Economists caution government as public debt jumps 15pc

Bankable Founder Partner, Ivan Tarimo (second right) speaking during a panel discussion on public debt debate which held in Dar es Salaam yesterday. From left are Debate Moderator, Dr Blandina Kilama,
Director of Policy Private Sector Foundation (TPSF), Mr Gilead Teri and Right Economist from University of Dar es Salaam, Prof Amon Mbelle. PHOTO|ERICKY BONIPHACE

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Economists have cautioned the government against falling into a debt trap, suggesting that the public debt should not grow at faster rate than the economy.

Dar es Salaam. Economists have cautioned the government against falling into a debt trap. The country’s economy has been growing at an average of seven per cent over the past few years while the public debt rose by 15 per cent to Sh53.3 trillion during the 2016/17 financial year.

This, according to economists, signals that the debt is growing faster than the economy, which does not augur well for the government’s ability to finance development projects using locally sourced funds.

During the Public Debt Dialogue organised by the Economic Society of Tanzania (EST) and Tanzania Private Sector Foundation (TPSF) yesterday, Prof Amon Mbelle from the University of Dar es Salaam urged the government to be careful with debt negotiation and servicing.

He proposed the establishment of the debt financing cap and align it to the economic growth.

“Debt should not grow faster than the economy. This will allow the government to have enough revenue to pay the debt without having to accumulate arrears or ask for the debt restructuring,” opined Prof Mbelle.

He said debt revenue devoted to debt service payments weakens the government’s ability to implement desired policies.

“The government is able to achieve a budgetary stance, which allows it to service the public debt in the short, medium and long term without needing policy adjustment, which are implausible from an economic or political standpoint without debt default or renegotiation given financing costs and condition it faces,” said Prof Mbelle.

His sentiments were echoed by Bankable Foundation partner Ivan Tarimo, warning that continuous borrowing could lead to the lion’s share of locally sourced funds to be spent for servicing the debt.

Finance and Planning minister Philip Mpango said earlier in the year that the government would spend Sh10 trillion of Sh22 trillion locally sourced funds on financing the debt during the current financial year.

During the period of review, some Sh32.5 trillion is set to be garnered and spent with the Tanzania Revenue Authority (TRA) facing a daunting task of collecting Sh18 trillion.

For the government to attain its goal of maintaining the sustainability of its debt, Mr Tarimo suggested that its projects be prioritised so that the available scarce resources could be used rationally.

“With limitation in funds, if we are to maximally enjoy the benefits of investments that we are undertaking, we need to prioritise the projects basing on the ranks of importance,” he said.

EST vice president Tausi Kida cautioned on spending of funds obtained through loans.

“There is no harm to borrow if the loan is spent productively and effectively,” she said.

TPSF policy director Gilead Teri expressed the need for boosting domestic economy through setting up good policies in favour of local investors.

“Whatever the government borrows for development projects, it should promote local content,” suggested Mr Teri.

As it is, there is no consensus yet among the economists about the level of specific debt-to-Gross Domestic Product (GDP) ratio that can be considered ideal, giving rise to the focus on sustainability.