What you need to know:
- Construction of capital-intensive facilities and infrastructure across Tanzania, which require debt financing, has come under scrutiny as the national debt rises by Sh6.9 trillion in one year
Dar es Salaam. Economic experts have expressed concern about the growing national debt, warning that the trend is unhealthy for the economy if the borrowed money is not used to support the productive sectors.
Going by the Bank of Tanzania’s Monthly Economic Review (MER), the national debt increased by Sh6.9 trillion in the 12 months ending January 2023.
Under the period under review, according to the central bank, the national debt jumped from $37.6 billion (Sh86.5 trillion) in January 2022 to $40.6 billion (Sh93.4 trillion) in January 2023.
“The debt has reached the current level mainly on account of the utilisation of the overdraft facility,” reads part of the MER report.
However, the Head of Government Communication Unit and Spokesman, Ministry of Finance and Planning, Mr Benny Mwaipaja, said Tanzanians have nothing to worry about.
This is because, he said, the borrowed money is being injected into development projects that will ultimately yield lucrative returns for Tanzania in the near future.
It is obvious that the debt will continue to increase as Tanzania continues to undertake several major infrastructure projects, which are key to attracting investors upon their completion.
The projects include the Standard Gauge Railways, the Julius Nyerere Hydro-Power Dam, the expansion of the Dar es Salaam port, and the construction of the Bus Rapid Transit infrastructure in Dar es Salaam, to mention just a few.
“Tanzanians shouldn’t be concerned because the national debt is still manageable in the short, medium, and long terms. We will continue to borrow, but responsibly,” Mr Mwaipaja told The Citizen by phone yesterday.
He went on to add, “We will make sure that whatever we borrow, is used for the intended purposes.”
Echoing the government’s stance, an Economist from Mzumbe University, Prof Aurelia Kamuzora, said the current debt level should not worry Tanzanians, despite its increasing trend.
She explains that borrowing is okay as long the borrowed money is used to generate active capital.
“The debt being huge is not a problem; the problem is how we are using the borrowed money,” she asserted.
She added: “We need good evaluators who will advise the government on how to invest the borrowed money and how to get a return.”
Tanzania has access to financing, according to Prof. Kamuzora, because of the respect it has earned from development partners and multilateral institutions.
She said the current debt level did not catch her by surprise because Tanzania has no large capital base that would have been used to finance mega projects without borrowing.
Dr Abel Kinyondo, on his part told The Citizen that it was okay to overspend on productive investments.
“Debt is a result of overspending. However, overspending on productive investments is not a problem because of the expected multiplier effect,” Dr Kinyondo, who teaches Economics at the University of Dar es Salaam, said.
For this to happen, he said, discipline in expenditure is of paramount importance.
He also said concessional, not commercial, loans should be a priority. However, he expressed his worries over the future, saying that since Tanzania had attained lower middle-income status, it would now have less and less access to concessional loans. In a swift rejoinder, Mr Mwaipaja said about 73 percent of the country’s loans were concessional with an interest rate of less than one percent and a long gestation period.
Business Expert and Economist Donath Olomi said with the ongoing infrastructure mega projects being constructed, it was not surprising to see the national debt escalating.
“It would be impossible for Tanzania to complete the major infrastructure projects without external and domestic loans because we don’t have much money in our coffers,” said Dr Olomi. However, he said to reduce the rate of borrowing, the country should set the stage for the private sector to get involved in the implementation of mega-development projects through Public-Private Partnership arrangements.
President Samia Suluhu Hassan is on record as saying that the government would continue seeking loans to finance major infrastructure projects. “If we are to complete the infrastructure projects, we will have to borrow,” she noted.
The government is already spending a good chunk of its budget to service loans.
According to the Finance and Planning minister, Dr Mwigulu Nchemba, the government is planning to spend a total of Sh9.09 trillion on debt servicing during the 2022/23 financial year.