Gambiaj.com – (BANJUL, The Gambia) – Finance Minister Seedy Keita has raised the alarm that The Gambia is nearing debt distress, citing limited budgetary flexibility and a growing burden of debt servicing as critical challenges. His remarks reported by The Standard Newspaper were made during a parliamentary session addressing lawmakers’ concerns over minimal allocations to key sectors like health in the 2025 budget.

Debt distress happens when a country is unable to pay its debts. It can also refer to securities issued by a government that is in financial difficulties, has filed for bankruptcy, or has defaulted.

Minister Keita revealed that 29% of the national budget—equivalent to D11 billion—is allocated to servicing debt obligations, a figure surpassing the combined budgets of five government ministries.

“If you have no borrowing limit, you can borrow and spend, but unfortunately, we are almost at near debt distress,” he said. “This is why the priority of this budget is deficit reduction.”

The minister highlighted that The Gambia is not alone in grappling with such fiscal constraints, noting that some African countries, like Angola, spend as much as 58% of their national budgets on debt servicing. He explained that the sharp increase in The Gambia’s debt repayment stems from the end of a debt-servicing deferral period.

Wrong Structural decisions and Exchange Rate Volatility

Keita also reflected on past financial strategies, acknowledging their unintended long-term consequences. “Some of the advice we took in the past is catching up with us now. When we deferred servicing the principal element of our debt obligations, the exchange rate was lower. However, whatever savings we made have been eroded by the depreciation of the exchange rate,” he explained.

The Gambia’s exchange rate volatility, he argued, is exacerbated by external factors, particularly the actions of the U.S. Federal Reserve and global dollar strengthening.

“As a developing country, our exchange rate is not solely determined by our own balance of payment and macro fiscal policies. It is influenced by external forces, and when the dollar strengthens globally, our currency depreciates regardless of how well our economy performs,” he stated.

Implications of Debt Distress

Minister Keita’s disclosure underscores the precarious fiscal position of The Gambia, where high debt servicing limits resources for critical public services. The absence of substantial budget support from development partners compounds the problem, leaving the government with limited options to bridge fiscal gaps.

Experts warn that edging closer to debt distress could lead to further economic instability, reduced investor confidence, and constrained public sector growth.

Without addressing the debt stock and expanding the tax base, The Gambia risks falling into a cycle of borrowing to repay existing debts, which could stifle future development initiatives.

The finance minister’s focus on deficit reduction highlights the urgency of reforms to strengthen fiscal discipline.

However, such measures could face resistance given the pressing need for investment in sectors like health and education.

Keita’s remarks also point to the need to renegotiating debt terms to alleviate the debt burden while maintaining critical public expenditures.