By Lamin Darboe, Leicester, UK:
From basic accounting analyses, a company with a debt ratio of over 50% is said to be higly-geared, meaning it’s debt compared to total assets is very high.
That company is not sustainable therefore very risky to invest in. In accounting language, its future as a going concern is questionable.
The company’s managers will find it tough to borrow from banks or even raise capital in the capital markets. The stocks of a highly-geared company are said to be very risky because it has to pay a lot of revenue to service interest commitments.
Since the interest of loan/debenture holders come before ordinary shareholders, the stock price will most likely fall in the stock market.
Thus lenders like banks will be unwillingly to give credit and if they do, they will ask for high quality collaterals which they can fall back on if the company defaults.
In simple terms, Gambia is at such a poistion. Its debt/GDP ration is high making it a risky country to give credit to. Over 50% of its revenue is used to to pay its dues to creditors, so new creditors will be unwillingly to give credit unless they have guarantee/collateral whic they can fall on if Gambia fail to pay their debt or interest outlays on time.
It is clear little revenue is left for infrastructural development which in modern times is crucial to oil the wheel of the economic progress. There will be no funds to finance innovation and encourage enterprise, it may therefore either raise internal taxes, cut government spending, which at the moment is politically sensitive. We are in a catch 22 situation.
This is the current predicament of many countries in East Africa.
ln countries like Kenya, the state is forced to relinquish its value assets like Mombassa Port to China. The same goes for Tanzania, Malawi and even Uganda. This does not augur well for the young generation because they will be shackled to a debt burden which in many ways were embezzled by corrupt politicians.
If we can see where the debt has been invested, that will give assurance that the country and its people benefited, but so far there is nothing to show for the debt.
God helps us.
The recent re-evaluation of the GDP is just a fallacious shenanigan designed to reduce its debt ratio so as to make it appear credit worthy to creditors. Even a debt ratio of 48% is not good enough in the Gambian context.
Countries like US have high debt ratio, yet the economy is flourishing. However the natue of their debt and sophistication of their economy has given them the strength to withstand to such a level of sovereign debt. We hope China does not pull the plug!
Gambia is a high credit risk country meaning it is highly susceptible to default on its loan repayment commitment.
Even the internal creditors like T-bill holders have to be concerned because of the likelihood of default on redemption date.
If I were the Finance minister, I will hold the bull by the horn and embark on budgetary rationalisation which in street language, mean cut unnecessary bugetray costs.
The first area to look into is presidential budget for entertainment and travel. Change the vehicle policy and inprove on tax collection.
As I opined in my article on the NDP, Gambia meed to expand its tax revenue base by closing the tax black holes. What I mean is that, there are many small businesses or sole traders that are not paying tax and earn comparatively, more than many employed or salaried workers.
It is not surprising that a builder, Mechanic, Tailor, Carpenter, welderman etc. earns D100 000 a year, yet pays no income tax. In which developed country such a tax-blackhole exist?
Other than increasing tax-base, the efficiently of tax collections must be enhanced by improving technology to included online tax collection systems just like in the UK. I know this need good technical infrastructure and human capacity. We have the means but we are casing wrong priorities.
Finally it is worth mentioning that people must have confidence in their government's stewardship of their affairs.
They want to be assured that their taxes are fair and proportionate. Above all, their taxes are invested to develop their infrastructure and wellbeing.
We cannot afford to repeat the same old method of operation and expect better results. To achieve that, we need a conscientious and progressive leadership that see the interest of the nation as supreme commitment and realise its resources are sacred trust which they will not only will be held to account in this world but also the hereafter. In other words, we need good leadership which so far has proven elusive for many years in many sectors.
To conclude, the government need to act now and invoke the courage of revolutionaries like Thomas Sankara and do the needful, if not, we shall wallow in poverty till postery. The debt ratio is unsustainable and we need drastic reforms.
Editors note: Lamin Darboe is a Gambian based in the U.K. He is a certified Accountant and runs Sonic Accountants, a consultancy firm in the U.K. Views Expressed herein are those of the author’s professional views and not that of Gunjur News Online.