Approved by: Prepared by the staff of the International Manuela Francisco and Abebe Adugna (IDA), Development Association (IDA) and the and Montfort Mlachila and Geremia Palomba International Monetary Fund (IMF) (IMF) THE GAMBIA: JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS Risk of external debt distress High Overall risk of debt distress High Granularity in the risk rating Sustainable Application of judgment No The Gambia’s overall and external debt distress risk ratings remain high and public debt continues to be deemed sustainable,1 similar to the previous DSA. Under the updated macro framework, the external debt service-to-revenue ratio breaches the threshold, primarily reflecting rising debt service commitments in the medium term. Heightened domestic debt vulnerabilities contribute to the breaches of the PV of overall debt-to-GDP ratio, though risks are mitigated by the projected drop below its benchmark of 55 percent of GDP in 2026, underpinned by fiscal consolidation, reliance on grants and concessional loans, and support from development partners. This path indicates that the public debt outlook remains sustainable. The debt dynamics remain vulnerable to multiple macroeconomic shocks, in particular those to exports. Downside risks are linked to an escalation or spread of global and regional conflicts, with the ensuing global commodity price volatility and disruptions of global supply chains, which together with an abrupt global slowdown could weaken The Gambia’s economic recovery, intensify fiscal pressures, and adversely affect th e debt profile. 1 The Gambia’s Composite Index is estimated at 3.01 and is based on April 2024 WEO update and 2022 WB CPIA that was published in July 2023; the debt carrying capacity remains medium. 1 >>> 1. Compared to the previous DSA in December 2023, the current DSA uses end-2023 data as a starting point. The DSA uses a broader coverage of the public sector, which includes the central government, central bank, and government-contracted debt pertaining to State-Owned Enterprises (SOEs) (Text Table 1).2 SOE debt linked to trade credit from the Islamic Trade Finance Corporation (ITFC) is accounted for in the government debt. This includes short-term external financing to the large SOEs, namely, the National Water and Electric Company (NAWEC) and the Gambia National Petroleum Company (GNPC), through loans contracted directly by these SOEs with a government guarantee. Additionally, the coverage for the contingent liabilities test uses default settings for financial markets (at the minimum of 5 percent of GDP), representing the average cost to the government from a potential financial crisis in a low-income country, and SOE debt (at 2.0 percent of GDP for debt not explicitly guaranteed by the government).3 Exposures to PPPs are set at zero, as PPPs in The Gambia are currently estimated to be marginal as a proportion of GDP. The DSA uses a currency-based definition of external debt. There is no significant difference between a currency-based and residency-based definition of external debt.4 Subsectors of the public sector Check box 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt Public debt coverage and the magnitude of the contingent liability tailored stress test B. Please customize elements of the contingent liability tailored test, as applicable. 1 The country's coverage of public debt The central government, central bank, government-guaranteed debt Default Used for the analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 2.0 4 PPP 35 percent of PPP stock 0.00 PPPs are estimated to be marginal as a proportion of GDP 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 7.0 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. 2 The projects financed by these loans are implemented by SOEs, and the capital assets acquired through these projects, with a few exceptions, are held on the balance sheets of the SOEs. Some of the external loans were on-lent by the Government, with a formal agreement signed with the SOE and the liability recorded on the SOE balance sheet, but for several loans there is no formal on-lending agreement (Source: World Bank. 2022. The Gambia Integrated State-Owned Enterprises Framework (iSOEF) Assessment). 3 The 2020 Consolidated SOE Financial Performance Report prepared in April 2022 by the Directorate for SOE Oversight, MOFEA assessed the total SOE liabilities at 19 percent of GDP for end-2020. Accounting for the on-lent, guaranteed external and domestic debt pertaining to SOEs already covered in the public debt for this DSA, the unguaranteed SOE debt approximates to 2.0 percent of GDP. 4 Locally issued LC-denominated debt held by non-residents and locally issued FX-denominated debt held by residents are insignificant. 2 >>> 2. The Gambia’s total public debt to GDP stood at about 75.7 percent and external debt to GDP at about 49.1 percent as of end-2023; the composition remains broadly unchanged from the 2023 Article IV Consultation (Text Figure 1). The Gambia’s external debt primarily comprises of concessional and semi-concessional loans from multilateral and plurilateral creditors, with creditors from the Middle East forming the single largest creditor sub-group. Around 67 percent of the Gambia’s PPG external debt is owed to multilateral creditors, with bilateral creditors (31 percent) and commercial creditors (2 percent) comprising relatively smaller shares among the creditor categories. While approximately 28 percent of the PPG external debt is owed to the IMF and MDBs, about 72 percent of PPG external debt is owed to a combination of various creditors from the Middle East (Text Table 2). 5 3. Debt service and undisbursed debt projections on existing debt in the latest baseline are similar to projections during the 2023 Article IV Consultation. The overall external debt service between 2024-2030 stands at a cumulative US$691.4 million. Of the total debt service, amortization stands at $591.1 million, with the remaining US$100.3 million in interest charges. Meanwhile, the amount of undisbursed loans stood at US$181.7 million in December 2023. MACROECONOMIC ASSUMPTIONS 4. Economic recovery is firming up and inflation is slowly coming down . Real GDP is estimated to expand by 5.8 percent in 2024, supported by good performance of the agriculture, construction, and tourism sectors. Tourist arrivals continue to recover in 2024H1, averaging 17 percent higher relative to 2023H1. Remittance inflows remained robust, reaching US$330 million in 2024H1 relative to US$322 5 The Gambia has arrears on external debt, of about 0.9 percent of GDP, owed to Libya (US$3.95 million) and Venezuela (US$19.5 million). However, these arrears have materialized due to problems that are not an indication of debt distress. The discussions on debt reconciliation with Libya are ongoing, with the most recent correspondence in October 2023. Regarding the arrears to Venezuela, the Gambian authorities had a virtual meeting in August 2024 to discuss resumption of the negotiations for paying the outstanding debt. 3 >>> million in mid-2023. After peaking at 18.5 percent (y-o-y) in December 2022, headline inflation declined to 10 percent (y-o-y) in September 2024, mainly due to declining global food and energy prices. Nonetheless, it remains well above the central bank’s medium-term target of 5 percent. The 2024H1 fiscal outcomes reflect spending pressures from the Organization of Islamic Cooperation (OIC) Summit and emergency support of NAWEC, despite some strong revenue collection efforts. Consequently, the overall balance and the domestic primary balances, without applying program adjustors, underperformed targets by 0.7 and 0.2 percent of GDP, respectively. The macroeconomic outlook continues to be subject to large uncertainty in light of global and regional conflicts. Such risks include international commodity price volatility, lower tourist arrivals, and weak remittance inflows. 