CBG EXPLAINS RISKS OF GOV’T’S INCREASED DOMESTIC BORROWING

The governor of the Central Bank has said the bank is concerned about the government’s increased domestic borrowing mainly from commercial banks as it could impede private sector growth and implicate inflation.

Speaking at the CBG Monetary Policy Committee press conference in Banjul yesterday, Governor Buah Saidy reported that the government’s domestic debt stock has increased from D51.99 billion at the end of 2025 to to D55.43 billion, representing 24.4 per cent of GDP at end-June 2026.

According to him, the composition of domestic debt remained concentrated in short-term instruments, reaching 56.2 per cent of the debt portfolio from 53.8 percent at end-2025, suggesting continued refinancing and rollover risks.

The government’s continuous dependence on domestic borrowing continues to raise many questions about its fiscal sustainability and economic management.

Asked how much of a concern this is to the Central Bank, Governor Saidy, a former permanent secretary at the Ministry of Finance & Economic Affairs, explained:  “This is a concern to the Central Bank because it crowds out private sector investment. What makes it a concern to us is its implication on inflation. If the government borrows and spends, it has an impact on aggregate demand and as a result it influences domestic price inflation. So on that note, as fiscal advisers to the government, we would like to send a message to them that the increase in domestic debt has these implications.”

‎He however explained that most of the government borrowing is short term meant to smoothen government operations since grants and other balance of payment support from partners like IMF, EU and AfDB are usually received in the last months of the year.

“So in between that budgetary support, the government would borrow in the interbank market to finance its operations and when the budget support money comes, it is paid,” he said adding that the disbursement of these grants depends largely on the government meeting certain conditions of criteria of the IMF ECF programme.

While expressing concerns over the delay in these disbursements, Governor Saidy recalled that he raised the issue with the IMF that The Gambia government like that of any other developing country is supposed to provide certain basic services to the citizenry and that locking budget support to the year-end does not always help.

Growth
According to the governor, the country’s economic activity remains resilient with real GDP growth forecast at 5.8 per cent in 2026 representing a 0.1 per cent upward revision from the previous forecast.

This growth, he added, is explained by continued expansion in services, tourism, construction, public and private investment and sustained remittance inflows.

Inflation
The governor further reported moderation in domestic inflationary pressures in July 2026 with headline inflation declining to 7.0 per cent in July from 7.6 per cent in June and 7.5 per cent in May, reflecting easing food pressures.

Food inflation also declined to 5.8 per cent in July 2026 from 6. 6 per cent in June reflecting broad-based moderation across several food categories such as bread and cereals.

Non-food inflation however increased to 8.9 per cent in July, from 8.7 per cent in June driven by transport inflation which accelerated to 16.5 percent from 14.5 per cent over the same period.

4 months import cover
Governor Saidy also stated that currently, the bank’s reserves are sufficient to provide 4.3 months of import cover. This he said will serve as a critical buffer for the country in the event of further external shocks.

He said as at the end-July 2026, the CBG gross official reserves stood at US$563.9 million.

Dalasi broadly stable
He also revealed that the Gambian dalasi remained broadly stable during the second quarter of 2026, despite recording marginal depreciation against the major internationally traded currencies.

Between end-March and end-June 2026, the dalasi depreciated by 0.5 per cent against  the US dollar, 0.3 per cent against the euro, 1.2 per cent against the British pound and 0.1 per cent against the CFA franc.

Decisions
According to the governor, the combination of stronger domestic economic activity, moderating headline inflation, elevated underlying and non-food inflation price pressures and persistent external uncertainties warrant a cautious monetary policy stance. He said considering this, MPC decided to maintain the Monetary Policy Rate at 14 per cent, Required Reserve ratio of commercial banks maintained at 13 per cent, the interest rate on the standing deposit facility maintained at 5 per cent and interest rate on the standing lending facility maintained at 15 per cent.

Source: The Standard