The Total Public debt, which stood at 120% of GDP as at end 2016, is on an unsustainable path that requires restructuring to bring it to sustainable levels. The total domestic debt outstanding as at end 2015 stood at GMD 18.8 billion (47% of GDP). The bulk of the debt is composed of Treasury Bills, which constitute 68% of the stock. Interest cost as percentage of GDP is already high at 7.06%. This is mainly due to high cost of domestic debt carrying an average interest rate of 13.4%. An exceptionally high share of short-term debt further characterizes the portfolio at 43.8%. The recent hike in domestic interest rates indicates high interest rate risk since the maturing debt will need to be refinanced at higher rates. About 78.5% of domestic debt would be re-fixed within one year.
Foreign-currency denominated debt as a share of TPD stands at near 50% of the portfolio- reflecting new on-take of external concessional loans- but also the very large share of domestic debt in the portfolio. The main risks to the public debt portfolio include: high refinancing risk, about 43.8% of total debt is maturing within one year; high interest rate risk, about 45.9% of total debt is due for re-fixing in one year; 78.8% of domestic debt is due for re-fixing within the same period which, with expected higher interest rate and high foreign currency risk, the short-term foreign currency debt to reserve ratio is high at 31.6%, due to external obligations.
Given the exposures of the debt portfolio to market risks and other macroeconomic variables, The Gambia’s debt remains vulnerable to both external and domestic shocks. Any further rise in interest rates would increase the cost of domestic debt, while direct controls in foreign exchange markets and the resultant volatility would threaten the prospect of medium term external financing.
Overall, there is a clear recognition that bad economic governance and management lie at the origin of most of these challenges and efforts must be made to strengthen key economic management institutions through appropriate legislative guarantees.
Public Finance Management (PFM) Reform
The Gambia’s ongoing PFM Reform has contributed to economic growth from 5.1% in 2010 to 6.2% in 2013 (CCA 2015), validating the positive correlation between PFM and transparency, accountability, and economic growth. Presently the reform features components dealing with accountability and transparency in procurement, auditing, and budget credibility. Its strategic focus will also strengthen planning processes; fiscal discipline; domestic resource mobilization, partnerships, and aid coordination; as well as strengthen the institutions involved with reforms.
A Public Expenditure and Financial Accountability (PEFA) Assessment conducted in 2014 established that overall, The Gambia’s PFM systems improved significantly by over 80%, whereby most indicators registered an improvement compared to the previous PEFA conducted in FY2009.
However, there is significant room for improvements particularly focused on policy-planning-budget linkages; institutional capacity to execute reforms, external aid dependency, partnership management and the high variations between actual and budgeted expenditures which experienced 15-31% variations over the past four years.
State Owned Enterprises (SOEs) Reform
The Gambia has 13 state-owned enterprises (SOEs) that are active in nearly all sectors of the economy. Historically their operational and financial performance, and that of their predecessors since they were first formed in the 1970s, has not been good while periodic SOE reform efforts dating back to the 1980s, late 1990s, and early 2000s, were only partially successful. Subsequently, since the Gambia Divestiture Agency was closed in 2009 until very recently, there has been little focus on SOE reform or on the monitoring of the performance of the sector. A major privatization effort through The Gambia Divestiture Program was undertaken in two phases (1986-94 and then from 2001-09) where a few SOEs were privatized. The second phase from 2001 onwards was slower and focused on regulatory reforms and partial privatization. The 2001 Divestiture Act was repealed in 2009.
Against this backdrop, SOE outcomes deteriorated markedly during this time, leading to rising fiscal pressures along with growing public finance risks tied to increased SOE debt guarantees. These risks became manifest as the SOE burden on the national budget reached crisis levels in 2014, when the largest SOEs were unable to service their debts, and the Government had to meet SOE external financing requirements equivalent to 5 percent of GDP.
In light of the foregoing, it has been established that the proper functioning of State Owned Enterprises (SOEs) requires capable, efficient and effective institutions to exercise ownership and oversight functions by setting clear expectations and effectively monitoring and evaluating of all SOEs while letting them operate on business and market principles based on good corporate governance and without undue influence.
The financial system of the Gambia comprises mainly of commercial banks, insurance companies, microfinance institutions, and micro-saving schemes. Their main intermediation activity is to mobilize deposits and extend credit to borrowers. Although the banking sector is relatively stable and profitable, its large exposure to the public sector bears considerable risk. Domestic borrowing by the government has led to high prevailing interest rates and crowding out of the private sector.
Over the years, there have been some developments in The Gambia’s financial system such as the modernization of the payments system, the introduction of electronic means of payments, and increased competition. However, the lack of capital market in The Gambia leaves a huge vacuum in its financial sector which means that the financial instruments that are needed for investments with long gestation periods are scarcely available. A capital market will be instrumental for the pooling of financial resources needed to transform the country from a developing country to a middle-income country status. Deep, liquid capital markets are fundamental to economic growth because they help channel the domestic savings of a nation to their most productive uses, and in so doing enable the private sector to invest, produce, and create jobs
Guided by the foregoing, the MOFEA had set up a National Taskforce for the establishment of a capital market in The Gambia. The taskforce is comprised of MOFEA, Central Bank of the Gambia, GCCI and other government ministries, and private sector representatives.