5. The DSA is consistent with the macroeconomic framework outlined in the staff report. The baseline scenario assumes the implementation of sound macroeconomic policies and structural reforms. 4 >>> The key macroeconomic assumptions are as follows (Text Table 3, which also compares the assumptions relative to the previous DSA). • Real GDP growth: Real GDP expanded by 4.8 percent in 2023 and is projected to further expand by 5.8 percent in 2024, supported by the agriculture, services with the continued recovery in tourism as a key driver of growth,6 and construction sectors. In the medium and longer term, growth is projected to converge gradually to a steady state of 5 percent balancing expectations of higher economic activity with the impact of fiscal consolidation. In particular, higher growth prospects are underpinned by higher production and value-added from the agriculture sector7, impacts of ongoing large infrastructure projects (urban and rural road construction, port expansion, energy projects, etc.), sustained public and private construction as well as the effects of robust remittances on private consumption and macroeconomic stabilization,8 recent important governance reforms (new public procurement and SOE acts with all implementing regulations issued, etc.), improvement in the business environment (bolstered by the vast judicial reform agenda, upcoming digitalization of the business registration process etc.), building resilient economy to climate change. 9 The issuance of regulations to facilitate private sector participation in the energy sector and the penetration of renewable energies should help boost energy production. The projected long-term economic growth of 5 percent is in line with economic growth in peer countries. For instance, in neighboring ECOWAS countries, average historical growth during 2004-19 stood at 5.4 percent and future long-term growth for 2023-44 is projected at 5.2 percent. • Inflation: After peaking at 18.5 percent (y-o-y) in September 2023, headline inflation has declined to 10 percent in September 2024, mainly due to deceleration of global food and energy prices. Inflation is 6 Estimates from the World Tourism and Travel Council suggest that tourism directly contributed about 8.5 percent to GDP and 6.5 percent to employment in 2019. When indirect impacts are factored in, its contribution is much larger, 15.5 percent of GDP and 17.1 percent of employment, or 121,000 people employed. Tourism is also a major source of foreign direct investment, having attracted over US$45 million over the period 2017-2022 (World Bank, 2022. Tourism diversification and resilience in the Gambia. Report No: PAD4876, Washington DC, World Bank). 7 The agriculture sector is expected to continue to grow thanks to improved agricultural practices, efficiency of fertilizer distribution scheme, access to better seeds quality, and enhanced framework to tackle aflatoxin in groundnuts, maize and rice. Moreover, The Gambia aims to complete the construction of storage facilities to reduce loss from spoilage and the new Gambia Ground Corporation (GGC) factory to increase capacity. 8 Remittances have been relatively high, exceeding 20 percent of GDP for the last five years on annual average. A study on the impact of remittances on economic growth in The Gambia found a statistically significant positive impact from remittances, mainly through the consumption channel by satisfying households daily needs related to food, water, electricity, education, entertainment, and religious festivals (Ceesay, E.K., Sanneh, T., Jawo, A. Jarju, M., Jassey, O., 2019. Impact of Personal Remittances Received on Economic Growth in the Gambia. Asian Basic and Applied Research Journal, ABAARJ, 1(2): 45- 58, 2019; Article no. ABAARJ.117). Furthermore, a recent study on the Impact of remittances on the exchange rate in The Gambia found that remittance inflows have a positive significant effect on the real effective exchange rate in the lo ng run, highlighting the extent to which remittances affect not only the country's macroeconomic stabilization but also its external competitiveness (Ceesay, H., Limbe, M. 2024. The Impact of Remittances on the Exchange Rate: Empirical Analysis of The Gambia. https://mpra.ub.uni-muenchen.de/121774/). 9 Several reforms are underway to strengthen the country’s resilience to climate shocks, including (i) the disaster risk management regulations and disaster risk financing regulations, which are expected to ensure that climate change-related threats and responses are integrated into public decision-making and planning; (ii) enhancing urban and coastal resilience and sustainability, (iii) institutional reforms linked to adaption and resilience to climate change; and (iv) introduction of provisions under the new Procurement Act for measures such as e-procurement and sustainable procurement to improve the country’s adaptation and resilience to climate shocks. 5 >>> projected to further decline over the medium term and converge to the CBG’s medium-term target of 5 percent. The CBG has maintained its monetary policy rate at 17 percent since the September 2023 Monetary Policy Committee meeting. • Fiscal policy: The overall fiscal balance is expected to gradually improve in the medium term, supported by both revenue and spending measures. In the near term, the fiscal consolidation is supported by, among other measures, efforts to adjust domestic fuel prices to address revenue losses, revenue mobilization, and strict expenditure prioritization. The authorities also expect in 2024 additional revenue from the Africa 50’s Asset Recycling Program. Revenue mobilization measures, currently underway guided by the Domestic Revenue Mobilization Strategy and GRA’s Corporate Strategic Plan for 2025-2029, including streamlining tax exemption, digitalization of tax administration and customs (accelerating the implementation of Asycuda World, a single window platform, an e-tracking of transit trucks, digital tracing system, digital weighbridge), broadening the tax base, improving compliance and increasing some administrative fees to sustain revenue mobilization over the medium term. The authorities are introducing a 5 percent social security contribution, a sugar levy, and a new duty on scrap-metal exports. Furthermore, efforts are underway to collect additional resources, including from privatization and the sale of stolen assets under the Janneh Commission. A reform monitoring committee has been put in place to ensure swift implementation of measures required to trigger support from development partners. On the spending side, the OIC-related large infrastructure projects have been completed; and the budget would be executed based on a strict cash plan that aligns spending with available resources. The authorities are strengthening their public