The Citizen (Dar es Salaam)
Costantine Sebastian
13 October 2008
Washington DC — The International Monetary Fund (IMF) has said the Tanzanian government's plans to borrow money from international capital markets in the current global financial turmoil could cost the economy billions of shillings in interest payments annually.
A senior IMF official told The Citizen here that the intention to issue a sovereign bond to raise money to finance infrastructure projects was risky and could be detrimental to the country's fiscal position.
Mr Roger Nord said such bonds for African countries were now being charged high interest rates of close to 10 per cent because of the envisaged risks in the international financial market.
He said the $500 million that Tanzania might seek from international capital market investors could fetch up to about Sh60 billion annually in interest costs alone. The IMF African department assistant director said the bond issuing to finance infrastructure development was vital but the timing was not appropriate and involved costs would take money from other important undertakings.
Last week a senior government official said Tanzania was still determined to float the bond despite the ongoing financial turmoil. Treasury policy analysis commissioner Mugisha Kamugisha told Reuters that the Government expected a sovereign rating by March and would aim to issue a Eurobond in the course of the year.
"We quite agree with the government that infrastructure development is important for economic development and poverty reduction but authorities should choose the most effective vehicle in financing such projects. Sovereign bonds are one option of doing so but should be looked at along other financing options," Mr Nord noted in an exclusive interview.
"The cost of issuing a sovereign bond was quite high even before the financial crisis with interest rates for bonds floated by countries like Ghana reaching 8.5 per cent. We (the IMF) think this is not the right time to try to tap funds from international capital markets."
Ghana and Gabon last year became the first African countries outside South Africa to issue bonds but issuance has been much reduced this year against the backdrop of the credit crunch, drying up completely in recent weeks as credit markets froze and economic turmoil worsened.
The government says it is aware and conscious of the risks surrounding the bond flotation and considering the impact of the global economic plunge. Mr Kamugisha told Reuters that the Government expected that by the time it issued the bond next year, the markets would have cooled from the global financial warming.
"We have not yet decided how much it will be but probably more than $500 million," the policy expert said on the sidelines of an international investment conference in London.
According to this year's World Economic Forum Global Competitiveness Report, inadequate supply of infrastructure is the most problematic factor for doing business in the country. Its Global Competitiveness Index ranks Tanzania among the top 20 countries in the world with the poorest infrastructure system ranking it 118th among the 134 indexed countries.
Other East African Community members don't fair better either with Kenya leading the pack at number 91 globally. The bloc's five member states have initiated several joint projects to address the shortcoming.
A diplomat at the IMF and World Bank annual meetings said the government is exploring any financing channel because of donor funding uncertainty.
"Donors funding of the government budget is increasingly become unpredictable forcing the government to explore other financing avenues although some might cause problems to the economy," an official from the global lender told this paper on condition of anonymity
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