowed this year. A major flood in July 2022 took lives, destroyed homes, and disrupted economic activity. The COVID-19 vaccination rate remains low at around 22 percent, despite ample supply. However, an acceleration of public sector investments, an expansion of private construction, and a buoyant agricultural season are expected to support growth prospects.

  • Fiscal framework: the overall deficit in 2022–23 was revised, due primarily to the repercussions of the war in Ukraine and the full-year impacts of the civil service salary increase in 2023. The medium-term fiscal consolidation is expected to be driven by the revenue mobilization efforts, the completion of major infrastructure projects, and the phasing-out of war- and pandemic-related revenue and spending measures. The authorities are also planning to replace the non-targeted war- and pandemic-related measures with means-tested income support to the vulnerable population. Revenue mobilization measures include strengthening revenue administration, cleansing and maintaining accurate tax ledgers for large taxpayers, accelerating the implementation of Asycuda World, consolidating toll bridge collection, and developing a national mandate and the policy document for customs border and inland controls.

  • Current account: The current account deficit is expected to remain substantial in the medium term. Pressures on the balance of payments and foreign exchange are expected to persist in 2022–23 and may persist if the external shocks do not dissipate. In the longer term, the external sector is expected to improve as tourism strengthens, exports disruptions dissipate, and imports related to large OIC-related investment projects diminish.

  • Financing assumptions: Interest rates were revised in line with the domestic and global developments. The baseline 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 (Table 2 presents the external borrowing plan).

Text Table 2.

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 Fourth Review ECF

Table 1.

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.

Table 2.

The Gambia: External Borrowing Plan, 2020–23

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External public debt contracted or guaranteed.

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

5. The realism of the macroeconomic assumptions is ascertained through several metrics (Figure 4). 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, underpinned by (i) the projected phasing out of revenue and spending measures related to COVID-19 and the war in Ukraine; and (ii) the completion of large infrastructure projects related to the OIC conference; (iii) revenue mobilization measures; and (iv) development partners’ disbursements. 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 under the IMF-supported program), the projected rebound in growth seems reasonable. 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 in the 4th review.

Figure 1.
Figure 1.

The Gambia: Indicators of Public and Publicly Guaranteed External Debt Under

Citation: IMF Staff Country Reports 2022, 385; 10.5089/9798400228148.002.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, 385; 10.5089/9798400228148.002.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 External Debt

Citation: IMF Staff Country Reports 2022, 385; 10.5089/9798400228148.002.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, 385; 10.5089/9798400228148.002.A002

Country Classification

6. This DSA uses the CI vintage October 2022 WEO and 2021 CPIA, which assess that The Gambia’s debt carrying capacity remains classified as “medium” (Text Table 3). The classification of the Gambia’s debt carrying capacity is based on a CI score of 2.91, which is marginally lower from the previous DSA (2.95), but the classification remains the same as in the previous round. The import coverage of reserves is the most significant contributor to the CI score, followed by the CPIA value, which reflects the quality of institutions and policies. The CI score has been updated with the October 2022 WEO and 2021 CPIA.

Text Table 3.

The Gambia: Debt Carrying Capacity and Thresholds

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Risk Rating and Debt Sustainability

7. The Gambia’s risk of external debt distress remains “High”, but sustainable. Under the baseline scenario, three of the four external debt indicators breach the thresholds for varying periods within the forecast horizon (Figure 1). The PV of external debt-to-exports breaches the threshold level of 180 between 2022–2024, before falling below the threshold and continuing to decline for the remainder of the projection period.6 The debt-service-to-exports ratio breaches the threshold level of 15 in 2022, and again between 2025–29; a continuous 5-year (and 6-year overall) breach of the debt service-to-exports ratio is toward the limit of sustainability, especially as there are other breaches. The external debt service-to-revenue ratio breaches the threshold level of 18 in 2022 and again between 2025–28, before falling below the threshold for the remainder of the forecast horizon. These breaches are similar to those seen during the previous DSA (fourth ECF review). 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. Under the stress scenarios, all the external indicators breach the thresholds for most of the forecast horizon. For both DSA indicators that are ratios to exports, the export shock is the most severe; for the other DSA indicators, the combination shock is the most severe.