financial management which would strengthen budget processes and accountability, enhance the efficiency of public spending, and reduce governance and corruption vulnerabilities. The investment prioritization and selection tool by the Gambia Strategic Review Board (GSRB) will be expanded to domestically financed and PPP projects to enhance efficiency and contain spending. Furthermore, the authorities intend to overhaul the SOE sector to reduce their dependence on the budget and turn them into income-generating assets and consolidate redundant agencies with relevant ministries. • Financing needs and assumptions: The baseline assumes that the financing mix will be consistent with a prudent borrowing strategy, aimed at gradually increasing the share of domestic debt and only seeking new external financing on concessional or semi-concessional terms. • External financing: Financing needs originate mainly from the large development needs, the impact of global and regional conflicts, and the expiration of the debt deferrals.10 The medium-to long-term external financing will come from multilaterals and official bilateral, which includes the IMF’s new ECF lending (US$100 million during 2024-2026) as well as the World Bank IDA financing, with an average interest rate of 1.3 percent, an average of 5-year grace period, and average maturity of 22 years. There will be no new commercial borrowings. 10 Total debt service relief due to confirmed deferrals from the 2019 negotiations with bilateral creditors amounted to around US$129 million, where most bilateral creditors participated. For more details, please see the Staff Report for the Third ECF review in December 2021. The implication of the expiration of the debt deferral is discussed in paragraph 12 and has also been added under the financing needs. 6 >>> • Domestic borrowing: With regards to the instruments used for domestic debt financing, the DSA assumes that over the next five years, 80 percent of all new debt will be financed via T-bills, 15 percent via 3-year bonds and the remaining via 5-year bonds. This distribution is very similar to the actual issuance pattern seen over the past year (2021-2022). In the medium and long term, the issuance is projected to shift gradually toward longer-term bond maturities and with up to 65 percent of new debt via T-bills. • Current account: In 2023, The Gambia's exports increased to US$720.2 million, up from US$267.4 million in 2022, resulting in an annual growth rate of 169.4 percent. This increase is mainly due to re- exports, which rose to US$285.3 million in 2023 from US$23.4 million in 2022. With the new facilities of the Gambia National Water & Electric Company (NAWEC) starting operations in January 2023, The Gambia began importing electricity from Senegal and re-exporting it to different regions in Senegal and Guinea-Bissau. Total imports in 2023 also increased significantly from 2022, as the increase in the re- exports is mirrored on imports Consequently, the current account deficit in 2023 was 5.4 percent of GDP (or US$126.5 million). In 2024, the current account deficit is projected to increase to 5.8 percent of GDP, reflecting large OIC-related imports. In the longer term, the external imbalance is expected to improve, as tourism strengthens, cross-border exports disruptions dissipate, exports increase in groundnuts, and fiscal balances improve in line with the authorities’ consolidation efforts. In addition, efforts are underway to increase domestic production of certain key imported commodities such as rice, with the support of the African Development Bank to help the country achieve self-sufficiency in rice production. Moreover, the country is implementing a project to support the diversification and climate resilience of the tourism sector and launched the second National Export Strategy (NES) for 2021-2025 to support export potential firms. • FX Reserves: The Gambia’s gross international reserves stood at US$ 474.3 million in 2023 or 4.1 months of prospective imports. Gross reserves have risen markedly from a trough of US$60 million in 2016. This has been driven by amplified disbursement of external financial assistance (including from the IMF), CA improvements, and private inflows of foreign exchange, which have allowed the central bank to rebuild its buffers. 6. The realism of the macroeconomic framework is confirmed based on several metrics (Figures 3 and 4). The projected fiscal adjustment for the next three years is in the top quartile of the distribution of approved IMF-supported programs for LICs since 1990, underpinned by (i) the completion of large infrastructure projects related to the OIC Summit; (ii) revenue mobilization measures; (iii) and non- priority spending restraints; and (iv) development partners’ disbursements. The contribution of government investment to real GDP growth is conservative and remains in the order of the historical magnitudes. Regarding the relation between fiscal adjustment and growth paths, the baseline projection deviates at times from the growth paths under the different fiscal multipliers. However, given the development partners’ projected support and the strong macroeconomic policies (including under the IMF-supported program), 7 >>> the projected rebound in growth seems reasonable. The drivers of projected medium-term debt-creating flows for public debt are comparable to those underlying the historical outturns. 11 2023 2024 2025 2026 2027 2028 2029 15-year average1 Real GDP Growth (percent) Current DSA 4.8 5.8 5.9 5.0 5.0 5.0 5.0 5.0 Previous DSA 5 5.6 6.3 5.8 5.0 5.0 5.0 5.0 5.0 Exports of goods and services growth (percent)2 Current DSA 169.4 3.3 5.8 7.0 7.2 7.9 8.4 7.8 Previous DSA 26.9 22.2 13.6 12.6 12.6 10.1 9.8 14.7 Imports of goods and services growth (percent)2 Current DSA 64.4 3.5 3.9 3.6 3.6 6.8 6.3 6.6 Previous DSA 23.6 14.6 3.5 6.8 6.6 6.8 6.8 6.6 CA deficit (percent of GDP)3 Current DSA 5.4 5.8 5.3 3.4 2.0 2.0 1.6 0.5 Previous DSA 4.4 5.8 3.8 2.8 2.4 2.1 1.9 -7.1 Public investment (percent of GDP) Current DSA 11.2 9.3 9.2 9.8 9.7 9.9 10.0 7.6 Previous DSA 9.5 9.6 8.8 8.4 8.1 7.9 8.2 6.5 Overall fiscal deficit4 Current DSA 3.7 2.7 1.3 0.4 0.4 0.4 0.4 0.4 Previous DSA 2.3 2.7 1.3 1.0 1.0 0.7 1.0 0.6 Sources: The Gambian authorities; and IMF staff estimates and projections. 1 Defined as the simple average of the last 15 years of the projection (2030-44). 2 In current dollar terms, including re-exports. 3 Includes worker's remittances and grants. 4 Includes grants. 5 Previous DSA numbers are taken from the 2023 Article IV Staff Report 7. This DSA uses the CI vintage April 2024 WEO and 2022 CPIA, which assess that The Gambia’s debt carrying capacity remains classified as “medium” (Text Table 4). The classification of the Gambia’s debt carrying capacity is based on a CI score of 3.01, which is higher than the previous DSA. The import coverage of reserves is the most significant contributor to the CI score, followed by the CPIA value, which reflects the quality of institutions and policies. The CI score has been updated with the April 2024 WEO and 2022 CPIA. The relevant thresholds applicable to public and publicly guaranteed external debt are 40 percent for the PV of debt-to-GDP ratio, 180 percent for the PV of debt-to-exports ratio, 15 percent for the debt service-to-exports ratio, and 18 percent for the debt service-to revenue ratio. For the PV of total public debt-to-GDP ratio, the benchmark is 55 percent. 