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NEWS
Part of the public debt is used in developing Tanzania's infrastructure. Photo/FILE Nation Media Group
By ROSEMARY MIRONDO
Posted Saturday, December 29 2012 at 16:50
IN SUMMARY
Tanzania is facing fresh pressure to tame its spiralling public debt, which hit new highs in the first 10 months of 2012, raising fears the overhang could hurt the economy and make it more expensive for Dar to borrow from the international market.
Fresh data by the Bank of Tanzania shows Tanzania's external debt stock at the end of October 2012 stood at $10.5 billion, an increase of $456.1 million or 4.5 per cent from the same period last year.
The figure was up $27.1 million over the amount recorded at the end of September. The increase, BoT said, was due to new disbursements received from International Development Association (IDA) and Japan International Cooperation Agency (JICA).
The stock of domestic debt increased by Tsh513 billion ($325 million) to Tsh5.1 trillion ($3.2 billion) at the end of October 2012, a ten per cent jump.
The trend of surging public debt in Tanzania, economists say, is risky for the economy.
"Tanzania's borrowing and expenditure discipline is not good at all. It is unsustainable. The national debt is increasing rapidly because the government is over spending funds without following parliament approved funds," said Haji Semboja, an economist who teaches at the University of Dar es Salaam.
He cited funds allegedly misused by the government, such as the money paid to the Constitutional Review Commission - which was allocated Tsh40 billion ($24.9 million) of which over Tsh9.8 billion ($6.1million) was spent on luxury cars and perks for its 34 members.
The debt is worrying politicians, policymakers and economists, especially at a time when Eurozone countries like Greece, Spain, Ireland and Italy have been pushed to the brink by unmanageable debt levels.
"Like the other EAC countries, Tanzania's debt is too high - a problem not only for the national economy but also for the convergence of a single currency," said Honest Ngowi, an economics lecturer at Mzumbe University, Tanzania.
Experts say if the spiralling debt in EAC is not brought under control, the goal of establishing a monetary union will not be achieved.
Tanzania's public debt shot up from $1.83 billion in 2010 to $2.3 billion in 2011 while its debt to GDP stood at 44.4 per cent in 2011.
Generally, government debt as a percentage of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting its borrowing costs and government bond yields.
As for Uganda, according to the National Budget Framework Paper for 2011-2016, the external debt rose to $4.3 billion at the end of June 2010 compared with $4.0 billion as at December 2009.
Kenya's public debt to GDP currently stands at 47 per cent. Kenya's public debt increased from Ksh1.4 trillion ($16 billion) as at the end of June 2011 to Ksh1.6 trillion ($19 billion) in June 2012, figures from the Ministry of Finance show.
"For Tanzania, there is a huge risk of default in future as public debt surges. This may put the country in a position where it will not be able to borrow from the external money market," said Dr Ngowi.
In May, Bank of Tanzania Governor Benno Ndulu said the country planned to revive plans for a Eurobond, to finance growing infrastructure needs. The amount to be raised through the bond and the timing are yet to be disclosed.
A June 2012 Joint World Bank and International Monetary Fund debt sustainability analysis raises questions over Tanzania's debt levels while ruling out the risk of debt distress.
"While in general the downside scenarios and sensitivity analysis support the assessment of a low risk of debt distress, increased non-concessional borrowing on expensive terms, and large and persistent primary deficits can reverse this outlook" said the IMF.
"Therefore, a sound debt management strategy, a conservative approach to non-concessional borrowing, and commitment to fiscal discipline are key factors for maintaining debt and fiscal sustainability," said the IMF and World Bank.
Part of the public debt is used in developing Tanzania's infrastructure. Photo/FILE Nation Media Group
By ROSEMARY MIRONDO
Posted Saturday, December 29 2012 at 16:50
IN SUMMARY
- Tanzania's external debt stock at the end of October 2012 stood at $10.5 billion, an increase of $456.1 million or 4.5 per cent from the same period last year.
- The trend of surging public debt in Tanzania, economists say, is risky for the economy.
- Experts say if the spiralling debt in EAC is not brought under control, the goal of establishing a monetary union will not be achieved.
Tanzania is facing fresh pressure to tame its spiralling public debt, which hit new highs in the first 10 months of 2012, raising fears the overhang could hurt the economy and make it more expensive for Dar to borrow from the international market.
Fresh data by the Bank of Tanzania shows Tanzania's external debt stock at the end of October 2012 stood at $10.5 billion, an increase of $456.1 million or 4.5 per cent from the same period last year.
The figure was up $27.1 million over the amount recorded at the end of September. The increase, BoT said, was due to new disbursements received from International Development Association (IDA) and Japan International Cooperation Agency (JICA).
The stock of domestic debt increased by Tsh513 billion ($325 million) to Tsh5.1 trillion ($3.2 billion) at the end of October 2012, a ten per cent jump.
The trend of surging public debt in Tanzania, economists say, is risky for the economy.
"Tanzania's borrowing and expenditure discipline is not good at all. It is unsustainable. The national debt is increasing rapidly because the government is over spending funds without following parliament approved funds," said Haji Semboja, an economist who teaches at the University of Dar es Salaam.
He cited funds allegedly misused by the government, such as the money paid to the Constitutional Review Commission - which was allocated Tsh40 billion ($24.9 million) of which over Tsh9.8 billion ($6.1million) was spent on luxury cars and perks for its 34 members.
The debt is worrying politicians, policymakers and economists, especially at a time when Eurozone countries like Greece, Spain, Ireland and Italy have been pushed to the brink by unmanageable debt levels.
"Like the other EAC countries, Tanzania's debt is too high - a problem not only for the national economy but also for the convergence of a single currency," said Honest Ngowi, an economics lecturer at Mzumbe University, Tanzania.
Experts say if the spiralling debt in EAC is not brought under control, the goal of establishing a monetary union will not be achieved.
Tanzania's public debt shot up from $1.83 billion in 2010 to $2.3 billion in 2011 while its debt to GDP stood at 44.4 per cent in 2011.
Generally, government debt as a percentage of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting its borrowing costs and government bond yields.
As for Uganda, according to the National Budget Framework Paper for 2011-2016, the external debt rose to $4.3 billion at the end of June 2010 compared with $4.0 billion as at December 2009.
Kenya's public debt to GDP currently stands at 47 per cent. Kenya's public debt increased from Ksh1.4 trillion ($16 billion) as at the end of June 2011 to Ksh1.6 trillion ($19 billion) in June 2012, figures from the Ministry of Finance show.
"For Tanzania, there is a huge risk of default in future as public debt surges. This may put the country in a position where it will not be able to borrow from the external money market," said Dr Ngowi.
In May, Bank of Tanzania Governor Benno Ndulu said the country planned to revive plans for a Eurobond, to finance growing infrastructure needs. The amount to be raised through the bond and the timing are yet to be disclosed.
A June 2012 Joint World Bank and International Monetary Fund debt sustainability analysis raises questions over Tanzania's debt levels while ruling out the risk of debt distress.
"While in general the downside scenarios and sensitivity analysis support the assessment of a low risk of debt distress, increased non-concessional borrowing on expensive terms, and large and persistent primary deficits can reverse this outlook" said the IMF.
"Therefore, a sound debt management strategy, a conservative approach to non-concessional borrowing, and commitment to fiscal discipline are key factors for maintaining debt and fiscal sustainability," said the IMF and World Bank.