Luse msomba
JF-Expert Member
- Nov 8, 2010
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Bank of Tanzania (BoT) Governor, Benno Ndulu
The national debt stock hit 40trn/- in July, which is about four times what is was 10 years ago, The Guardian has reliably established.
The new indebtedness was an increase of 29.4trn/- of what the public debt was in July 2005, raising fears of a possible crunch. The debt increased by 24.2trn/-between December 2010 and July this year.
The government has allayed fears of a crisis saying it was still in position to honour debt obligations without having to accumulate arrears. A debt crisis occurs when a country cannot service its debts.
"Tanzania's debt remains sustainable based on our debt sustainability analysis, which uses international standards to make the assessment," Bank of Tanzania (BoT) Governor Benno Ndulu told ‘The Guardian' on Friday.
Economists and development experts said the spiralling debt was economically detrimental and puts Tanzania in an awkward fiscal posture. It also dents the country's creditworthiness locally and internationally.
"If next year sees inflation back (to double digits) and a further weakening of the shilling, then the country is going to be in deep, deep trouble," development advisor Brian Cooksey said.
He said the government appears to have overstretched itself in recent years and even the local debt, including arrears to pension funds, was very worrying.
He said for a country like Tanzania borrowing from international markets can only be justified if the loan is for highly productive investment.
BoT data released on Thursday put external debt at US$15.27bn (32trn/-) in July and domestic debt stock at US$3.85bn (8.08trn/-).
The figures show the public debt was 32.7trn/- in January and increased the most in April when the burden increased by 4.1trn/-.
The experts want the current borrowing appetite, which averaged 1.23trn/- a month in the first half of this year, contained to avert another debt crisis.
They argue that by the time the next government comes into power, the debt burden will have surged to 50trn/-. It increased by 7.4trn/- between January and July this year.
Others say the country was already heavily insolvent, an idea rejected by Treasury and not bought by the IMF. However, the global financial prefect has through its country reports been sending signals that further indebtedness was risky.
IMF has it that Tanzania remains at low risk of debt distress, provided fiscal and borrowing policies remain prudent. Treasury said the Debt Management Department became operational in July for that purpose.
"Our debt is still sustainable as per the recent Debt Sustainability Analysis (DSA). All the ratios (liquidity and solvency) are below agreed threshold levels," said Dr Servacius Likwelike, the Permanent Secretary in the Ministry of Finance.
"There is therefore no debt crisis. Our emphasis is to ensure efficient and effective use of resources," he exclusively told ‘The Guardian' on Friday.
"Borrowing has been for financing development projects in the sectors of energy, water, transport, education, roads and ICT," he said disputing claims of the government borrowing heavily for recurrent spending, including paying wages.
A number of factors have been forcing the government to borrow heavily in recent years, including setting unrealistic revenue targets.
The increasing unpredictability of donor funding and fiscal indiscipline have all combined to undermine its liquidity and cash-flow positions.
The last debt crisis in the late 1980s and early last decade cost the country and the national economy dearly with its severe consequences still being felt today.
Money that could be invested in development projects and spent on public services was diverted to pay debts, some which are still being serviced today.
In the latest DSA released in June, IMF and the World Bank say Tanzania has low risk of both external and domestic debt distress. However, they say that for the debt to remain manageable, capacity to manage it and public investment management should be strengthened.
"Although Tanzania remains at a low risk of debt distress, fiscal risks, including those arising from public enterprises and social security funds need to be better monitored and managed," the
two international financial institutions say.
Consultant Dr Antipas Massawe doubts the sustainability of the debt and faults the government's position on the matter saying the public is being short changed.
He said Tanzania already faces a debt crisis because the money borrowed does not generate enough returns for repayment or adequately invested in capital formation projects for future generations.
He said such a level of borrowing by an economy that is largely unproductive and heavily dependent on imports, exporting mostly raw materials, makes very little commercial sense. According to him, it was economically fallacious to peg the country's loans on dividends expected from the recently found gas and the expected discovery of oil.
"This debt is not sustainable as it is mostly for luxurious consumption by the government and investments which compromise rather than enhance productivity in the economy," Dr Massawe told ‘The Guardian' on Saturday.
The experts said the size or increase of public liabilities were none issues since debt was a normal economic phenomenon and borrowing an acceptable fiscal technique.
What matters most is what it is used for.
"Debt incurred to build infrastructure, for example, is better than debt incurred to pay pensions, which do not create value like a road or a railway line," Cooksey said.
Source: Guardian