8. Stress tests follow the standardized settings, with none of the individual tailored stress tests applicable for The Gambia. The standardized stress tests use the default settings, with the combined contingent liabilities test assuming a shock of 7.0 percent of GDP (5 percent of GDP for financing sector shock and 2.0 percent of GDP for non-guaranteed SOEs debt). 11 The residuals in the forecast years for the external and public DSAs include the contribution of real exchange rate movements, factors affecting debt changes but not captured by debt-creating flows (i.e., project grants), as well as adjustment for coverage between fiscal accounts and DSAs. 8 >>> Country Gambia, The Country Code 648 Debt Carrying Capacity Medium Classification based on Classification based on Classification based on the Final current vintage the previous vintage two previous vintages Medium Medium Medium Medium 3.01 2.99 2.93 Note: Until the October 2018 WEO vintage is released, the previous vintage classification and corresponding score are based solely on the CPIA per the previous framework. APPLICABLE APPLICABLE EXTERNAL debt burden thresholds TOTAL public debt benchmark PV of total public debt in PV of debt in % of percent of GDP 55 Exports 180 GDP 40 Debt service in % of Exports 15 Revenue 18 9. Under the baseline scenario, one of the four external debt indicators breaches the threshold within the forecast horizon (Figure 1). The PV of external debt-to-GDP, the PV of external debt-to- exports, and the debt-service-to-exports ratio remain below the threshold level of 40, 180, and 15 percent, respectively over the projection horizon which is different from the previous DSA (the 2023 Article IV). This is mainly due to the projected improvement in GDP and exports. 12 The external debt service-to-revenue ratio breaches the threshold level of 18 percent between 2025-32, before falling below the threshold for the remainder of the forecast horizon as the increase in debt services outweigh the expected increase in revenues. 10. Under the stress test scenarios, external debt indicators are sensitive to multiple shocks, particularly exports. With the combined bound test, the PV of debt-to-GDP breaches the threshold level of 40 percent in 2025 and falls below the threshold in 2030. With the bound test of exports, the PV of debt- to-exports breaches the threshold level of 180 percent in 2025 and remains above the threshold over the projection horizon.13 With the bound test of exports, the debt-service-to-exports ratio breaches the threshold 12 The increase in exports for 2023, as discussed above, has affected export projections beyond 2023 and it also raises the estimated standard deviation of The Gambia's exports. The standard deviation of the annual export growth rate during 2014– 2023 is 0.63, but it falls to 0.41 when the step increase in re-exports in 2023 is excluded. 13 The threshold for the PV external debt-to-export ratio is breached starting 2025 and remains above the threshold over the projection horizon while in the previous DSA for the 2023 Staff Report, this ratio falls below the threshold by 2029. This mechanical breach of the threshold is, however, driven by the large export data revision for 2023, resulting larger exports 9 >>> level of 15 percent in 2025 and remains above the threshold for the remainder of the forecast. With the combined bound test, the debt-service-to-revenue ratio breaches the threshold level of 18 percent in 2025 and remains above the threshold for the remainder of the forecast horizon. 11. Under the baseline scenario, the PV of total public debt-to-GDP ratio is temporarily in breach of the benchmark in the near term. • Under the baseline scenario, the PV of total public debt-to-GDP breaches the benchmark level of 55 percent in 2024 but falls within the benchmark level in 2026 and continues to decline thereafter throughout the forecast horizon. Two other indicators of public debt, namely the PV of debt-to-revenue and debt service-to-revenue are on a declining trend for the entire duration of the forecast horizon in the baseline scenario. • Under the stress scenario, the PV of total public debt-to-GDP ratio is extremely sensitive to export shocks,14 followed by GDP shocks, and other flow shocks. With the bound test of exports, the PV of total public debt-to-GDP ratio remains above the threshold of 55 percent until 2031. With the bound test of other flows, the ratio remains above the benchmark until 2029 and under the real GDP growth bound tests, the ratio remains above the threshold until 2030. 12. Domestic public debt is projected to decline significantly. Under the baseline scenario, the fall in domestic debt comes amid an ambitious fiscal consolidation in the baseline under the program, such that domestic public debt-to-GDP and its related service are expected to fall, approaching the median of LICs over the next decade (Text Figure 2). 13. While the banking sector is highly exposed to public sector indebtedness, 15 it remains capable of financing the government, as it continues to be stable with healthy financial soundness indicators. The sector is adequately capitalized and liquid. Although credit concentration risks remain, the stress test results conducted by the central bank in June 2024 indicated that overall market risk is low, and the banking industry remains resilient. 16 Nonetheless, the large exposure of banks to public sector (claims shocks in the stress test. The data revision, mostly due to re-export increases described above, artificially raises the estimated standard deviation of The Gambia's exports. 14 This is also driven by the significant data revision of total exports for 2023, inducing larger-magnitude export shocks in the stress test. 15 As of March 2024, outstanding public domestic debt reached US$614.42 million (35.4 percent of total outstanding public debt), which was held in T-bonds (51 percent), T-bills (45.9 percent), and SAS bills or Islamic bills (2.9 percent). T-bonds include 3-year securities with 44 percent of the total at an average interest rate of 14.30 percent, ahead of 30-year securities with 38 percent of the total at an interest rate of 7 percent, 5-year securities with a total of 13 percent at an average interest rate of 8.7percent, 2-year securities bonds with a total of 3.5 percent of the total at an average interest rate of 18.36 percent and 7-year securities with 1 percent of the total at an interest rate of 12 percent. 16 The banking system’s asset base expanded by 18.1 percent in June 2024. Overall, the system remains adequately capitalized and liquid. The aggregate risk-weighted capital adequacy ratio stood at 24.1 percent in June 2024, and all banks were above the minimum regulatory requirement of 10 percent. The liquidity ratio was 77.2 percent in June 2024, above the prudential requirement of 30 percent. Banks’ non -performing loans increased to 10.2 percent in June, from 3.3 percent in December 2023, primarily due to a single large borrower default, an indication of high concentration risk. 10 >>> on government have averaged 60 percent of banks’ domestic assets over the last 10 years) and the heavy dependence of their income on government securities could have an impact on the stability of the banking system, as highlighted in The Gambia Financial Sector Assessment Program of June 2022. Bank profitability could decline in case of a rapid fall in rates on government securities, as they did in 2020 when negative real interest rates on government securities reduced earnings from the bulk of banks’ assets. This adds to other vulnerabilities in the banking sector. 