Tanzania: Dar Debt Distress Rated Low

TANZANIA has been rated globally as being among countries with low risk distress to external debt.

This implies that the country's debt is sustainable and it is in a safe position to continue borrowing for

implementing mega investments in infrastructure projects.

The World Bank's International Debt Statistics (IDS) database shows that Tanzania has potential Debt Service Suspension Initiative (DSSI) savings of 148.9million US dollars, which is equivalent to 0.2 per cent of 2019 Gross Domestic Product (GDP) ratio.

The government has been insisting that its national debt was still sustainable despite more loans being borrowed and secured to fund infrastructural development projects.

According to the Bank of Tanzania (BoT) latest monthly economic review, the stock of external debt was 22,531.4million US dollars at the end of April this year, an increase of 116.4 million US dollars from the end of the preceding month and 943.5 million US dollars in April last year.

The World Bank's IDS database shows that the three East African Community member states, namely Kenya, Burundi and South Sudan, have been rated with high risk of external and overall debt distress, meaning that their debts are unsustainable.

Uganda and Rwanda on the other hand, have been rated low.

Kenya has potential DSSI savings of 802.6 million US dollars, equivalent to 0.8 per cent of 2019 GDP ratio and that of Burundi with 3.9 million US dollars, which is 0.1 per cent of its GDP ratio.

Rwanda has potential DSSI savings of 12.6 million US dollars, equivalent to 0.1 per cent of 2019 GDP ratio, while Uganda's DSSI savings of 95.4 million US dollars is equivalent to 0.3 per cent of 2019 GDP ratio.

In April, the World Bank's Development Committee and the G20 finance ministers endorsed the Debt Service Suspension Initiative in response to a call by the World Bank and the IMF to grant debt-service suspension to the poorest countries, to help them manage the severe impact of the Covid-19 pandemic.

The coronavirus pandemic has triggered the deepest global recession since World War II. The main goal of the DSSI is to allow poor countries to concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.

According to the World Bank, debt service suspension is a powerful, fast-acting measure that can bring real benefits to people in poor countries, particularly countries that don't have the financial resources to respond to the coronavirus crisis.

Debt-service suspension with broad and equitable participation is urgently needed to allow low-income countries to concentrate their resources on fighting the pandemic.

The G20 called on private creditors to participate in the initiative on comparable terms.

The International Monetary Fund (IMF) considers a debt to GDP ratio of 50 per cent to be within the tolerable limit for developing economies such as Tanzania.

The IMF and the World Bank are supporting the implementation of the DSSI by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing.

Tabling the 2020/21 estimates of government revenue and expenditure in the National Assembly recently, Minister for Finance and Planning Dr Phillip Mpango, said the government continued to manage public debt in accordance with the Government Loans, Guarantees and Grants Act, CAP 134, to ensure its sustainability.

He said the Debt Sustainability Analysis (DSA) which was conducted in December last year confirmed that Tanzania's debt was sustainable in the short, medium and long term.

"In the analysis, solvency indicators show that the ratio of present value of total public debt to GDP was 27.1 per cent compared to the threshold of 70 per cent while the present value of external public debt to GDP was 16.3 per cent compared to the threshold of 55 per cent; and present value of external public debt to exports was 103.9 per cent compared to the threshold of 240 per cent," Dr Mpango said.

On liquidity indicators of the DSA, Dr Mpango said the results show that the ratio of external debt service to domestic revenue was 11.9 per cent compared to the threshold of 23 per cent; and external debt service to exports was 11.9 per cent compared to the threshold of 21 per cent.

An Oxford University economics Professor Christopher Adamwas was quoted recently saying that for a developing country like Tanzania, it is important to borrow for economic development, particularly in a current volatile global economy.

He added that it was important to invest in physical infrastructures such as roads and railways and to invest in human capital if the country wants to reap benefits from discovered natural resources such as gas.