Gambiaj.com – (BANJUL, The Gambia) – The most recent edition of the World Bank’s International Debt Report, which was released on December 3, and is regarded as the most comprehensive and open source of information on developing nations’ external debt, paints a dismal image of The Gambia’s financial status at the close of 2023. Important facets of The Gambia’s external debt dynamics are highlighted in the World Bank report, along with more general patterns among African countries.

When Finance Minister Seedy Keita sounded the alarm about The Gambia’s proximity to debt distress, highlighting limited budgetary flexibility and an increasing burden of debt servicing, it was no exaggeration. The latest edition of the World Bank’s International Debt Report underscores why such a scenario is highly probable, based on key indicators of The Gambia’s debt profile.

As of September 30, 2024, The Gambia ranks 20th out of 24 low-income countries classified as being at high risk of debt distress, according to the most recent debt sustainability assessments (DSAs) published by the IMF.

Debt Service Versus GNI and External Debt Stocks

The Gambia used a sizable portion of its export revenue in 2023 to pay off its debt. With debt payment expenses taking up an average of 6% of export revenue across all IDA-eligible countries—levels not seen since 1999—this development highlights the difficulties encountered by low-income African countries. Growing debt payment obligations limit The Gambia’s economic flexibility, impacting vital sectors including healthcare and education.

Like the regional trends, the Gambia’s overall external debt stock has been steadily increasing. In 2023, the Gambia’s debt-to-GNI (Gross National Income) ratio was over 40.6%, which was higher than previous years and demonstrated how vulnerable the country’s economy is. The external debt of African countries as a whole increased, with the long-term debt stock rising by 3.5% in 2023.

In a low- or middle-income economy like The Gambia, a debt-to-GNI ratio of more than 40.6% raises questions about the nation’s capacity to maintain debt levels, making it more likely to experience debt distress and become vulnerable to economic upheavals.

This raises borrowing costs, necessitates debt restructuring, and increases reliance on concessional loans.

The finance minister’s concerning remarks to parliamentarians raise the possibility that The Gambia would have to engage in negotiations with creditors, which might undermine the country’s financial credibility and harm its reputation. This may reduce government funding for important public initiatives, which would limit opportunities for long-term growth.

Short- and Long-Term Trends in External Debt, Interest Payments, and Lending Expenses

The Gambia experienced a rise in short-term commitments in 2023, as short-term debt in LMICs increased by 3.4%, mostly as a result of liquidity requirements.

The Gambia has been notably impacted by rising global interest rates, which affect both legacy variable-rate loans and new commitments, as interest payments have increased across LMICs, rising by more than 33% in 2023. While government loan interest rates averaged 4.09%, private lender interest rates increased to an average of 6.0%.

According to the World Bank research, concessional loans were given by international creditors in order to reduce risks. Loans from organizations like the World Bank’s International Development Association (IDA) that have long maturities and low interest rates—typically more than 30 years—have been stabilizing for The Gambia. This strategy reflects the risk-averse nature of private financing and contrasts with the retreat of private lenders.

It is true that several African countries face difficulties in maintaining their debt. However, The Gambia’s high debt-to-GNI ratio makes it stand out.

Richer African countries like Ghana and Kenya, in contrast, have more varied creditor bases, but they are nonetheless subject to the same pressures from the tightening global financial situation.

A delicate balance between foreign borrowing and economic resilience is highlighted by the Gambia’s debt profile.

The Gambia struggles with escalating interest payments and an increasing dependence on multilateral creditors due to limited fiscal flexibility and rising debt servicing costs. This highlights an urgent need for debt relief mechanisms and sustainable financing strategies to ensure long-term growth.