17 Domestic Debt Services to Revenues Incl. Grants Domestic Debt to GDP Ratio 140 Net Domestic Debt Issuance 1/ 40 1.0 4.0 35 120 0.5 2.0 30 0.0 100 0.0 -2.0 25 -0.5 80 -4.0 20 -1.0 60 -6.0 15 -1.5 -8.0 40 10 -2.0 -10.0 20 5 -2.5 -12.0 0 0 -3.0 -14.0 2019 2021 2023 2025 2027 2029 2031 2033 2019 2021 2023 2025 2027 2029 2031 2033 2019 2021 2023 2025 2027 2029 2031 2033 Historical realizations As a ratio to GDP (LHS) Median of average projected values over the first five years of the forecast period As a ratio to domestic debt stock in prev. year (RHS) across countries using the LIC DSF with non-zero domestic debt, end-2023 Borrowing Assumptions (average over 10-year projection) Value Shares in new domestic debt issuance Medium and long-term 22% Short-term 78% Borrowing terms Domestic MLT debt Avg. real interest rate on new borrowing 6.2% Avg. maturity (incl. grace period) 3 Avg. grace period 2 Domestic short-term debt Avg. real interest rate 2.0% Sources: Country authorities; and staff estimates and projections. 1/ Net domestic debt issuance is an estimate based on the calculated public gross financing need net of gross external financing, drawdown of assets, other adjustments and domestic debt amortization. It excludes short-term debt that was issued and matured within the calendar year. 14. The Gambia’s external debt has a high risk of distress but is sustainable. All external debt indicators are on a declining trend over the medium to long term under the policy settings in the ECF- support program. However, since external debt service-to-revenue ratio breaches its threshold over the 17 Such as (i) the systemic risk posed by the high concentration of deposits in funding portfolios; (ii) liquidity risks, as government securities are not particularly liquid due to the lack of a secondary market; (iii) longstanding structural issues that hinder bank financial intermediation, including information asymmetries, weak contract enforcement, and foreclosure issues. 11 >>> medium term under the baseline,18 The Gambia is assessed to be at high risk of external debt distress. These breaches reflect the expiration of the debt-service deferrals negotiated with creditors, leading to higher debt-service payments coming due starting in 2025 and tighter liquidity. The resumption of external debt servicing obligations is expected to absorb significant resources from much-needed social and infrastructure investments expenditure. Also, the sharp exchange rate depreciation has increased risks. This highlights The Gambia’s limited space for additional borrowing in the near term and emphasizes the need to continue to build ample buffers to face the increased debt-service burden that lies ahead. 15. The liquidity risk can be mitigated by some factors. This DSA underscores the importance of continued fiscal discipline and structural reforms, and prudent financing choices. To address higher future debt service, the authorities are implementing measures that are expected to bolster further domestic revenue mobilization in the near and medium term, in line with their Domestic Revenue Mobilization Strategy and GRA’s Corporate Strategic Plan for 2025-2029. In addition, they are overhauling the SOE sector to reduce fiscal burdens and generate revenue while reducing external financing needs. The authorities are also making efforts to further develop the tourism sector and diversify exports, which would generate more forex inflows. Moreover, the policies that aim at supporting foreign exchange reserves will also help address liquidity constraints. Furthermore, to mitigate the liquidity risk related to domestic borrowing, the authorities plan to bring more private investors (including commercial banks, insurance companies, social security fund and microfinance institutions) to invest in government securities, with an investors’ relationship forum scheduled for end-2024. 16. The Gambia’s overall public debt position is also assessed at high risk of debt distress but remains sustainable, based on the public DSA and the external DSA.19 The PV of total public debt-to- GDP continues to follow a firmly downward sloping path, remains within the benchmark from 2026 onwards, continuing to decline thereafter. Since the indicator falls below the benchmark within three years of the projection horizon and remains under benchmark thereafter, the overall debt position is deemed sustainable. Public debt is deemed sustainable due to a set of factors, including a continued downward sloping path underpinned by fiscal consolidation, reliance on grants and concessional loans, and support from development partners. The authorities are addressing risks related to debt service by implementing a debt management policy that reduces roll-over risks, including by lengthening maturity of domestic debt instruments. They have started implementing this measure as part of their medium-term debt strategy (MTDS). Currently, the government domestic borrowing through bonds is developing which aims to mitigate the government's exposure to refinancing risks. 17. This assessment, however, is subject to downside risks. Risks stem from an escalation or spread of global and regional conflicts that could adversely impact global commodity prices, tourist arrivals, and remittance inflows, worsening The Gambia’s external position. This would adversely affect the debt profile. Risks related to climate change are also important, as evidenced by the major flooding in July 2022, for example. In a downside scenario, growth could fall by about 1 percentage points below the baseline in 18 In the previous DSA for the 2023 Staff Report, the other two external indicators were breached: the PV of external debt-to- exports, and external debt service-to-exports. This mechanical improvement is driven by the large export data revision for 2023 as indicated in footnote 12. 19 The overall risk of public debt distress is regarded as high if any of the four external debt burden indicators or the total public debt burden indicator breach their corresponding thresholds/benchmark under the baseline. 12 >>> the near term. The fiscal deficit would widen due to higher spending and lower revenues, increasing financing needs and pushing PV of total public debt to fall below the benchmark level of 55 percent two years later than under the baseline. Moreover, foreign exchange reserves would come under pressure, creating challenges to external debt servicing capacity. Nonetheless, if domestic revenue mobilization efforts are strengthened and successful, they could help mitigate these risks to debt vulnerabilities. 