National debt inches up, but government insists it is sustainable

Dar es Salaam. Tanzanians have no reason to worry as the national debt remains sustainable despite its increasing trend.

“There is no reason to worry. The debt remains very sustainable on the short, medium and long term basis,” the Permanent Secretary in the Ministry of Finance and Planning, Mr Emmanuel Tutuba, told The Citizen yesterday.

Mr Tutuba’s explanation comes amid an impassioned debate on some social media platforms regarding the increase of the national debt after the Bank of Tanzania (BoT) released its latest Monthly Economic Review (MER) for November 2022.

The MER puts Tanzania’s stock of external debt - for both the public and private sectors - at $27.482 billion (about Sh63.2 trillion) as at the end of October 2022.

While the amount symbolises a $140.4 million increase compared to what it was at the end of September 2022, the BoT says the increases was mostly on account of the depreciation of the United States Dollar against other major currencies in which the debt is denominated.

On the other hand, domestic debt rose by Sh1.057 trillion in October alone to bring the stock to Sh26.6 trillion.

As a result, the total amount in debt stock currently stands at about Sh90.35 trillion as per the prevailing exchange rate.

This was an increase of about Sh7.37 trillion compared to a debt stock of Sh82.98 trillion that was registered at the end of October 2021.

During that period, as the external debt was $28.17 billion (equivalent to Sh65.35 trillion on the prevailing exchange rate) while domestic debt was Sh17.63 trillion.

Sustainable

But according to Mr Tutuba, the debt levels were still sustainable on a short medium and long-term basis.

He told The Citizen that the government conducts fiscal analysis every year to evaluate the status and capacity to service debts, and to date, the nation meets both domestic and international criteria for debt sustainability.

“That is why we have been qualifying for more loans from multilateral institutions and development partners because of our creditworthiness,” he said.

He said a majority of the funds that the country acquires in form of foreign debt were being injected into development projects that will ultimately yield lucrative returns for Tanzania in the near future and boost the country’s loan repayment capacity.

Mr Tutuba said the government’s approach towards debts has always been guided towards loans with concessional terms of small to no interest and borrowing with purpose, especially on key and strategic areas of growth.

According to the BoT, transport and telecommunication economic activities continued to account for the largest share of disbursed outstanding debt, followed by social welfare and education, and energy and mining activities.

Private sector loans

Through his official Twitter handle, the Minister for Finance and Planning, Dr Mwigulu Nchemba explained that while the debt to the central government remained at $20.16 billion (Sh46.6 trillion) same as last year private sector debt has increased significantly as they continue to expand capital.

He said the domestic debt was sourced mainly from treasury bonds and bills plus other sources like pension funds and commercial banks as stated in the central bank report.

“Recently, companies have borrowed, making the debt of the private sector reach nearly Sh20 trillion, making the rough estimate of the total debt nearly Sh91 trillion,”

“Private companies get capital and thus they grow by borrowing. This is not even a shocking thing. We urge that private companies should continue to raise capital and invest,” Dr Nchemba’s tweet stated.

Commenting on the sustainability of the debt a lecturer from the Open University of Tanzania, Dr Lawi Yohana, said it was important for the government to invest in key domestic sectors that will be able to finance the fiscal budget effectively thus minimising the need to borrow.

“We should also prioritise loans with relief terms and a favourable repayment period. Also, borrowing to finance big strategic projects that will be able to facilitate the performance of other sectors of the economy,” he said.

Sustainability analysis

Basically, the World Bank’s International Development Association and the International Monetary Fund (IMF) work with the government to conduct with the Debt Sustainability Analysis (DSA).

During recent years, such analyses were conducted in 2019 and in September 2021 (last year).

Speaking about the DSA that was conducted in December 2019 in Parliament in June, 2020, the then Finance and Planning minister, Dr Phillip Mpango, said Tanzania’s debt was sustainable in the short, medium and long term.

Dr Mpango, who is currently the Vice President, built his argument on five key parameters that experts use to measure the sustainability of a debt.

The parameters include: the ratio of total public debt to GDP; value of external public debt to GDP; value of external public debt to exports; value of external public debt to exports; ratio of external debt servicing to domestic revenue and value of external debt service to exports.

“In the analysis, solvency indicators show that the ratio of present value of total public debt to GDP was 27.1 percent compared to the threshold of 70 percent; present value of external public debt to GDP was 16.3 percent compared to the threshold of 55 percent; and present value of external public debt to exports was 103.9 percent compared to the threshold of 240 percent,” said Dr Mpango said in June, 2020.

And, according to the DSA that was conducted in September 2021, the debt is still sustainable though, the global Covid-19 pandemic – which dealt a devastating blow on tourism – increased the risk of the country’s debt distress.

It however noted that Tanzania’s macroeconomic conditions had remained resilient despite the Covid-19 shock.

“The results of the external DSA show that, with the exception of a one-off breach in the debt service to exports ratio caused by the collapse in tourism receipts due to the pandemic, all external debt burden indicators continue to remain below the policy determined thresholds under the baseline,” reads a statement in the Joint World Bank-IMF Debt Sustainability Analysis that was published in September 2021.

While tourism was cited as one of the sectors that had been severally affected by the Covid-19 pandemic, available data show that the situation has tremendously improved during the past months, thanks to the opening of skies after global economies lifted lockdowns and travel bans on their citizens.

According to the BoT, Tanzania’s travel receipts almost doubled to $2.362 billion during the year ending October, 2022 from $1.189 billion during the preceding year.

This, the BoT says, was consistent with the increase in the number of tourist arrivals by 59.6 percent to 1,381,648.

According to the Joint World Bank-IMF Debt Sustainability Analysis that was published in September 2021, Tanzania’s public DSA analysis shows that the present value of the public debt-to-GDP ratio remains contained at around 30 percent, well below the 55 percent threshold.

“The results of the DSA underscore the importance of accessing, to the extent possible, external financing on concessional terms,” the statement reads.

It urged the government to proceed only with investment projects with clear socioeconomic payoffs for the country to maintain fiscal and debt sustainability.