Bank of Tanzania (BoT), Prof Florens Luoga. PHOTO | COURTESYBy Jacob Mosenda
Dar es Salaam. Debate over national debt continued to rage yesterday, with the governor of the Bank of Tanzania (BoT), Prof Florens Luoga, stressing that the national debt is still sustainable.
According to the central bank, Tanzania’s national debt stock swelled by $5.3 billion, reaching $35.76 billion (about Sh82.25 trillion) in the year to October 31, 2021.
This includes both the public debt - which accounted for 79.4 percent - and the private sector debt.
However, Prof Luoga, who was speaking in a Clouds Radio broadcast, stressed that the debt was sustainable ny many standards - and that there still is room for more borrowing.
“So far, Tanzania has not touched the threshold of debt distress, we are still in the green, we have not reached the red mark of debt,” said Prof Luoga.
According to him, Tanzania can borrow up to the size of 70 percent of the gross domestic product (GDP) while it only reached 27.9 percent in 2020.
He explained that another sustainability study which results are not yet out, was conducted this November and he expected the debts not to exceed 28.5 percent of the GDP.
“This means that we have not reached even half of the 70 percent threshold,” Prof Luoga told the local radio station.
He also explained that looking at the debt service to revenue threshold which is 18 percent, Tanzania for the year 2020/21 was at 14.6 percent and it was expected to drop.
“When a country finds itself in debts exceeding the debt to GDP ratio say 100 to 200 percent, it will already be at risk.”
He said there are many other countries around the world with more debt burden and Tanzania ranks 109th out of the 170 countries.
“When we borrow, we are not borrowing for food but we are doing so for projects that will continue to produce, and because they continue to produce means our debt resilience will continue to be better as income increases,” he noted.
The debate began on Tuesday following comments from Speaker of the National Assembly Job Ndugai who expressed worries about the borrowing trend under President Samia Suluhu Hassan.
He suggested that the country should rely on internal revenue collections like the mobile money levies introduced this year, to finance development projects.
“Is there any pride in taking around a beggar’s bowl? When we borrow we applaud. We have resorted to borrowing every day. There will come a day when this country will be sold off and people will continue to be happy instead of being sad,” Mr Ndugai said.
On Tuesday, President Samia Suluhu Hassan stressed that her government would not be discouraged from borrowing and would seek more concessional loans to fund strategic projects, including construction of the standard gauge railway.
“We will borrow to complete the development projects we have initiated…in any case we will borrow, we will look for simple, effective ways to borrow,” she insisted.
Analysts say borrowing is inevitable but the money should be channeled to productive projects.
Tanzania Coalition on Debt and Development (TCDD) warned that with room for further borrowing, the government must come up with a mechanism that will ensure that the country’s debt remains sustainable.
The coalition’s executive director, Mr Hebron Mwakagenda said Parliament is the one that carries the voice of the people so it should be empowered to decide which loans should be accepted and which should be left based on the type of projects targeted.
He said the national debt has for long been managed in accordance with existing laws that give the finance minister responsibility to decide on borrowing in consultation with the National Debt Management Committee (NDMC).
“By using Parliament we would improve transparency and accountability in debt contracting as it is an easier way for people to have the right information to hold the government to account,” he said.
He also noted that strategies to reverse the growing tendency to borrow must be properly managed to prevent the situation from getting out of hand - as is the case in some countries in Africa.
Dr Felician Mutasa, a researcher from the Open University of Tanzania reminded that having graduated to a low middle income country, Tanzania will now have very little opportunities to access concessional loans.
“To meet flagship projects and other social sector needs, the government should prioritize concessional financing in order to ensure that projects financed have a large impact on growth and exports,” said Dr Mutasa.
Dr Kavishe Yusuf, a development expert said, “Every five years we elect a president, if we do not put in place good policies to control the decisions of one person, the heavy debt burden will fall on future generations.”
“We must ensure that the money we receive goes to the very projects targeted and not otherwise if we are to see the value of our borrowing,” he added.
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