18. Factors that could affect future assessments include data revisions, availability of concessional financing for infrastructure projects and the potential decline in donor support. As highlighted in previous ECF staff reports, further efforts are needed to bolster data collection and reconciliation, both for debt as well as external sector statistics. Uncertainty over data quality and delivery could hamper future assessments in a timely and comprehensive fashion. Strengthening inter-agency coordination and data sharing on public debt and grants data would be important to address data collection and reconciliation issues. Meanwhile, there are indications that the authorities intend to implement a new wave of some infrastructure projects, including rural roads. Financing plans with respect to these projects should remain within the ceilings of the external borrowing plan. Any deviation from the borrowing plan could pose risks to the debt outlook. Additionally, any significant change in future disbursements of donor grants towards budget support or key infrastructure project financing will also have implications for The Gambia’s debt profile. The World Bank will continue to support debt management, SOEs, and public investment management under the planned Public Administration Modernization Project (PAMP, P176924) with reform actions complemented through the pipeline Development Policy Financing operations and SDFP.20 19. The authorities agreed with staff’s views on the DSA. They concurred with the urgency of ensuring a sustained and credible fiscal adjustment over the medium term. They emphasized that they have taken important steps in this direction, included through the submission of a 2025 budget that is in line with program objectives. They are committed to continuing to prioritize grant resources, seeking only highly concessional financing, and ratifying only loans within the agreed annual ceiling even after the current ECF-supported program ends to safeguard debt sustainability. In relation to longstanding external arrears, progress is being made in discussions with Libyan authorities to reconcile the debt amount. Simultaneously, 20 As part of IDA’s Sustainable Development Finance Policy (SDFP) Policy Performance Actions (PPAs) for FY22, The Gambia successfully approved of a three-year public investment program (PIP) for selected priority sectors (i.e., health, education, agriculture, infrastructure, energy, and environment) to rationalize public investment and anchor debt sustainability and ensured that new borrowing remained within the ceilings on of the external borrowing plan. The Gambia has also successfully implemented FY23 PPAs focusing on (i) improving debt transparency by having the annual public debt bulletin for 2022, including a table on government guarantees extended to all SOEs, published, (ii) improving fiscal and debt sustainability by preparing and publishing the first Fiscal Risk Statement (FRS), and (iii) enhancing debt sustainability by ensuring that any new external borrowing remains concessional. Ongoing FY24 PPAs focus on (i) improving debt transparency by publishing a report on outstanding arrears between Government and SOEs and among SOEs and issuing a circular institutionalizing the publication of arrears as part of the annual debt issued, (ii) reducing fiscal risks by adopting through a circular or similar regulatory instrument a credit risk assessment score card for the provision of public guarantees and on lending to SOEs, and (iii) improving debt sustainability by ensuring that new external borrowing remains concessional. 13 >>> The Gambian authorities are engaging with Venezuelan authorities to resume repayments of existing debt arrears. The authorities welcome IMF TA to enhance the quality of public debt and external sector statistics. 14 >>> 1400 PV of Debt-to-Exports Ratio PV of Debt-to-GDP Ratio 80 1200 70 60 1000 50 800 40 600 30 400 20 200 10 Most extreme shock is Exports Most extreme shock is Exports 0 0 2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034 Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio 120 45 40 100 35 80 30 25 60 20 40 15 10 20 5 Most extreme shock is Exports Most extreme shock is Exports 0 0 2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034 Baseline Historical scenario Most extreme shock 1/ Threshold PPG debt service-to-exports-remittance Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs No Avg. nominal interest rate on new borrowing in USD 1.4% 1.4% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% 2/ Commodity Prices n.a. n.a. Avg. maturity (incl. grace period) 24 24 Market Financing n.a. n.a. Avg. grace period 3 3 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests are interactions of the default settings for the stress tests. assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal "n.a." indicates that the stress test does not apply. debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 15 >>> PV of Debt-to-GDP Ratio 90 80 70 60 50 40 30 Most extreme shock is Exports 20 10 0 2024 2026 2028 2030 2032 2034 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 400 120 350 100 300 80 250 200 60 150 40 100 20 Most extreme shock is Growth 50 Most extreme shock is Exports 0 0 2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 17% 17% Domestic medium and long-term 19% 19% Domestic short-term 65% 65% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 1.4% 1.4% Avg. maturity (incl. grace period) 24 24 Avg. grace period 3 3 Domestic MLT debt Avg. real interest rate on new borrowing 6.2% 6.2% Avg. maturity (incl. grace period) 3 3 Avg. grace period 2 2 Domestic short-term debt Avg. real interest rate 2.0% 2.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 16 >>> External Debt Gross Nominal PPG External Debt Debt-Creating Flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 30 Residual 80 60 Previous DSA proj. 20 50 70 DSA-2018 Interquartile Price and 40 range (25-75) 60 exchange 10 rate 30 50 Real GDP 0 20 growth Change in 40 10 PPG debt 3/ -10 Nominal 0 30 interest rate -20 -10 20 Median Current -20 account + -30 10 FDI 5-year 5-year -30 historical projected Change in Contribution 0 change change -40 Distribution across LICs 2/ PPG debt 3/ of 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 -50 unexpected Public Debt Gross Nominal Public Debt Debt-Creating Flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) 20 Current DSA Residual Previous DSA proj. 25 Interquartile DSA-2018 100 10 range (25- Other debt 20 75) 90 creating flows 80 15 Real Exchange 0 70 rate depreciation 10 60 Change in 50 Real GDP growth -10 debt 5 40 30 Real interest rate 0 -20 20 -5 10 Primary deficit Median -30 0 -10 Contribution of 5-year 5-year Distribution across LICs 2/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Change in debt historical projected unexpected change change -15 changes 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 17 >>> 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 8 15 14 Distribution 1/ 7 12 In percentage points of GDP Projected 3-yr adjustment 6 12 3-year PB adjustment greater 9 than 2.5 percentage points of 5 10 In percent GDP in approx. top quartile 4 6 8 3 6 3 2 4 0 1 2 0 -3 2018 2019 2020 2021 2022 2023 2024 2025 0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.5 0.0 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 More Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show approved since 1990. The size of 3-year adjustment from program inception is found on possible real GDP growth paths under different fiscal multipliers (left-hand side scale). the horizontal axis; the percent of sample is found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP Growth (% of GDP) (percent, 5-year average) 18 6 16 14 5 12 4 10 3 8 6 2 4 1 2 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Historical (2018 - 