4 January 2013

Tanzania: Avoid Borrowing From Local Banks, Govt Urged

Photo: futuradosmil/Flickr
Tanzania Currency: Government cautioned against borrowing from local commercial banks.

THE Tanzania Coalition on Debt and Development (TCDD) has called upon the government to avoid borrowing from local commercial banks, saying that the trend would put the future of the country's economy in jeopardy.

The TCDD Executive Director, Mr Hebron Mwakagenda, told a news conference in Dar es Salaam yesterday that the national debt in local borrowing which stands at 3.2 billion US dollars or 5.1trl/- is too big.

"Local debt is growing at a very high rate which is largely contributed by the government's trend to borrow from commercial banks that charge high interest rates and demand payment in a short period which is unhealthy for the nation's economy," he said.

He added that according to the data released by the Bank of Tanzania (BoT) in October, last year, foreign borrowing hit 10.5bn dollars or 15.6trl/- which is also huge but added that foreign loans were more friendly than local ones.

Mr Mwakagenda was also worried at the rate at which the national debt has been increasing in the recent years, adding that too much borrowing would lead the country into recession.

"The national debt has hit 22trl/- which is an increase of 456.1 million US dollars or 4.5 per cent in a year from October, 2011 to October 2012. The trend is no good and the government should find alternative sources of fund," he said.

However, the Minister for Finance, Dr William Mgimwa, was recently quoted as saying that the national debt now exceeding 20trl/- was no reason to panic since the bigger portion of the money has been invested in energy and water projects.

Dr Mgimwa said that during the past year the government invested heavily in infrastructure in order to increase productivity and stimulate the economy. "It should be noted that it was during the period that we received a loan of about one trillion shillings from China to construct a natural gas pipeline from Mtwara to Dar es Salaam," he explained.

Adding: "Once the project is completed we will be able to generate more power and at lower cost. Generating power using heavy furnace oil is about 40 US dollar cents per kilowatt while with natural gas it is just 10 cents."

The monthly economic review for November, last year issued by BoT showed that the national external debt stock at the end of October, last year, stood at 10.5 billion dollars (approximately 15.7trl/-).

It said the amount was an increase of 27.1 million US dollars and 456.1 million US dollars over the amount recorded at the end of September and corresponding period in 2011 respectively.

The central bank attributed the month-to-month increase to new disbursements. Out of external debt stock 85.7 per cent was disbursed outstanding debt and 14.3 per cent was interest arrears. During October this year, new loans worth 40.3 million US dollars were contracted and recorded through which external debt disbursements amounted to 39.1 million US dollars and of which 38.3 million US dollars was received by the government.

External debt service during the month amounted to 19.7 million dollars, out of which 11.2 million dollars was principal repayments and 8.4 million dollars interest payment. On the other hand, the central bank indicated in the monthly economic report that the stock of domestic debt had increased by 513bn/- to 5.13trl/- at the end of October 2012 compared to 4,624.7bn/- registered at the end of the preceding month.

The increase was mainly on account of conversion of short term advances that had accumulated to 469.5bn/- into a special bond, the bank explained. On annual basis, domestic debt stock increased by 1.05trl/- from 4.08trl/- recorded in the corresponding period last year. Domestic debt issued during the month amounted to 134.7bn/-, out of which, 48.7bn/- was treasury bills and 86bn/- treasury bonds.

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