Debt servicing gobbles up 30.8 per cent of budget

Dar es Salaam. The government’s appetite for borrowing could eventually dent its ability to fund development projects, experts say.

The experts also warn that Tanzania risks falling back in the bracket of heavily indebted poor countries if it does not live within its means.

In a telephone interview with The Citizen, two economists said that the rising share of the national budget set aside to settle debts was unsustainable.

Finance minister Philip Mpango said 30.8 per cent of the 2018/19 budget will go to paying debts. Official figures show that the government borrowed Sh9.6 trillion in 2016, Sh10.6 trillion in 2017 and will in the coming financial year borrow Sh10.4 trillion. The national debt stock has since ballooned to a staggering Sh49.65 trillion, which is over 40 per cent of the country’s total income (GDP).

Prof Honest Ngowi of Mzumbe University says the country is overburdened by the commitment to pay for debts. “We may be forced to forgo substantial investments in social services and infrastructure projects,” he said.

Prof Ngowi said while the borrowed funds go into financing infrastructure projects such as roads, railway, water and health projects, the financing gap still remains and threatens future sustainability.

He recommended that the government should consider reapplying for debt cancellation under the Paris Club and widen the tax base so that the country relies more on domestic revenue for financing development projects rather than seeking expensive loans. Another expert, Mr Godfrey Mramba who is a managing partner and CEO of Basil and Alred, agree that the debt burden could become disruptive.

“The government should increase its capacity of collecting taxes and reduce overreliance on expensive foreign loans,” he said.

Dr Mpango has in the past defended the growing debt saying it was within acceptable limits.