2022) Projected (Prev. DSA) (2023 - Projected (Curr. DSA) (2023 - 2027) 2027) Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Current DSA Contribution of government capital 18 >>> Actual Projections Average 9/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections External debt (nominal) 1/ 49.6 53.0 50.0 48.4 43.4 40.9 36.7 33.5 30.7 20.5 10.2 46.6 32.3 Definition of external/domestic debt Currency-based of which: public and publicly guaranteed (PPG) 48.2 51.7 49.1 47.8 43.0 40.6 36.5 33.4 30.6 20.5 10.2 45.1 32.1 Is there a material difference between the two No criteria? Change in external debt -0.7 3.4 -3.0 -1.6 -4.9 -2.6 -4.2 -3.2 -2.9 -1.8 -0.8 Identified net debt-creating flows -6.4 -2.5 -3.7 -1.0 -1.2 -2.5 -3.6 -3.4 -3.5 -3.3 -3.7 -0.9 -3.0 Non-interest current account deficit 3.7 3.7 4.9 5.1 4.8 2.7 1.3 1.4 1.0 0.4 -0.9 6.1 1.7 Deficit in balance of goods and services 28.6 26.3 27.5 25.8 24.1 22.7 21.0 20.6 19.6 16.2 10.9 21.4 20.0 Exports 6.9 12.5 30.7 28.8 28.0 28.2 28.2 28.4 28.4 27.2 25.3 Imports 35.5 38.8 58.2 54.6 52.1 50.9 49.2 49.0 48.0 43.4 36.2 Debt Accumulation 20.0 70 Net current transfers (negative = inflow) -26.9 -23.6 -23.3 -21.2 -19.8 -20.3 -19.9 -19.5 -18.9 -15.9 -11.9 -16.5 -18.6 of which: official -0.5 -1.9 -2.8 -1.8 -1.2 -1.6 -1.3 -1.2 -1.1 -0.5 -0.2 60 Other current account flows (negative = net inflow) 2.0 0.9 0.7 0.4 0.5 0.3 0.2 0.2 0.3 0.1 0.1 1.3 0.3 15.0 Net FDI (negative = inflow) -4.9 -4.7 -4.4 -4.1 -3.9 -3.8 -3.7 -3.7 -3.6 -3.1 -2.5 -5.0 -3.6 50 Endogenous debt dynamics 2/ -5.3 -1.5 -4.2 -1.9 -2.1 -1.4 -1.2 -1.1 -1.0 -0.7 -0.4 Contribution from nominal interest rate 0.5 0.6 0.5 0.7 0.6 0.7 0.7 0.6 0.5 0.4 0.1 10.0 40 Contribution from real GDP growth -2.3 -2.6 -2.3 -2.6 -2.6 -2.1 -1.9 -1.7 -1.5 -1.0 -0.5 Contribution from price and exchange rate changes -3.4 0.5 -2.4 … … … … … … … … 30 Residual 3/ 5.7 6.0 0.7 -0.6 -3.7 -0.1 -0.6 0.2 0.7 1.5 2.9 2.2 0.3 5.0 of which: exceptional financing 4/ -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 0.0 Sustainability indicators 10 PV of PPG external debt-to-GDP ratio ... ... 37.4 36.0 33.8 31.5 28.4 25.7 23.5 14.7 6.9 PV of PPG external debt-to-exports ratio ... ... 121.9 125.1 120.7 111.7 100.8 90.3 82.7 54.2 27.2 -5.0 0 PPG debt service-to-exports ratio 51.9 39.3 9.9 8.2 10.6 13.1 11.9 11.5 10.7 7.9 3.2 2024 2026 2028 2030 2032 2034 PPG debt service-to-revenue ratio 25.2 41.1 25.0 17.9 20.2 25.6 23.5 22.8 20.8 16.3 6.1 Gross external financing need (Million of U.S. dollars) 50.5 83.6 110.7 106.4 123.0 89.5 38.4 40.0 23.5 -25.9 -323.4 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 5.3 5.5 4.8 5.8 5.9 5.0 5.0 5.0 5.0 5.0 5.0 3.9 5.2 GDP deflator in US dollar terms (change in percent) 7.4 -1.0 4.8 4.2 2.7 1.0 2.0 2.0 3.4 3.5 3.5 1.7 3.0 Effective interest rate (percent) 5/ 1.1 1.2 1.1 1.6 1.3 1.6 1.9 1.8 1.7 1.8 1.3 1.2 1.7 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) -9.1 89.0 169.4 3.3 5.8 7.0 7.2 7.9 8.4 7.5 8.2 23.1 7.2 of which: Private Growth of imports of G&S (US dollar terms, in percent) 7.9 14.2 64.4 3.5 3.9 3.6 3.6 6.8 6.3 6.6 6.8 15.1 5.5 60 Grant element of new public sector borrowing (in percent) ... ... ... 36.1 34.9 35.3 38.5 38.7 35.8 32.9 32.9 ... 35.1 Government revenues (excluding grants, in percent of GDP) 14.2 12.0 12.2 13.2 14.7 14.5 14.3 14.4 14.6 13.3 13.4 12.8 13.9 50 Aid flows (in Million of US dollars) 6/ 51.3 119.7 186.6 237.1 243.7 255.5 239.7 244.2 293.9 307.1 370.6 Grant-equivalent financing (in percent of GDP) 7/ ... ... ... 8.5 9.0 9.0 7.9 7.6 7.4 5.1 2.7 ... 7.2 Grant-equivalent financing (in percent of external financing) 7/ ... ... ... 75.9 81.8 83.5 89.4 87.7 81.4 81.3 84.2 40 ... 82.1 Nominal GDP (Million of US dollars) 2,045 2,135 2,345 2,587 2,814 2,986 3,198 3,426 3,719 5,660 12,975 Nominal dollar GDP growth 13.0 4.4 9.8 10.3 8.8 6.1 7.1 7.1 8.5 8.6 8.6 5.7 8.3 30 Memorandum items: 20 PV of external debt 8/ ... ... 38.3 36.6 34.2 31.8 28.6 25.8 23.6 14.8 6.9 In percent of exports ... ... 124.8 127.2 122.2 112.7 101.5 90.8 83.1 54.4 27.5 10 Total external debt service-to-exports ratio 51.9 39.3 13.7 11.0 12.6 14.5 12.9 12.2 11.1 8.0 3.2 PV of PPG external debt (in Million of US dollars) 878.1 930.7 949.9 940.1 909.5 878.9 873.3 834.6 892.6 0 (PVt-PVt-1)/GDPt-1 (in percent) 2.2 0.7 -0.3 -1.0 -1.0 -0.2 -0.3 0.0 2024 2026 2028 2030 2032 2034 Non-interest current account deficit that stabilizes debt ratio 4.4 0.2 7.9 6.7 9.7 5.3 5.5 4.5 3.9 2.2 -0.1 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Includes relief under CCRT. The relatively large residuals can be partly attributed to the debt data reconciliation as mentioned in the 3rd ECF review in December 2021. 5/ Current-year interest payments divided by previous period debt stock. 6/ Defined as grants, concessional loans, and debt relief. 7/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 8/ Assumes that PV of private sector debt is equivalent to its face value. 9/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 19 >>> Actual Projections Average 7/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections Public sector debt 1/ 83.1 83.9 75.7 71.8 65.6 62.3 58.1 54.2 48.9 37.5 15.8 80.2 51.8 of which: external debt 48.2 51.7 49.1 47.8 43.0 40.6 36.5 33.4 30.6 20.5 10.2 45.1 32.1 Definition of external/domestic debt Currency-based of which: local-currency denominated Change in public sector debt -2.8 0.7 -8.1 -3.9 -6.3 -3.3 -4.2 -3.9 -5.3 -1.6 -1.8 Is there a material difference Identified debt-creating flows -4.5 0.9 -9.1 -4.1 -3.6 -3.5 -3.3 -3.4 -3.9 -1.0 -1.6 -1.6 -2.6 No between the two criteria? Primary deficit 1.8 2.8 1.6 -0.1 -1.6 -2.2 -1.8 -1.4 -1.2 -0.3 -1.0 1.1 -0.9 Revenue and grants 16.7 17.6 20.1 20.2 22.7 22.5 21.7 21.3 21.0 17.8 15.8 17.5 20.3 of which: grants 2.5 5.6 8.0 7.0 7.9 8.1 7.4 6.9 6.5 4.5 2.5 Public sector debt 1/ Primary (noninterest) expenditure 18.5 20.4 21.7 20.1 21.0 20.3 19.9 19.9 19.8 17.5 14.9 18.6 19.3 Automatic debt dynamics -6.3 -1.9 -10.1 -4.7 -3.5 -1.1 -1.1 -1.7 -1.7 -1.2 -0.6 of which: local-currency denominated Contribution from interest rate/growth differential -4.3 -5.3 -6.8 -4.7 -3.5 -1.1 -1.1 -1.7 -1.7 -1.2 -0.6 of which: foreign-currency denominated of which: contribution from average real interest rate 0.0 -1.0 -2.9 -0.5 0.5 2.0 1.9 1.1 0.9 0.6 0.2 of which: contribution from real GDP growth -4.3 -4.3 -3.8 -4.2 -4.0 -3.1 -3.0 -2.8 -2.6 -1.9 -0.8 80 Contribution from real exchange rate depreciation -1.9 3.4 -3.3 ... ... ... ... ... ... ... ... 70 Other identified debt-creating flows 0.0 0.0 -0.6 0.6 1.5 -0.1 -0.4 -0.3 -0.9 0.6 -0.1 -0.1 0.3 60 Privatization receipts (negative) 0.0 0.0 -0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Debt relief (HIPC and other) 2/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.6 1.5 -0.1 -0.4 -0.3 -0.9 0.6 -0.1 20 Residual 1.7 -0.2 1.0 0.2 -2.6 0.2 -1.0 -0.5 -1.4 -0.7 -0.2 3.4 -0.9 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 3/ ... ... 65.1 61.5 56.5 53.6 50.2 46.8 41.8 31.9 12.5 2024 2026 2028 2030 2032 2034 PV of public debt-to-revenue and grants ratio … … 323.8 304.7 249.2 238.1 231.4 219.2 199.1 179.0 79.2 Debt service-to-revenue and grants ratio 4/ 147.6 123.5 95.0 88.0 74.2 84.9 82.6 79.1 77.0 71.3 28.6 Gross financing need 5/ 26.5 24.6 20.1 18.3 16.7 16.8 15.7 15.1 14.0 13.0 3.5 of which: held by residents Key macroeconomic and fiscal assumptions of which: held by non-residents 1 Real GDP growth (in percent) 5.3 5.5 4.8 5.8 5.9 5.0 5.0 5.0 5.0 5.0 5.0 3.9 5.2 1 Average nominal interest rate on external debt (in percent) 1.1 1.3 1.2 1.6 1.3 1.6 2.0 1.9 1.7 1.8 1.3 1.2 1.7 1 Average real interest rate on domestic debt (in percent) -0.2 -3.2 -8.4 -0.8 3.7 9.9 8.9 5.4 4.7 4.0 4.9 1.9 4.7 1 Real exchange rate depreciation (in percent, + indicates depreciation) -4.1 7.4 -6.8 … ... ... ... ... ... ... ... 