Saturday, August 15, 2015

How Jammeh is saddling Gambian taxpayers with expensive loans

Gambia's ex-Finance Minister, Kebba S. Touray at Ex-Im 

In January 2015, The Economist magazine had an editorial piece entitled "Not Contagious :The Gambia's financial woes do not portend an African public debt crisis, suggesting the unique nature of the country's unfavorable debt profile which implied that it is, almost, self-inflicting.

Although the Ebola outbreak in Guinea, Sierra Leone and Liberia did not reach Gambia, its devastating effects were felt, particularly in the tourism sector, the country second largest foreign exchange earner after agriculture.

The 60% fall in tourism, coupled with a fall in commodity prices - principally wood and nuts - resulted in 12% drop in the value of the local currency.  And because Gambia imports just about everything from the basic food of rice, flour and cooking oil to cement and other building materials interest rates were raised from 12% to 22% in two years in an attempt to prop up the dalasi.

However, The Economist was quick to point out that main reason for the financial woes of the Jammeh regime was "the mismanagement of the government finances that has pushed The Gambia over the edge.

From 2009 - 2014, Gambia's debt-to-GDP ratio increased by 18%.  According to The Economist this increase is higher than all countries in sub-Saharan Africa except Ghana and Cape Verde.  With the ratio that currently stands at 80%, it is highest in the region - a figure that is expected to be surpassed thanks to the 2015 budget that increased spending by 11%.

Gambia's debt problems is not just because they are growing as a faster rate but the types of loans being contracted by the government are of "usually short maturity".  What are the specifics of these short maturity and higher-than-normal interest loans for a poor and indebted country like The Gambia.

The regime of Jammeh decided to search for other sources of financing for his ill-conceived and poorly prepared because they cannot pass the stringent requirements, including but not limited to the pre-feasibility and feasibility studies and other tests.  This is not say the Ex-Im of India's requirements are less stringent but because the overriding mission of such financing institution is to promote national exports.

For instance, the first of five Lines of Credit (LOC) with the Ex-Im Bank of India was approved in November 2005 in the amount of US $ 6.7 million for the supply of 500 Mahindra tractors. Gambians are still asking the whereabouts of all these tractors.  And what impact, if any, they have on our agricultural production.

The second LOC approved in August 2008 was for US $ 10 million for the financing of the National Assembly Building.  Apparently, the estimated cost fell far short by US $ 16.88 million, an amount that was requested by the regime and approved in October 2012 for the completion of the National Assembly Building.  The fact that the price appeared to have been underestimated by almost 170% raised eyebrows in many quarters did not prevent the loan from being approved, bringing the total cost of the building to US $ 27 million.

Two additional LOCs have been approved since,  both coincidentally in similar amounts of US $ 22.50 million for the financing of the replacement of asbestos water pipes in the Greater Banjul Area (GBA) and for the financing of what is described as"electrification expansion project for the GBA.

These two loans add up to US $ 45 million bring the total loan envelop from Ex-Im Bank of India to US $ 80 million in 10 years.  All of these loans have reached maturity and are being serviced as commercial or near commercial rates.  Unlike IDA or AfDB credits which are on concessional terms with 30-year repayment period as opposed to higher interest rates and shorter maturities for the tyep of loans that the Jammeh regime elected to contract.