The Gambia: Staff Report for the 2023 Article IV Consultation and Request for an Arrangement Under the Extended Credit Facility—Debt Sustainability Analysis
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THE GAMBIA

Abstract

THE GAMBIA

Title Page

THE GAMBIA

STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION AND REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS

December 18, 2023,

Approved By

Montfort Mlachila, Geremia Palomba (IMF), and Manuela Francisco, 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,1 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 weaknesses in projected exports 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 benchmark of 55 percent of GDP in 2024, underpinned by fiscal consolidation, reliance on grants and concessional loans, and support from development partners. This path indicates 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 Coverage

1. Similar to the previous DSA in June 2023 (sixth ECF review), the current DSA uses end-2022 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) (Text Table 1) 2,3. 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).4 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).5 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.6

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 countr y’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%.

Background

A. Recent Debt Developments

2. The Gambia’s total public debt to GDP stood at about 84 percent and external debt to GDP at about 52 percent as of end-2022; the composition remains broadly unchanged from the sixth ECF review (Text Figure 1). 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 68 percent of the Gambia’s PPG external debt is owed to multilateral creditors, with bilateral creditors (29 percent) and commercial creditors (3 percent) comprising relatively smaller shares among the creditor categories. While approximately 30 percent of the PPG external debt is owed to the IMF and MDBs, about 70 percent of PPG external debt is owed to a combination of various creditors from the Middle East (Text Table 2).7

Text Figure 1.
Text Figure 1.

The Gambia: Total Public Debt and Distribution by Creditor

Citation: IMF Staff Country Reports 2024, 015; 10.5089/9798400262883.002.A003

3. Debt service and undisbursed debt projections on existing debt in the latest baseline are similar to projections during the sixth ECF review. The overall external debt service between 2022–2029 stands at a cumulative US$652 million. Of the total debt service, amortization stands at $562 million, with the remaining US$90 million in interest charges. Meanwhile, the amount of undisbursed loans stood at US$250 million in December 2022, compared to US$298 million in end-2021.

B. Macroeconomic Assumptions

4. Economic activity is recovering robustly but inflation pressures persist (MEFP1F4). GDP growth estimates for 2022 was revised upwards to 4.9 percent (from an earlier estimate of 4.4 percent), supported by the agriculture, services, and construction sectors. Tourist arrivals at end-2023Q3 increased by 18 percent (y-o-y) from the same period in 2022 but remained 15 percent below pre-pandemic periods. Remittance inflows increased by 6.2 percent at end-2023Q3 relative to the same period in 2022. Headline inflation reached 18.5 percent (y-o-y) in September 2023, driven by externally-induced food inflation, the recent electricity tariffs adjustment, and the depreciation of the Dalasi vis-à-vis the US$. Budget execution during the nine months of 2023 faced some challenges but the end-2023 fiscal targets are within reach, possibly with some overperformance, including because of higher-than-expected budget support from development partners. The macroeconomic outlook continues to be subject to exceptionally large uncertainty, owing to the war in Ukraine and conflict in the middle East.

Text Table 2.

The Gambia: Decomposition of Public Debt and Debt Service by Creditor, 2022–20241

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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.

5. 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. The key macroeconomic assumptions are as follows (Text Table 3, which also compares the assumptions relative to the previous DSA)

