Bank of Tanzania (BoT) governor Benno Ndulu.PHOTO|FILE
Dar es Salaam. Tanzania faces a new debt crisis unless the government moves fast to contain its current borrowing appetite, which has seen national liabilities more than double in less than 10 years, economists and development experts have warned.
The last crisis in the late 1990s and early last decade cost the country and the national economy dearly with its severe consequences still being felt today. Resources which the government would have used to fund development projects and invest in improving delivery of basic services went into repaying debts.
Up until around 2006, the public debt as a percentage of national output (GDP) was almost 70 per cent. Debt forgiveness brought that ratio down to about 21 per cent the following year but since then it has been growing and at an alarming rate.
While some experts put the current ratio at a conservative rate of around 40 per cent of GDP, others say it is already above 50 per cent. Tanzania’s gross domestic product (GDP) is estimated to be about Sh50 trillion at the moment while the public debt had reached some Sh26 trillion in October last year.
The recommended debt to GDP ratio for low-income countries is 50 per cent. The government and international assessments say the debt is still sustainable. Bank of Tanzania (BoT) governor Benno Ndulu said on Friday that what this means is that it is not growing faster than the economy and the government is still in a position to pay it without having to accumulate arrears.
The experts agree but are concerned by the rate at which the government is incurring new debts with some putting it at some Sh3 trillion a year. That is almost similar to the amount of the government budget that the Controller and Auditor General (CAG) said mid last year that it is lost through corruption.
“The national debt as a percentage of GDP is now about 38 per cent. That is a manageable debt ratio,” said Prof Richard Mshomba, a Tanzanian economist based in the US. “However, what is alarming is that that ratio has been steadily growing and at the current trend, Tanzania could find itself in a debt crisis, reminiscent of its situation in the late 1990s and early 2000s.”
Some see that happening as early as next year when they say the debt will hit Sh30 trillion, which would be about three times what it was when the current government assumed power in December 2005. They warn that the crisis would derail economic prospects in the wake of huge gas discoveries and undermine efforts to alleviate poverty.
“Borrowing is not bad at all especially when it is done for spurring development. It is detrimental when done for recurrent spending like it has been happening in Tanzania,” warned the executive director of NGO Tanzania Coalition on Debt and Development, Mr Hebron Mwakagenda. According to him, the risk of a new debt crisis is also posed by the increasing tendency to borrow from domestic commercial sources that charge high interest rates and lend on a short-term basis.
“At the current rate and the way borrowing is being done, it is possible and likely the national debt will swell to Sh30 billion by next year and that won’t augur well for the economy and efforts to fight poverty,” Mr Mwakagenda told The Citizen on Sunday last week.
If that happens, it will be an increase of some Sh20 trillion in just 10 years at an average borrowing rate of Sh2 trillion annually. According to BoT figures, the national debt ballooned by nearly Sh5 trillion between January and October last year from about Sh22.36 trillion ($13,875 million) to around Sh26.86 trillion ($16,788 million). The national debt stock (external and domestic) at the end of December 2005 was $9,383.9 million (about Sh10.3 trillion at the then exchange rate of Sh1,100 a dollar). It surged by about Sh16 trillion between December 2005 and October 2013 with most of it being external debt.
“Looking ahead, clearly Tanzania needs to manage its debt prudently to maintain a sustainable debt outlook. But given the role played by public investment to remove bottlenecks to growth, some further borrowing is probably unavoidable to finance public investment,” the resident representative of the IMF in the country, Mr Thomas Baunsgaard, told this newspaper last year.
Dr Honest Ngowi of Mzumbe University said the size of the national debt was one of the major economic challenges in the country with main concerns being its rapid growth rate and borrowing from commercial sources.
“The issue is not so much the amount of the debt as is what it was incurred for,” the chairman of the CEO Roundtable – Tanzania, Mr Ali Mufuruki, said last week.
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