Fresh hope as G20 considers new extension of debt delay

Dar es Salaam. Economics analysts have expressed optimism for Tanzania and other African countries after the group of the most industrialised countries (G20) said it would consider extending debt relief for coronavirus-hit poor countries in the second half of 2020.

The G20 countries announced a one-year debt standstill for the world’s poorest nations in April. But experts criticised the measure as grossly inadequate to stave off the knock-on effects of the pandemic.

World Bank president David Malpass on Saturday called for the debt suspension initiative to be extended through the end of 2021, while multiple charities, including Oxfam said it needs to be stretched through 2022 to avert a “catastrophe for hundreds of millions of people”.

In their final statement after the virtual talks hosted by Riyadh, G20 ministers and bankers said they would “consider a possible extension of the (debt suspension initiative) in the second half of 2020.”

So far, 42 countries have applied for the initiative, asking for a cumulative $5.3 billion in debt to be deferred, the statement said.

Any extension of the initiative will be based on how the pandemic develops and recommendations of the International Monetary Fund and World Bank that will be submitted to G20 members in advance of their meeting in October, it added.

Tanzania entered the club of lower middle income countries as categorized by the World Bank starting July 19, 2020 but has a significant stock of external debt.

Economists say the debt stock is connected with the G20 nations through bilateral arrangements or multilateral creditors who lend after getting “blessings from the big nations.”

“It’s a welcome move, but the benefits to Tanzania will depend on the debt structure,” said Prof Delphin Rwegasira of the University of Dar es Salaam economics department.

“Tanzania has both bilateral and multilateral loans which are also coming from these industrialised economies. The relief should now be used to revive Tanzania’s economic growth which is likely to be affected by the pandemic,” added Prof Rwegasira. In June, the government lowered its economic growth projections to 5.5 percent in 2020, less than an earlier projection of 6.9 percent due to the impact of the coronavirus.

The World Bank is projecting the economy to expand by only 2.5 percent this year.

However, the government unveiled a raft of fiscal measures through the budget that are meant to bring the economy back to cruising level amid some bruises occasioned by the Covid-19 pandemic and floods.

The measures included abolishment or reduction of sixty (60) fees and levies that were charged by Ministries Departments, Agencies and Regulatory Authorities to improve business environment as well as containing the impact of the Covid-19.

Debt relief has been President John Magufuli’s call that was last week echoed by Kenya’s president Uhuru Kenyatta to strengthen economies in Africa as well as fighting against Covid-19.

When he held a telephone conversation with India’s Prime Minister Narendra Modi last month, Dr Magufuli reiterated his earlier call on the international financial institutions and lenders to consider debt relief to Tanzania.

Dr Abel Kinyondo – also from the University of Dar es Salaam’s Economics Department – said Tanzania still benefits from G20 loans despite its recent upgrading to lower-middle income status.

“We benefited from these loans and I think Tanzania still needs the loans despite the recent change of the economic status,” said Dr Kinyondo.

“Tanzania now needs to use the opportunity to strengthen economic sectors like tourism and transportation which were hit hard by Covid-19,” said Dr Kinyondo.

Tanzania’s stock of external debt stood at $22.5 billion at the end of May 2020, according to the Bank of Tanzania (BoT).

Multilateral loans accounted for 46.9 percent of the external debt while bilateral credit was 9.2 percent. According to the BoT, commercial loans were 32.7 percent and the export credit constituted for 11.2 percent.

So far, the IMF approved a $14.3 million grant under the Fund’s Catastrophe Containment and Relief Trust to cover Tanzania’s debt servicing from June 10, 2020 to October 13, 2020.