IMF say Tanzania can borrow more

IMF says Tanzania can borrow more Send to a friend Thursday, 10 January 2013 22:40 By Alawi Masare The Citizen Reporter Dar es Salaam. Tanzania cannow borrow money from foreign commercial banks without restrictions because its debt levels are sustainable and the performance of the economy is good, according to the International Monetary Fund. The IMF has always discouraged borrowing from foreign commercialsources ornon-concessional borrowing because servicing such debts is expensive and alsodue tothe high risk of defaulting by poor countries such as Tanzania. But in a statement released yesterday after Executive Board talks on Tanzania, IMFDeputy Managing Director Naoyuki Shinohara said the fund had established that the country’s debt is sustainable and borrowing from foreign credit facilities will not harm the economy. Mr Shinohara, who chaired the talks, said in a statementyesterday: “The budget for 2012/13 appropriately balances the country’s development and social spending needs with the debt-stabilising objective. To preserve the fiscal consolidation path and avoida build-up of arrears, any revenue shortfalls would be offset by cutbacks in recurrent and non-priority capital expenditures while safeguarding critical social spending.” The IMF Board has approvedTanzania’s request for a waiver of “non-observance of the continuous performance/assessment criterion on the ceiling on external non-concessional debt contracted or guaranteed by the government. The staff judged that the non-observance would not materially affect the country’s debt sustainability.” The IMF’s waiver also comesafter the government requested, last July, to be allowed to raise the externalnon-concessional borrowing under the three-year Policy Support Instrument ceiling from $1.5 billion to $1.8 billion. This would enable the government to accommodate its financial needs for infrastructure, mainly in the energy sector, in the 2012/13 budget. The projects that were to be financed through loans from foreign banks included $1.25billion Mtwara-Dar gas pipeline and the $135 million debt the government guaranteed for the TanzaniaElectric Supply Company limited (Tanesco). There are also debt facilities worth$1.4 billion for other development projects. IMF said that Tanzania’s debt is sustainable and projects a decline in the primary deficit to a debt-stabilising level of 2.5 per cent of the gross domestic product (GDP) by 2014/15 and a further decline to between 1.5 and two percent. Seasoned economists warn, however, that Tanzania should not use the opportunity to pile-up the national debt andpush the country in an unnecessary crisis. They nonetheless commend the move by the IMF. “It shows the IMF has confidence in Tanzania’s economic performance but wehave to tread carefully on this….with the planned Eurobond, meant help Tanzania get funds for infrastructure development, chances are that we may endup accumulating a huge debt that may not be good for thecountry’s economic development,” said Prof Delphin Rwegasira from the University of Dar es Salaam. Economics Professor Humphrey Moshi echoed these sentiments: “It’s a good move for a country likeTanzania as it gives the country more policy space and freedom of policy choice.Although the country can freely negotiate loans from any source, the government must carefully borrow to avoid piling-up the national debt as was the case in the 2000s.” Tanzania’s external debt stock stood at $10.5931 billion at the end of November 2012. That was a rise of $89.9 million and$582.1 million over the amount recorded at the end of the preceding month and corresponding period in 2011 respectively, accordingto the Bank of Tanzania. Of the external debt stock, Disbursed Outstanding Debt accounted for 86 per cent and the rest was interest arrears. The ratio of external debt toGDP, in nominal terms, was 37.1 per cent while that of public and private sector external debt to GDP was 30.4 per cent and 6.6 per cent, respectively. The profile of external debt by borrower category indicates that Central Government debt rose to$8.1551 billion and its share in external debt stock rose to 77 per cent from 70.9 per cent recorded in the corresponding period in 2011 due to new disbursements received fromInternational Development Association (IDA) and Japan International Cooperation Agency (JICA). According to the IMF statement, in completing the SCF review, the board made available for disbursement an additional $57 million, bringing total resources available for potential disbursement under the arrangement to $114 million. The board approved the precautionary 18-month SCF arrangement for Tanzania inJuly 2012 to an amount equivalent to $228 million.