The International Monetary Fund (IMF) and the World Bank (WB) diligently carried out a ‘Debt Sustainability Analyses (DSA)’ that has cautioned the trend in which the economy and financial system of the country is faring.
The DSA is a formal framework developed by the IMF for conducting public and external debt sustainability analysis as a tool to better detect, prevent, and resolve potential crises. It looks at the evolutions of government debt over the next twenty years and it is based on long-ranged projections of government borrowing needs.
According to David Dunn, Chief of IMF mission to The Gambia, “The Gambia is classified as being high risk of debt distress at the moment based on a debt sustainability analyses by the IMF and WB.”
The IMF chief was backing a PowerPoint presentation made by his institution at the final validation of the Programme for Accelerated Growth and Employment (PAGE) held at the Kairaba Beach Hotel conference room.
PAGE is The Gambia’s next blueprint that is expected to accelerate growth and employment to sustain the country’s recent socio-economic achievements.
Whilst the DSA identifies various hypothetical shocks in order to ascertain vulnerabilities, it also highlights that the present debt threshold has been contravened by the country – sending a serious alarming risk of debt issue.
“Its [Gambia’s] debt sustainability indicators breach a threshold that signals risk of debt distress – [the] country may face difficulty in servicing its debt.”
He pointed that the year 2006 was better in terms of stability than this year and preceding years. The status quo of the country as regards financial stability is vinegary, saying, “There is revenue crisis in The Gambia.”
Speaking on the scope of domestic borrowing and whether it is an option for the country; Mr Dunn warns that domestic borrowing is risky and expensive, because the interest rate attached to it is high. He said this year alone there is a tendency that interest rate alone would consume nearly 23% of government’s revenue.
Whilst he said interest rate has been rising since 2009, he observed that short term T-bills pose a larger risk and that majority are less than a year.
However, in order to move on the right track, IMF warns that the country should reduce the cost of domestic debt by gradually reducing government borrowing. It went on to advise that government should “Test the market for long-term securities. Eventually, domestic borrowing could be a viable option.”
“There is revenue crisis in The Gambia. Tax revenue (relative to GDP) has been falling since 2007. The basis is getting narrower and narrower, so tax rates must remain to generate revenue – A vicious circle,” the IMF report highlights.
The report went further to highlight the importance of tax reform for the country, saying “simplification [of taxes], broad base, and low rate” should be taken into consideration.
Mr Dunn puts forthright key recommendations for the year 2012, saying that tax base should be broaden, whilst general sales tax be extended to electricity, and the threshold of income tax be raised.
The tax rate should be kept as low as possible. The simpler the tax, the better authorities are able to execute their duties. “Simplification of taxes would be helpful,” he said.
As a private sector-led economy, the report by IMF and the World Bank did not fail to highlight the importance of the private sector’s participation in easing government’s social reforms burdens. It urges that apposite institutional arrangement should be considered, as the system may help to avoid huge government liabilities. “Proper institutional arrangements are essential to avoid large government liabilities,” Mr Dunn explained, citing the report.
NAWEC must be restructured so that it stands as a financially viable partner. The regulatory body, PURA, should also be strengthened, he observed.
He said that whilst there are “numbers of reforms in the telecommunications sector”, there is still the need to strengthen “competition among service providers”.
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