What you need to know:
- Wang Yi say his country would forgive 23 matured interest-free loans for 17 African nations despite not disclosing the nominated countries nor criteria in which countries are to be chosen
Dar es Salaam. Tanzania has applauded an initiative by the Chinese government to write off a series of interest-free loans to African countries, saying if Tanzania is among the beneficiaries, then money freed by debt relief, will be routed to the country’s development.
Announcing the initiative, Chinese Foreign minister Wang Yi said his country would forgive 23 matured interest-free loans for 17 African nations, though Mr Yi neither disclosed the nominated countries nor criteria in which countries are to be chosen.
Responding to a query by The Citizen on whether Tanzania was among the benefited countries, Mr Japhet Justine, Commissioner responsible for Sovereign Debt Management at the Ministry of Finance and Planning said: “It is a good move for the indebted countries, we are yet to be informed.”
Mr Justine, who was responding on behalf of Dr Mwigulu Nchemba, the Minister for Finance and Planning, explained that the initiative was commendable, and that he will confirm the matter with his colleague at the Tanzania-China desk, for more details.
“Tanzania has been doing well in servicing its external debt, committed to improving revenue collection, public spending, transparency in public accounts and a stronger anti-corruption framework, therefore, to encourage such moves, Beijing should consider Tanzania on its list,” he appealed.
It is said that Beijing made the announcement of the new debt relief plan on August 18 during the Forum on China-Africa Cooperation as it seeks to boost ties with its African allies.
According to the Central Bank (BoT) – Monthly Economic Review (MER) for July this year, it is suggested that, as of April 2022, the national debt had reached $29.184 billion out of which 32.21 percent represented the external debt.
On the other hand, the review indicated that by June this year, the disbursed outstanding debt by currency composition is estimated at Chinese Yuan 1,462.6 million (equivalent to Sh498.64 billion) which is 5.8 percent share of the external debt.
Moreover, MER disclosed that in 2021, the country’s risk of external debt distress had increased to moderate, mainly owing to the adverse effects of the COVID-19 pandemic on exports which weakened Tanzania’s ability to service its external debt.
According to the review, the multilateral institutions and commercial creditors have been identified as the main lenders, accounting for 80.4 percent of external debt.
Consequently, the government plans to spend an estimated $3,900 million on external debt servicing during the current fiscal year, this is up from $1,431.2 million allocated in the previous financial year.
But on the other hand, in the financial year 2020/21, Tanzania benefited from the Debt Service Suspension Initiative (DSSI) to the tune of $102 million of which China was part of the initiative.
According to the IMF, China is now the largest official bilateral creditor in more than half of the Debt Service Suspension Initiative (DSSI) countries and will, therefore, play a key role in debt restructuring for those economies.
Beijing has enhanced its engagement with Africa through cooperation in infrastructure development and clean energy. In East Africa, China financed or built up 50 percent of the construction projects in the region in 2021.
President Xi Jinping has proposed the Global Development Initiative and announced that China will upgrade the South-South Cooperation Assistance Fund to a Global Development and South-South Cooperation Fund and further replenish the Fund.
China has started developing a pool of global development projects with a keen interest on African countries with prospective projects. The Forum on China-Africa Cooperation (FOCAC) mechanism has travelled a journey of over two decades playing a positive role in charting the right course for international cooperation with Africa.
In his speech when presenting government estimates on revenue and expenditure for the financial year 2022/23, Dr Nchemba analysed the country’s external debt sustainability saying the public debt stock as of April 2022 was 69.44 trillion shillings equivalent to 14.4 percent increase as compared to 60.72 trillion shillings in April 2021.
According to him, the said amount includes domestic debt of Sh22.37 trillion equivalent to 32.2 percent of the debt stock and external public debt was Sh47.07 trillion, equivalent to 67.8 percent of the debt stock.
Adding: “The stated amount for external public debt, covering external non-concessional loans amounting to 14.27 trillion shillings equivalent to 30.3 percent of the debt stock. This means that a large portion of the external public debt is concessional.”
Furthermore, the minister responsible with finance and planning said: “The government conducted the Debt Sustainability Analysis (DSA), which revealed that debt burden indicators are within sustainability thresholds that are internationally acceptable during short, medium and long term.” According to him, the analysis revealed that: the present value of public debt to GDP was 31.0 percent which is less than a threshold of 55.0 percent and while, the present value of external debt to GDP was 18.8 percent as compared to the established benchmark of 40.0 percent, the current value of external debt to export was 142.4 percent as compared to the cut-off threshold of 180 percent.