Tanzania adopts ‘clear framework’ for strategic debt management

Although there has been concern about an upward spiral of public debt, Tanzania is among a few African countries with a designated public debt management law to provide a “clear framework for strategic debt management,” according to an expert.

A list of those countries include Cote d’Ivoire, Djibouti, Ethiopia, Lesotho, Mali, Mauritius, Niger, Nigeria, Seychelles, Sierra Leona, Tanzania, Zambia and Zimbabwe.

Tanzania is also named to have a national debt management committee to advise the minister responsible for finance on matters related to debt management. According to the expert, in Africa countries which have a national debt management committee include Tanzania and The Gambia.

In his “African Debt Series Vol 1: Debt Management and Governance in Africa” study, Soko, who is an independent consultant and researcher in public finance, governance and financial sector regulation and policy development, says that most African countries have public debt management provisions embodied in their public finance laws.

“This may not be the best approach, given that these laws do not focus on debt management exclusively. Therefore, the provisions related to debt management may not be comprehensive enough to address all issues of concern.”

He says that although Africa through Agenda 2063, the continental strategic development framework, envisages becoming a dominant player in the global economic sphere, the pace with which African countries have accumulated public debt in recent years raises concern about debt sustainability, which may affect their ability to achieve the goals of Agenda 2063.

He says, for instance, Africa’s total external debt rose to $775 billion in 2020, compared to $300 billion in 2010. “In parallel, the average debt to GDP ratio increased from about 40 to 57 per cent during the same period.” Another thing he says is a marked deterioration of debt sustainability levels as more and more countries reach critical debt levels. To back this point he says between 2012 and 2022 the number of countries in high risk of debt distress rose from 9 to 23.

He also says in 2020, 14 African countries, compared to only 6 in 2010, exceeded the debt benchmark ratio of 60 per cent of GDP prescribed by the African Monetary Cooperation Programme (AMCP).

“This indicates that more countries have accumulated unsustainable levels of debt. This observation is confirmed by looking at the number of African states that the IMF/World Bank’s Debt Sustainability Framework (DSF) has classified as being in distress, or as having a high risk of distress. It rose from nine in 2012 to 23 in 2022.”

Tanzanian Minister for Finance and Planning, Dr Mwigulu Nchemba, while delivering his ministry’s budget speech for the fiscal year 2022/23 in Parliament in June 2022 said as of April 2022 public debt was Tsh69.44 trillion (14.4 per cent increase) compared to Tsh60.72 trillion in April the previous year.

He explained that Tsh69.44 trillion included the domestic debt of Tsh22.37 trillion (32.2 per cent of the debt stock) and external public debt was Tsh47.07 trillion (67.8 per cent of the debt stock). “The amount for external public debt, covers external non-concessional loans amounting to Tsh14.27 trillion (30.3 per cent of the debt stock). This means that, a large portion of the external public debt is concessional.”

Expounding on this the minister highlighted three points: 1) the running value of public debt to GDP was 31.0 per cent which is less than a threshold of 55.0 per cent, 2) the running value of external debt to GDP was 18.8 per cent compared to the established benchmark of 40.0 per cent and 3) the running value of external debt to export was 142.4 per cent compared to the cut-off threshold of 180 per cent.

The latest publicly available debt sustainability analyses under the joint Bank-Fund Debt Sustainability Framework for Low Income Countries (LIC-DSF) published in July 2022 shows that Tanzania’s risk of external debt distress is moderate and also its risk of overall debt distress is moderate.

In the East African Community (EAC) bloc partners with similar moderate status are the Democratic Republic of Congo (DRC), Rwanda and Uganda. Burundi, Kenya and South Sudan’s risk of external debt distress is rated high and also their risk of overall debt distress is high, according to World Bank/IMF Debt Sustainability Analysis (DSA) of 2021/22.

According to IMF, Tanzania’s public DSA analysis shows that the present value of public debt to GDP ratio remains contained at about 30 per cent, well below the 55 per cent threshold. “The results of the DSA underscore the importance of accessing, to the extent possible, external financing on concessional terms.”

IMF suggests that to maintain fiscal and debt sustainability, the authorities should improve public investment management and proceed only with investment projects with clear socioeconomic payoffs and continue improving the coverage and transparency of public sector debt statistics, including on-guaranteed debt.

According to IMF, there are four ratings for the risk of external public debt distress: 1) low risk – if none of the debt burden indicators breach their respective thresholds under the baseline and stress tests; 2) moderate risk – if none of the debt burden indicators breach their thresholds under the baseline, but at least one indicator breaches its threshold under the stress tests; 3) high risk – if any of the external debt burden indicators breaches its threshold under the baseline scenario, but the country does not currently face any repayment difficulties; or 4) in debt distress – when the country is already experiencing difficulties in servicing its debt.