Central Bank Warns Rising Government Borrowing Could Fuel Inflation, Crowd Out Private Investment

By Makutu Manneh

The governor of the Central Bank of The Gambia, Buah Saidy, has warned that rising government borrowing could add to inflationary pressures and crowd out private-sector investment, as domestic public debt continues to climb.

Speaking at a recent Monetary Policy Committee briefing, Governor Saidy said the Central Bank was particularly concerned about the impact of government borrowing and spending on aggregate demand and, ultimately, the prices consumers pay for goods and services.

“This is a concern to the central bank because it crowds out private sector investment,” Saidy said. “What makes it a concern to the central bank is its implication on, or its effect on inflation.”

According to the governor, the government’s domestic debt stock rose to D55.43 billion at the end of June 2026, equivalent to 24.4 percent of gross domestic product, up from D51.99 billion at the end of 2025.

The increase was driven by greater issuance of government securities. Short-term instruments accounted for 56.2 percent of the domestic debt portfolio at the end of June, compared with 53.8 percent at the end of 2025, leaving the government exposed to continued refinancing and rollover risks.

Saidy said government borrowing can have broader consequences for the economy because money raised domestically is eventually spent, increasing overall demand.

“If a government borrows and spends, it has an impact on aggregate demand, and as a result it influences domestic price inflation,” he said. “So on that front, as fiscal advisers to the government, we would like to send a message to them that the increase in domestic debt has these implications.”

The governor said much of the government’s short-term borrowing is intended to bridge funding gaps while it waits for budget support from international development partners.

He said disbursements from institutions including the International Monetary Fund, the World Bank, the European Union, and the African Development Bank, as well as bilateral partners, are often linked to conditions under the IMF’s Extended Credit Facility program.

When a quarterly review is delayed or has not been approved by the IMF Executive Board, he said, the corresponding funds are not released. Budget support from other development partners tied to the IMF program can consequently be delayed as well.

The timing presents a challenge for the government, Saidy said, because much of the external budget support tends to arrive toward the end of the year, while the government must finance public services throughout the year.

“In between, the government would borrow in the interbank market to finance its operation,” he said, describing the borrowing as a way to “smoothen their consumption.” Once budget-support funds arrive, he added, the government repays some of that borrowing while the central bank intensifies its open-market operations.

Saidy acknowledged that budget deficits and borrowing are common among developing economies, where governments often rely on a combination of external budget support and domestic financing to meet expenditure needs.

But he said efforts are underway to reduce reliance on borrowing and place greater emphasis on financing measures that do not create additional debt.