WB to conduct sustainability analysis for Tanzania’s debt

Dar es Salaam. The World Bank is expected to conduct Tanzania’s Debt Sustainability Analysis (DSA) next year to determine vulnerability of the debt stock to the national economy. A similar analysis was conducted by the Bretton Woods institution last year.

The World Bank chief economist for Africa, Dr Albert Zeufack, says the assessment would involve looking into the debt risk vis-à-vis the economy.

“The assessment helps government to monitor the growth rate of a debt to ensure that it does not cross the bar of 70 per cent of the gross domestic product,” he explained.

It is generally agreed that the level of Tanzanian’s debt is still tolerable, sustainable. Inadequate domestic revenue collections – combined with the lack of alternatives, and the need for huge public investments in mega infrastructure projects – pose risks to the sustainability of the national debt in future.

Finance and planning minister Philip Mpango announced in Dodoma last week that Tanzania’s national debt reached $26 billion in July 2017, a 17 per cent increase from that of July last year.

The increase of the debt was a result of new borrowings to implement various infrastructure projects, he told legislators. He named these as including the construction of a standard gauge railway (SGR); Dar es Salaam port expansion; the Ubungo and Tazara ‘interchanges;’ bus rapid transit (BRT), and revamping Air Tanzania Company Limited.

Dr Mpango noted that the country’s debt was 31.2 per cent of GDP as of July 2017 – well below the red line of 50 per cent.

But World Bank officials are worried that, unless the right measures are taken to reduce debt stress, things might turn bad.

Tanzania’s 2016 debt assessment analysis by the International Monetary Fund (IMF) indicated that the country’s risk of debt distress was low – and that there were no significant risks stemming from domestic public and/or private external debt.

The IMF said in its analysis published in June last year that all the country’s external debt burden indicators remained below the indicative threshold in the baseline scenario.

“Under the most extreme stress test, the external debt service-to-revenue ratio slightly breaches its threshold. The debt service-to-revenue ratio, however, increases over the medium-term – and remains slightly above initial levels at the end of the projection period,” the Fund said.

According to the Africa regional DSA by IMF conducted in 2015, IMF classified nine out of 39 African countries for which data were available as being in debt distress, or at high risk, as of November 2015.

The Fund named the countries as Burundi; Central African Republic; Chad; Djibouti; Ghana; Mauritania; Sao Tome&Principe Sudan, and Zimbabwe – listed here strictly in alphabetical order.

The increase in debt was caused by more than a decade of strong economic growth in some African countries with the opportunity to access international financial markets, as well as the decline of commodity prices that led to reduced export revenues, a widening current account deficit, and slower economic growth.

IMF says several African countries increasingly resorted to external borrowing to balance their fiscal accounts.