8. The Gambia’s overall public debt position is also assessed at high risk of debt distress but remains sustainable,7 based on the public DSA and the external DSA.8 Under the baseline scenario, 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 PV of 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 (Figure 2). Under the stress scenario, the PV of total public debt-to-GDP remains above the benchmark until 2029. The non-debt flows shock is the most extreme for the PV of total public debt-to-GDP ratio under the stress scenario. Since this indicator falls below the benchmark within 3 years of the projection horizon and remains under benchmark thereafter, the overall debt position is deemed sustainable.

9. Risks to the assessment are tilted to the downside. Risks stem from a protracted war in Ukraine (adding further pressure on imports and inflation), renewed waves of COVID-19 infections, uncertainty over donor support disbursements and associated fiscal pressures that could adversely affect the debt profile. Separately, capital inflows from remittances, which have been robust since 2020, are also showing early signs of slowing down. Risks related to climate change are also important, as evidenced by the recent major flooding in July 2022. Moreover, as highlighted in previous DSA reports, factors that could affect future assessments include data revisions, availability of concessional financing for infrastructure projects, and the potential decline in donor support.

Authorities’ Views

10. They agree with the thrust of the analysis and acknowledged the challenges. However, they have taken measures to reduce the overall debt burden and address the sustained high risk of debt distress. In addition to the COVID pandemic and the repercussions of the war in Ukraine, the mounting infrastructure investment needs in The Gambia continues to add upward pressure to the debt stock. Moreover, the expiry of the DSSI and CCRT pose even more challenges ahead, given the upcoming increase of debt service commitments from 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. On long-standing external arrears, they continue to make progress in discussions with the Libyan authorities on reconciling the debt owed to Libya and have been contacting the Venezuelan authorities to re-engage on the discussion on arrears.

Table 3.

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 – 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/ 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 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 4.

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 FV 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 5.

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 6.

The Gambia: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32

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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

This DSA is an update compared to the previous full DSA approved in June 2022.

2

The Gambia’s Composite Index is estimated at 2.91 and is based on October 2022 WEO update and 2021 WB CPIA that was published in July 2022; the debt carrying capacity remains medium.

3

As in the June 2022 DSA, stress tests follow the standardized settings, with none of the individual tailored stress tests applicable for the Gambia.

4

These arrears have materialized due to problems that are not an indication of debt distress. The discussions on debt reconciliation with Libya are ongoing. Regarding the arrears to Venezuela, the Gambian authorities received a letter in January 2022 from Venezuela.

5

In 2022, exports of timber and cashew are banned due to politico-security concerns at the borders, which causes exports to decline in 2022 (Exports related to woods, nuts, and fruits accounted for 27 percent of goods exports during 2016–19). The exports of those items are forecasted to recover in the medium term as the security improves. A more rapid recovery of the tourism sector and remittances explains the downward revision of the 15-year average of the current account deficit.

6

The breach of the PV of debt-to-exports indicator is now three years instead of two years as in the June 2022 review, due to lower projected growth of exports.

7

Public debt is deemed sustainable due to a set of factors, including a continued downward sloping path underpinned by fiscal consolidation, reliance on grants and concessional loans, and support from development partners. The authorities are addressing risks related to debt service by implementing a debt management policy that reduces roll-over risks, including by lengthening maturity.

8

The overall risk of public debt distress is regarded as High if any of the four external debt burden indicators or the total public debt burden indicator breach their corresponding thresholds/benchmark under the baseline.

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Cover IMF Staff Country Reports
The Gambia: Fifth Review Under the Extended Credit Facility Arrangement, Requests for Augmentation of Access, Waiver for Nonobservance of a Performance Criterion, 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 385
Publisher:
International Monetary Fund
ISBN:
9798400228148
ISSN:
1934-7685
Pages:
108
DOI:
https://doi.org/10.5089/9798400228148.002
  • <sup><xref rid="RA002fig02" ref-type="fig">Text Figure 1.</xref></sup>
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    Text Figure 1.

    The Gambia: Total Public Debt and Distribution by Creditor

  • <sup><xref rid="RA002fig02" ref-type="fig">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    The Gambia: Indicators of Public and Publicly Guaranteed External Debt Under

  • <sup><xref rid="RA002fig03" ref-type="fig">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

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

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    The Gambia: Drivers of Debt Dynamics – Baseline Scenario External Debt

  • <sup><xref rid="RA002fig05" ref-type="fig">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    The Gambia: Realism Tools

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
Figure 2.

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

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

The Gambia: Realism Tools