  • Real GDP growth: GDP growth estimates have been revised upwards to 5.3 percent in 2021 and 4.9 percent in 2022, supported by the agriculture, services and construction sectors. Economic growth is projected to strengthen and hover around 6 percent in 2023–24. Tourist arrivals increased by 18 percent (y-o-y) at end-2023Q3 relative to the same period in 2022. During the same period, remittance inflows increased by 6.2 percent, which continue to support the construction sector. Agriculture is benefiting from good rainfalls, improved seeds, and lower-cost fertilizers. It also benefits from increased investment in projects by international partners, the building of storage facilities to reduce loss from spoilage, and the projected coming online of the new GGC factory in 2024 which will increase its capacity. Growth is projected to converge gradually to a steady state of 5 percent in the medium and long term, supported by an expansion of the tourism sector as it continues to recover to its pre-Covid 19 levels and benefit from the 2024 OIC conference as well as investment financing project from the World Bank, higher production and value-added from the agriculture sector, impacts of ongoing large infrastructure projects (urban and rural road construction, port expansion, energy projects, etc.), sustained public and private construction, improvement in the business environment (bolstered by the vast judicial reform agenda, updated regulations to improve access to finance, upcoming digitalization of the business registration process etc.), and continuation of strong policies started after the democratic transition (SOEs, governance, etc.). The agriculture sector should be revitalized by the issuance of regulations aimed at reducing aflatoxin exposure in the groundnut, maize and rice value chains, and to reinforcing compliance with safety standards by operators in the food sector. The issuance of regulations to facilitate private sector participation in the energy sector and the penetration of renewable energies should help boost energy production. The projected long-term economic growth of 5 percent is in line with economic growth in peer countries. For instance, in neighboring ECOWAS countries, average historical growth during 2004–19 stood at 5.4 percent and future long-term growth for 2023–44 is projected at 5.2 percent.

  • Inflation: Headline inflation reached 18.5 percent (y-o-y) in September 2023, driven by externally-induced food inflation (24.4 percent), the recent electricity tariffs adjustment (37 percent), and the depreciation of the Dalasi vis-à-vis the US$ (10.2 percent, y-o-y). Inflationary pressures are projected to persist in 2023 and gradually ease thereafter, owing to the restrictive monetary policy. Inflation is projected to converge to the CBG’s target of 5 percent from 2026. The CBG increased the policy interest rate in all recent monetary policy committee meetings. They intend to tighten further the monetary policy stance using an appropriate combination of policy tools as needed, including the issuance of CBG bills and the increase in the reserve requirement ratio.

  • Fiscal deficit: The 2023 fiscal framework underpinning the DSA is anchored on previous parameters, including the adopted 2023 budget and recently agreed 2024 fiscal aggregates. Despite some challenges in the budget execution during 2023H1, the authorities are committed to achieve an overall fiscal deficit of 2.3 percent of GDP at end-2023, slightly overperforming earlier targets, and lower net domestic borrowing, owing to higher-than-expected budget support from partners, dividend payments from the central bank, and privatization proceeds from Megabank. The fiscal deficit is expected to gradually improve in the medium term, supported by both revenue and spending measures. In the near term, the fiscal consolidation is supported by, among other measures, the recently-introduced electricity tariff adjustment and efforts to adjust domestic fuel prices to reflect passthrough from international prices. The authorities also expect in 2024 additional revenue from the Africa 50’s Asset Recycling Program and the court-mandated license penalty. Revenue mobilization measures, currently underway and supporting medium-term fiscal consolidation, include streamlining tax exemption, cleansing and maintaining accurate tax ledgers for large taxpayers, accelerating the implementation of Asycuda World, and consolidating toll bridge collection. Furthermore, efforts are underway to collect additional resources, including from privatization and the sale of stolen assets under the Janneh Commission. A reform monitoring committee has been put in place to ensure swift implementation of measures required to trigger support from development partners. On the spending side, measures to address the COVID-19 pandemic and the Russia’s war in Ukraine are expected to be phased out gradually in the near and medium term; the electoral cycle has been completed and the related spending will decline; the OIC-related large infrastructure projects have been completed; and the budget will be executed based on a strict cash plan that aligns spending with available resources. Some large infrastructure projects are also nearing completion, particularly the projects related to the OIC conference, including the Bertil-Harding highway.8 The investment prioritization and selection tool by the GSRB will be expanded to domestically financed and PPP projects to enhance efficiency and contain spending. Furthermore, the authorities intend to overhaul the SOE sector to reduce their dependence on the budget and turn them into income-generating assets and consolidate redundant agencies with relevant Ministries.

