*"The Gambia's program with the IMF includes limits on the amount and terms
of new borrowing to prevent a build-up of debt to levels that may be
unsustainable over the medium- and long-term*." IMF and IDA Debt
sustainability

INTERNATIONAL MONETARY FUND

AND

INTERNATIONAL DEVELOPMENT ASSOCIATION

THE GAMBIA

*Joint IMF/IDA Debt Sustainability Analysis *

Prepared by the Staffs of the International Monetary Fund and

the International Development Association

Approved by Roger Nord and Dominique Desruelle (IMF) and

Sudhir Shetty and Carlos Alberto Braga (IDA)

January 21, 2010

*The results of this debt sustainability analysis (DSA) indicate that The
Gambia remains at high risk of debt distress, reflecting weak export
performance, significant new borrowing, and depreciation of the exchange
rate. Projections indicate that the present value (PV) of external debt to
export ratio exceeds its threshold for a protracted period while the
standard stress tests show that The Gambia is vulnerable to adverse
developments with the PV of debt to exports and debt to GDP breaching their
thresholds under some stress tests. Staffs recommend that the authorities
limit new borrowing, rely mainly on grants, seek highly concessional loans
with a grant element of at least 45 percent, reduce their stock of domestic
debt, and complete reforms that would improve the country's competitiveness.
*

*I. B**ACKGROUND *



1. *This debt sustainability analysis (DSA) was prepared by the staffs of
the Fund and the World Bank, in collaboration with the Gambian authorities.
*This DSA is based on debt and debt service data obtained from the
authorities as of November 30, 2009, and reflects a revised macroeconomic
framework following discussions of the sixth review of the Extended Credit
Facility (ECF) arrangement with the Fund. The last joint DSA*1 *prepared by
staffs of the IMF and the World Bank for the fourth review of the country's
ECF arrangement concluded that The Gambia was at high risk of debt distress.




2. *The Gambia's stock of external debt declined substantially after full
delivery of debt relief under the Heavily Indebted Poor Countries (HIPC)
Initiative and the Multilateral Debt Relief Initiative (MDRI). *HIPC and
MDRI debt relief reduced The Gambia's stock of nominal external public debt
from US$676.7 million (133.1 percent of



1 IMF Country Report No 09/92. 2



GDP) to US$299.4 million (41.7 percent of GDP). In PV terms, the stock of
debt decreased from US$439 million at end-2007 to US$347 million following
HIPC debt relief and to US$165 million after MDRI debt relief. Jointly,
these reduced the debt to exports ratio to about 113 percent at completion
point. In January 2008, Paris Club creditors agreed to cancel outstanding
claims totaling US$13 million in PV terms at end-2006. Although the country
received bilateral debt relief from Kuwait, further agreements with other
non-Paris club creditors on the delivery of debt are still pending with the
Economic Community of West African States (ECOWAS), Saudi Arabia, Taiwan
Province of China, Libya, and China.



3. *Despite receiving HIPC and MDRI debt relief, The Gambia's debt
indicators remain elevated, reflecting a number of factors. *These factors
include weaker-than-expected export performance, unanticipated depreciation
of the real exchange rate during 2008, and reliance on expensive domestic
borrowing. In particular, the high debt stock is attributable to
significantly larger-than-previously projected new borrowing,2 which at
completion point in 2007 was about US$84 million above projections made at
decision point in 1999, and an additional US$46.3 million in PV terms since
completion point. The weak performance of exports is mainly due to the
persisting difficulties with the country's re-export trade. A significant
depreciation of the dalasi against the US dollar in 2008 also put
significant pressure on the PV of debt to GDP. Given that the Gambia
receives fewer grants (as a percentage of GDP) than comparable HIPC
countries, the government has had to rely on expensive domestic borrowing.
Although the debt risk classification in the DSA only considers external
debt, the large domestic debt stock (27 percent of GDP) and high debt
service payments on domestic debt (15 3/4 percent of government revenues)
provide further evidence of the need for the authorities to develop and
implement a prudent borrowing plan in line with the country's medium-term
debt strategy (MTDS).



4. *The Gambia's program with the IMF includes limits on the amount and
terms of new borrowing to prevent a build-up of debt to levels that may be
unsustainable over the medium- and long-term*. Under the ECF program, the
authorities have committed to a minimum grant element of 45 percent in new
external loans contracted or guaranteed by the government. The program also
has indicative quarterly limits on the total amount of new borrowings. 3



2 New borrowing was contracted on less concessional terms than anticipated
at decision point. Since completion point, however, all external borrowing
has been contracted in line with the 45 percent grant element agreed under
the ECF arrangement.

3 Although not binding in The Gambia's case, IDA also has a minimum grant
element under the NCBP of 35 percent or higher. The policy is complementary
to other policies and tools that the Bank and Fund have in place to help
countries maintain debt sustainability, such as the LIC Debt Sustainability
Framework, the Debt Management Performance Assessment (DeMPA) tool, and the
toolkit for developing Medium-Term Debt Management Strategies (MTDS). See
--IDA's Non-Concessional Borrowing Policy: Review and Update||, Resource
Mobilization Department, (FRM), The World Bank, June 2008.

http://www.imf.org/external/pubs/ft/dsa/pdf/dsacr1061.pdf

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