26 October 2017

Tanzania: Public Debt Hits Sh53 Trillion Mark

Photo: Daily News
Standard Gauge Railway (SGR).

Dar es Salaam — Tanzania's public debt rose by 15 per cent during the 2016/17 financial year even as the government grapples with own sources of development financing amid growing unpredictability of funds disbursements from development partners.

Latest figures show that the debt had reached Sh53.3 trillion (about $24.514 billion) during the financial year that ended on June 30, 2017.

Among the mega projects which President John Magufuli's administration is currently executing are the standard gauge railway that will connect Tanzania to the landlocked neighbouring countries of the Democratic Republic of Congo, Zambia, Rwanda, Burundi and Uganda.

Construction of the first phase of the railway project - a 205-kilometre stretch from Dar es Salaam on the Indian Ocean coast to Morogoro - is already ongoing, whereby part of the funding was sourced as a loan from the Turkish state-owned Export Credit Bank of Turkey (Exim Bank).

In a related development, the government announced earlier this month that a Turkish firm, Yapi Merkezi - which is building the first phase Dar es Salaam and Morogoro stretch - has also won the tender to construct the second phase connecting Morogoro to Makutupora in Dodoma region. The contract is worth $1.92 billion.

Alongside the standard gauge railway project, the government is also implementing road projects in other parts of the country. One that readily comes to mind is the much-anticipated Ubungo Interchange which is being constructed using funds from local and foreign sources.

Then again, the government has been purchasing airplanes for the national flag carrier Air Tanzania Company Limited (ATCL) even as it continues to implement a number of other socio-economic development projects across the country.

Put in perspective, the Sh53.3 trillion national debt is roughly the equivalent of half the country's gross domestic product (GDP), which hit the Sh103.7 trillion mark in 2016.

That aside, the debt growth rate for 2016/17 was the lowest to have been registered in recent years. During the 2015/16 financial year, the debt jumped by 20 per cent, reaching Sh46 trillion in June 2016 - up from Sh38.2 trillion as of June 2015.

In June this year, the central government borrowed a total of $505.0 million from Switzerland's Credit Suisse.

The central government debt accounted for the largest share, reaching $14.948 billion as of June 2017.

The country report of the International Monetary Fund (IMF) in June revealed that the debt sustainability analysis (DSA) conducted in June 2016 suggested that Tanzania could afford a higher fiscal deficit of up to 4.5 per cent of Gross Domestic Product (GDP) for a few years - and still maintain a low risk of debt distress.

The IMF analysis indicated that all the three debt stock indicators (relative-to-GDP, exports, and revenue) increased slightly in the medium-term before declining to below initial levels by the end of the projection period - and remained well below their policy-dependent thresholds under the baseline and all shock scenarios.

The debt service-to-revenue ratio, however, increased over the medium-term and remained slightly above initial levels at the end of the projection period.

"Under the most extreme stress test, external debt service as a ratio-to-revenue slightly breached its threshold in 2020/23 in the event of a one-time 30 per cent depreciation in the nominal exchange rate," the IMF states in its assessment report.

The Fund also said that, in such a borderline case, the results show that - under this approach - Tanzania's risk of debt distress remains low for all external debt indicators.

A Bank of Tanzania (BOT) analysis conducted in late-2016 revealed that matured external debt repayment using domestic revenue had reached 11.5 per cent, against the desired 20 per cent. External debt repayment using exports was found to stand at 7.8 per cent - also against the desired level of 20 per cent.

The central bank noted that a large portion of Tanzania's debt is payable under 'long term maturity' agreements - with the average time to maturity set at 11.9 years.

This means that effects of debt repayment on the government budget are 'low refinance risk.' Also, according to the 'Economic Development in Africa Report-2016' by the United Nations Conference on Trade and Development (Unctad), a higher level of domestic debt in Tanzania is likely to be sustained without compromising the country's economic growth.


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