  • Financing needs and assumptions: 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 or semi-concessional terms.

  • External financing: Financing needs originate mainly from the persistent implications of the COVID-19 pandemic, the war in Ukraine, the conflict in Israel and Gaza, the large development needs, as well as the expiration of the debt deferrals.9 The external financing will come from multilaterals and official bilaterals, which includes the IMF’s new ECF lending (100 million US dollars during 2024–2026) as well as World Bank IDA financing. There will be no new commercial borrowings.

  • Domestic borrowing: 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 shift gradually toward longer-term bond maturities.

  • Current account: The current account deficit in 2022 was 4.2 percent of GDP (or US$ 91 million). In particular, imports in 2022 increased significantly from 2021, largely due to higher global commodities prices. Tourist arrivals in 2022 increased by 80 percent relative to 2021 but remained below pre-pandemic levels by 22 percent. The current account deficit is expected to stay at a comparable level in 2023 on the back of a recovery in tourism combined with an uptick in imports related to ongoing large infrastructure projects. 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 2023–24 and may persist even further if the external shocks do not dissipate. In the longer term, the external sector is expected to improve as tourism strengthens, cross-border exports disruptions dissipate, exports increase in groundnuts, and imports related to large OIC-related investment projects diminish.

  • FX Reserves: The Gambia’s gross international reserves stood at US$454.7 million in 2022, which is 21 percent of GDP or 5.3 months of prospective imports. Gross reserves have risen markedly from a trough of US$60 million in 2016. This has been driven by amplified disbursement of external financial assistance (including from the IMF), CA improvement, and private inflows of foreign exchange, which have allowed the central bank to rebuild its buffers. Reserves have declined to US$426 million in October 2023, due to higher imports.

6. The realism of the macroeconomic framework is confirmed based on several metrics (Figure 3 and 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; (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 investment 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 deviates at times 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.10

Text Table 3.

The Gambia: Selected Macroeconomic Indicators (2021–2027)

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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 Sixth Review ECF

Country Classification and Determination of Stress Test Scenarios

7. This DSA uses the CI vintage October 2023 WEO and 2022 CPIA, which assess that The Gambia’s debt carrying capacity remains classified as “medium” (Text Table 4). The classification of the Gambia’s debt carrying capacity is based on a CI score of 2.99, which is higher than the previous DSA. 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 2023 WEO and 2022 CPIA. The relevant thresholds applicable to public and publicly guaranteed external debt are 40 percent for the PV of debt-to-GDP ratio, 180 percent for the PV of debt-to-exports ratio, 15 percent for the debt service-to-exports ratio, and 18 percent for the debt service-to revenue ratio. For the PV of total public debt-to-GDP ratio, the benchmark is 55 percent.

8. 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 for financing sector shock and 2.0 percent of GDP for non-guaranteed SOEs debt).

Text Table 4.

The Gambia: Debt Carrying Capacity and Thresholds

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External DSA

9. Under the baseline scenario, three of the four external debt indicators 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 2023 and 2024, before falling below the threshold and continuing to decline for the remainder of the projection period. The debt-service-to-exports ratio breaches the threshold level of 15 percent in 2023, and again between 2025–27. The external debt service-to-revenue ratio breaches the threshold level of 18 percent in 2023, and then again between 2025–28, before falling below the threshold for the remainder of the forecast horizon. These breaches are broadly similar to those seen during the previous DSA (sixth 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 percent for the entire forecast horizon.

10. Under the stress test scenarios, all the indicators breach their thresholds for varying periods under the forecast horizon. With the combined bound test, the PV of debt-to-GDP breaches the threshold level of 40 percent in 2024 and falls below the threshold in 2030. With the bound test of exports, the PV of debt-to-exports breaches the threshold level of 180 percent in 2023 and remains above the threshold for the remainder of the forecast horizon. With the bound test of exports, the debt-service-to-exports ratio breaches the threshold level of 15 percent in 2023 and remains above the threshold for the remainder of the forecast. With the combined bound test, the debt-service-to-revenue ratio breaches the threshold level of 18 percent in 2023 and remains above the threshold for the remainder of the forecast horizon.