0.2 ... 1 1 n.a. Inflation rate (GDP deflator, in percent) 7.4 8.8 15.6 11.7 7.7 3.5 4.0 4.6 4.8 4.8 4.8 7.4 5.5 0 Growth of real primary spending (deflated by GDP deflator, in percent) -12.2 16.6 11.6 -2.1 10.6 1.5 2.8 5.0 4.6 2.8 3.7 9.7 3.1 0 Primary deficit that stabilizes the debt-to-GDP ratio 6/ 4.5 2.1 9.7 3.8 4.6 1.0 2.4 2.5 4.1 1.3 0.8 5.5 2.5 0 0 0 Sources: Country authorities; and staff estimates and projections. 2024 2026 2028 2030 2032 2034 1/ Coverage of debt: The central government, central bank, government-guaranteed debt. Definition of external debt is Currency-based. 2/ Includes relief under CCRT. 3/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 5/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 6/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 7/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 20 >>> Projections 1/ 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 PV of debt-to GDP ratio Baseline 36.0 33.8 31.5 28.4 25.7 23.5 21.5 19.6 17.9 16.3 14.7 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 36.0 35.0 34.2 33.9 33.6 34.3 35.5 36.3 36.8 37.4 37.7 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 36.0 36.3 36.0 32.5 29.3 26.8 24.6 22.4 20.4 18.6 16.9 B2. Primary balance 36.0 34.2 32.7 30.1 27.7 25.8 24.0 22.2 20.5 19.0 17.4 B3. Exports 36.0 51.2 69.9 65.4 61.2 56.7 51.4 46.6 42.0 38.0 34.1 B4. Other flows 3/ 36.0 41.6 47.4 43.9 40.7 37.5 34.1 31.0 28.0 25.4 22.8 B5. One-time 30 percent nominal depreciation 36.0 42.4 34.4 30.7 27.3 24.8 22.8 20.8 19.0 17.4 15.8 B6. Combination of B1-B5 36.0 49.4 52.4 48.6 45.0 41.3 37.5 34.0 30.8 27.9 25.1 C. Tailored Tests C1. Combined contingent liabilities 4/ 36.0 34.5 32.7 30.0 27.5 25.5 23.7 21.9 20.3 18.8 17.3 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 125.1 120.7 111.7 100.8 90.3 82.7 75.6 69.8 64.2 59.2 54.2 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 125.1 125.1 121.5 120.0 118.2 120.9 124.6 129.1 132.5 135.8 138.5 0 125.1 120.7 111.7 100.8 90.3 82.7 75.6 69.8 64.2 59.2 54.2 B. Bound Tests B1. Real GDP growth 125.1 120.7 111.7 100.8 90.3 82.7 75.6 69.8 64.2 59.2 54.2 B2. Primary balance 125.1 122.3 116.0 106.7 97.5 91.0 84.4 79.1 73.9 69.0 64.1 B3. Exports 125.1 398.1 1247.3 1165.1 1083.2 1004.3 907.4 832.0 760.1 694.1 630.4 B4. Other flows 3/ 125.1 148.9 168.1 155.6 143.3 132.3 119.8 110.1 100.7 92.2 83.9 B5. One-time 30 percent nominal depreciation 125.1 120.7 97.0 86.5 76.5 69.4 63.7 59.0 54.4 50.3 46.2 B6. Combination of B1-B5 125.1 230.6 166.7 312.2 287.4 263.7 238.9 219.5 200.8 183.8 167.2 C. Tailored Tests C1. Combined contingent liabilities 4/ 125.1 123.5 116.1 106.2 96.7 89.9 83.3 78.0 72.9 68.2 63.4 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 8.2 10.6 13.1 11.9 11.5 10.7 10.1 9.4 9.0 8.2 7.9 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 8.2 11.0 13.6 12.6 12.6 12.1 12.4 12.6 13.0 12.9 13.5 0 8.2 10.6 13.1 11.9 11.5 10.7 10.1 9.4 9.0 8.2 7.9 B. Bound Tests B1. Real GDP growth 8.2 10.6 13.1 11.9 11.5 10.7 10.1 9.4 9.0 8.2 7.9 B2. Primary balance 8.2 10.6 13.2 12.0 11.7 10.9 10.5 9.9 9.5 8.8 8.6 B3. Exports 8.2 26.5 84.5 83.6 80.6 87.6 100.0 93.3 88.2 81.0 77.5 B4. Other flows 3/ 8.2 10.6 13.7 13.0 12.6 13.2 13.9 13.0 12.3 11.3 10.8 B5. One-time 30 percent nominal depreciation 8.2 10.6 13.1 11.6 11.3 10.4 9.1 8.5 8.1 7.4 7.2 B6. Combination of B1-B5 8.2 15.2 28.2 26.3 25.4 28.0 28.0 26.1 24.7 22.6 21.7 C. Tailored Tests C1. Combined contingent liabilities 4/ 8.2 10.6 13.2 12.0 11.7 10.8 10.3 9.6 9.1 8.3 8.1 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 17.9 20.2 25.6 23.5 22.8 20.83 21.10 19.4 18.4 17.0 16.3 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 17.9 20.8 26.5 24.9 24.8 23.7 25.8 25.8 26.5 26.7 27.7 0 17.9 20.2 25.6 23.5 22.8 20.8 21.1 19.4 18.4 17.0 16.3 B. Bound Tests B1. Real GDP growth 21.8 29.2 26.8 26.1 23.8 24.1 22.2 21.0 19.4 18.6 B2. Primary balance 20.2 25.6 23.6 23.0 21.3 21.9 20.3 19.5 18.2 17.6 B3. Exports 17.9 23.1 32.8 32.7 31.7 34.0 41.4 38.1 35.9 33.4 31.6 B4. Other flows 3/ 17.9 20.2 26.7 25.6 24.9 25.7 29.0 26.7 25.2 23.4 22.2 B5. One-time 30 percent nominal depreciation 17.9 25.4 32.2 28.8 28.0 25.6 23.9 21.9 20.9 19.2 18.5 B6. Combination of B1-B5 17.9 22.1 30.3 28.6 27.7 30.1 32.1 29.5 27.8 25.9 24.5 C. Tailored Tests C1. Combined contingent liabilities 4/ 17.9 20.2 25.7 23.7 23.0 21.1 21.4 19.7 18.7 17.3 16.6 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 4/ Shock set at 8.7 percent of GDP (5 percent of GDP represents a financial sector shock and 3.7 percent of GDP accounts for non-guaranteed SOEs debt). 21 >>> Projections 1/ 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 PV of Debt-to-GDP Ratio Baseline 61.5 56.5 53.6 50.2 46.8 41.8 40.0 37.1 35.6 33.3 31.9 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 62 60 58 55 52 48 46 43 42 39 38 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 62 62 64 62 60 56 55 53 53 51 51 B2. Primary balance 62 60 61 58 54 49 47 43 42 39 37 B3. Exports 62 68 80 76 72 65 61 56 53 48 45 B4. Other flows 3/ 62 64 70 66 62 56 53 48 46 42 40 B5. One-time 30 percent nominal depreciation 62 64 60 55 51 45 41 37 35 32 30 B6. Combination of B1-B5 62 59 58 51 48 43 41 38 36 34 33 C. Tailored Tests C1. Combined contingent liabilities 4/ 62 63 60 56 52 47 45 42 40 38 36 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 304.7 249.2 238.1 231.4 219.2 199.1 203.1 191.2 190.0 183.9 179.0 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 305 264 260 258 249 232 238 228 229 224 220 0 304.6818 249.1744 238.098 231.379 219.2478 199.1376 203.0963 191.2073 190.0397 183.8889 178.9849 B. Bound Tests B1. Real GDP growth 305 265 271 273 268 254 268 263 271 273 275 B2. Primary balance 305 266 273 266 253 232 236 223 222 215 209 B3. Exports 305 298 357 350 338 311 310 289 281 268 255 B4. Other flows 3/ 305 284 310 303 291 266 267 250 245 234 225 B5. One-time 30 percent nominal depreciation 305 292 275 262 244 217 215 197 190 179 169 B6. Combination of B1-B5 305 263 258 234 222 202 206 194 193 187 182 C. Tailored Tests C1. Combined contingent liabilities 4/ 305 278 266 259 246 225 229 217 215 209 203 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 88.0 74.2 84.9 82.6 79.1 77.0 72.5 72.5 68.3 73.6 71.3 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 88 75 92 92 85 81 73 71 66 71 68 0 87.95679 74.21383 84.85691 82.64257 79.08698 77.02698 72.54679 72.46751 68.34466 73.59192 71.25716 B. Bound Tests B1. Real GDP growth 88 78 95 98 99 101 101 104 104 114 114 B2. Primary balance 88 74 96 105 97 95 90 88 83 87 84 B3. Exports 88 74 86 85 81 82 82 81 77 81 79 B4. Other flows 3/ 88 74 86 84 80 80 78 78 73 78 76 B5. One-time 30 percent nominal depreciation 88 73 87 85 82 80 75 75 70 74 71 B6. Combination of B1-B5 88 74 86 83 80 78 73 73 69 74 72 C. Tailored Tests C1. Combined contingent liabilities 4/ 88 74 105 97 94 91 85 84 79 83 80 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 4/ Shock set at 8.7 percent of GDP. 22 >>>