Public DSA

11. Under the baseline scenario, the PV of total public debt-to-GDP ratio is temporarily in breach of the benchmark in the near term. Under the baseline scenario, the PV of total public debt-to-GDP breaches the benchmark level of 55 percent in 2023 but falls within the benchmark level in 2024 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. Under the stress scenario, with the bound test of other flows, the PV of total public debt-to-GDP remains above the benchmark until 2030.

Risk Rating and Vulnerabilities

12. The Gambia’s external debt has a high risk of distress but is sustainable. The weakness in exports continues to weigh on the export-related external debt service indicators in the near term. As highlighted in the sixth ECF review, the sharp slowdown in tourism and the associated decline in exports of goods and 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 and tighter liquidity. The resumption of external debt servicing obligations is expected to absorb significant resources from much-needed social and infrastructure investments expenditure. The breaches highlight The Gambia’s limited space for additional borrowing in the near term and emphasize the need to continue to build ample buffers to face the increased debt-service burden that lies ahead.

13. The liquidity risk can be mitigated by some factors. To address higher future debt service, the authorities are implementing measures that are expected to bolster further domestic revenue mobilization in the near and medium term, including the overhaul of the SOE sector to reduce fiscal burdens and generate revenue. The authorities are also making efforts to further develop the tourism sector and diversify exports. Moreover, the policies that aim at supporting foreign exchange reserves will also help address liquidity constraints.

14. The Gambia’s overall public debt position is also assessed at high risk of debt distress but remains sustainable, based on the public DSA and the external DSA.11 The PV of total public debt-to-GDP continues to follow a firmly downward sloping path, remains within the benchmark from around 2024 onwards, continuing to decline thereafter. 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. 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.

15. This assessment, however, is subject to downside risks. Risks stem from a protracted war in Ukraine, renewed waves of COVID-19 infections, and some uncertainty over donor support disbursements (due to the authorities’ ability to timely meet the triggers and to donors’ planning) that could adversely affect the debt profile. Separately, capital inflows from remittances, which have been robust since 2020, are subject to uncertainty in the medium and long terms. Risks related to climate change are also important, as evidenced by the recent major flooding in July 2022. In a downside scenario, growth could fall by about 2.0 percentage points below the baseline in the near term. The fiscal deficit would widen due to higher spending and lower revenues, increasing financing needs and pushing PV of total public debt to fall below the benchmark level of 55 percent two years later than under the baseline. Moreover, foreign exchange reserves would come under pressure, creating challenges to external debt servicing capacity. Nonetheless, if domestic revenue mobilization efforts are strengthened and successful, they could help mitigate these risks to debt vulnerabilities.

16. Factors that could affect future assessments include 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 hamper future assessments in a timely and comprehensive fashion. Strengthening inter-agency coordination and data sharing on public debt and grants data would be important to address data collection and reconciliation issues. Meanwhile, the execution of several large public investment projects is 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 of 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 implications for The Gambia’s debt profile. The World Bank will continue to support debt management, SOEs, and public investment management under the planned Public Administration Modernization Project (PAMP, P176924) with reform actions complemented through the pipeline Development Policy Financing operations and SDFP.12

Authorities’ Views

17. The authorities concurred with the main points of the analysis and acknowledged the challenges it highlights. The debt stock is under pressures due to factors such as the COVID-19 pandemic, the repercussions of the war in Ukraine, and substantial infrastructure investment needs. Additionally, the expiration of the debt service deferral period, coupled with the anticipated increase in debt service commitments from 2025, poses further challenges. Consequently, the authorities have implemented measures aimed at reducing the overall debt burden and addressing the persistent high risk of debt distress. They remain steadfast in their commitment to diminishing debt vulnerabilities and intend to achieve this objective by exercising continued restraint in new borrowing and implementing a robust medium-term fiscal framework. In relation to longstanding external arrears, progress is being made in discussions with Libyan authorities to reconcile the debt amount. Simultaneously, efforts are underway to engage with Venezuelan authorities to resume discussions regarding arrears.

Figure 1.
Figure 1.

The Gambia: Indicators of Public Guaranteed External Debt Under Baseline and Alternative Scenarios, 2023–2033

Citation: IMF Staff Country Reports 2024, 015; 10.5089/9798400262883.002.A003

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 2033. 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, 2023–33

Citation: IMF Staff Country Reports 2024, 015; 10.5089/9798400262883.002.A003

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 2033. 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 2024, 015; 10.5089/9798400262883.002.A003

1/ Difference between anticipated and actual contributions an debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt far 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 2024, 015; 10.5089/9798400262883.002.A003

Table 1.

The Gambia: External Debt Sustainability Framework, Baseline Scenario, 2020–2043

(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. The relatively large residuals can be partly attributed to the debt data reconciliation as mentioned in the 3rd ECF review in December 2021. 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 2.

The Gambia: Public Sector Debt Sustainability Framework, Baseline Scenario, 2020–2043

(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 DSAwith 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 Gauranteed External Debt, 2023–2033

(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, 2023–2033

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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

The Gambia’s Composite Index is estimated at 2.99 and is based on October 2023 WEO update and 2022 WB CPIA that was published in July 2023; the debt carrying capacity remains medium.

2

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).

3

The outstanding external loans contracted by the Government for SOEs amounted to 16.6 percent of GDP at end-2022.

4

The outstanding debt to ITFC amounted to 1.1 percent of GDP at end-2022.

5

The 2020 Consolidated SOE Financial Performance Report prepared in April 2022 by the Directorate for SOE Oversight, MOFEA assessed 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.

6

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

7

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. They have been contacting the Venezuelan authorities to re-engage on the discussion on arrears.

8

The key features and drivers of the medium-term fiscal framework are outlined in Annex II of the Fourth ECF Review Staff Report.

9

Total debt service relief due to confirmed deferrals from the 2019 negotiations with bilateral creditors amounted to around US$129 million, where most bilateral creditors participated. For more details, please see the 3rd ECF review in December 2021. The implication of the expiration of the debt deferral is discussed in para 12 and has also been added under the financing needs.

10

The residuals in the forecast years for the external and public DSAs include the contribution of real exchange rate movements, factors affecting debt changes but not captured by debt-creating flows (i.e., project grants), as well as adjustment for coverage between fiscal accounts and DSAs. The relatively large residual in 2023 is partly attributed to the debt data reconciliation.

11

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.

12

As part of IDA’s Sustainable Development Finance Policy (SDFP) Policy Performance Actions (PPAs) for FY22, The Gambia successfully approved of a three-year public investment program (PIP) for selected priority sectors (i.e., health, education, agriculture, infrastructure, energy, and environment) to rationalize public investment and anchor debt sustainability and ensured that new borrowing remained within the ceilings on of the external borrowing plan. The Gambia has also successfully implemented FY23 PPAs focusing on (i) improving debt transparency by having the annual public debt bulletin for 2022, including a table on government guarantees extended to all SOEs, published, (ii) improving fiscal and debt sustainability by preparing and publishing the first Fiscal Risk Statement (FRS), and (iii) enhancing debt sustainability by ensuring that any new external borrowing remains concessional. Ongoing FY24 PPAs focus on (i) improving debt transparency by publishing a report on outstanding arrears between Government and SOEs and among SOEs and issuing a circular institutionalizing the publication of arrears as part of the annual debt issued, (ii) reducing fiscal risks by adopting through a circular or similar regulatory instrument a credit risk assessment score card for the provision of public guarantees and on lending to SOEs, and (iii) improving debt sustainability by ensuring that new external borrowing remains concessional.

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The Gambia: 2023 Article IV Consultation and Request for an Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for The Gambia
Author:
International Monetary Fund. African Dept.