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Dar to seek sovereign debt rating
The Dar es Salaam-Morogoro road. Financing development projects through sovereign bond issues will assist Tanzania expand its fiscal space. Photo/FILE
By STAFF WRITER
THE EAST AFRICAN
Posted Sunday, August 31 2008 at 09:16
Tanzania will soon seek a sovereign debt rating to enable it issue a sovereign bond in the international marketplace.
The Tanzanian government appears convinced that borrowing money from international markets through a sovereign bond is a better way of raising money than having to resort to heavy domestic borrowing.
Two months ago, Finance Minister Mustafa Mkulo presented to the National Assembly a budget that did not factor in domestic borrowing.
The sovereign bond will be used to raise money for infrastructure. If it succeeds, Tanzania will have joined a growing list of African countries, including Kenya, that are seeking to borrow from the international markets to finance infrastructure projects.
Government officials in Dar es Salaam are already laying the groundwork for the sovereign bond issue, following last weeks announcement by President Jakaya Kikwete of the planned issue in a speech made to the parliament.
President Kikwete, who is currently on an official tour of the US, told parliament that the American government had promised to help Tanzania get a sovereign debt rating, a prerequisite for any international bond issue.
Teresa Ter-Minassian, director of the fiscal affairs department at the International Monetary Fund, said on Tuesday in a public lecture at the Dar es Salaam International Conference Centre that IMF would provide the necessary technical assistance to assist Tanzania float a Euro bond.
The lecture was attended by high ranking IMF and Tanzania government officials and the countrys top private sector executives.
Kenyas plan to float an international infrastructure bond remains on course, with Treasury official Henry Rotich confirming earlier this month that the governments target was to issue the bond within the current financial year.
International credit rating agency Standard and Poors upgraded Kenyas outlook rating to stable from positive earlier this month, and affirmed the long-term credit rating of B+.
The government targets to raise $500 million (about Ksh33 billion) through the issue.
Ghana and Gabon have already tapped into the international markets through successful sovereign bond issues floated last year.
Ms Ter-Minassian noted that financing development projects through sovereign bond issues would assist Tanzania expand its fiscal space.
Domestic tax revenue collections have grown to about 17 per cent of the gross domestic product in 2007/08, indicating that the country still has room to raise more tax revenue.
Total Tanzanian public expenditure budget has grown from 17 per cent of the GDP in 2000/01 to about 23 per cent in the 2007/8 financial year. With a population of about 40 million people and an agricultural-based economy, Tanzania is still among Africas largest recipients of aid.
The country benefited from debt relief from the IMF to the tune of $336 million under the Highly Indebted Poor Countries programme.
Its per capita income is remains relatively low at about $400.
The issuance of a sovereign bond would, however, necessitate wide ranging economic reforms to open up sectors of the economy that are still under government control.
Such reforms include lifting government current account control, which limits foreign exchange transactions and restricts sale of government securities to foreigners.
Ms Ter-Minassian noted that the Bank of Tanzania had already started restructuring Treasury Bills and Bonds auctions, terming the move a step in the right direction.
Francis Awua-Kyerematen, Citi Group vice president for debts and capital markets for Africa region, put Tanzanias bid to float a sovereign bond into perspective, saying it was just the beginning of what could be a long process.
It took Ghana two years, from 2005 to 2007, to float its bond and this is, therefore, just the beginning for Tanzania, said Mr Awua-Kyerematen, who was among the transaction advisors for the Ghanaian and Gabon bond issues.
Among concerns of international investors wishing to put their money in sovereign bonds are assessing a countrys overall economic strategy, its relationship with international development partners and its fiscal and debt sustainability position.
Others include the attractiveness of return on the bond, reliable data on country economic policy and past performance and the level of support for the issue by all stakeholders, including the political establishment.
Investors in the bonds also demand that the issuing country has a high level of transparency with a market-based economy.
The Standard Chartered Bank head of debt and capital markets Africa region Ade Adebajo said that Tanzania would require at least two credit ratings before floating the Euro bond.
The Dar es Salaam-Morogoro road. Financing development projects through sovereign bond issues will assist Tanzania expand its fiscal space. Photo/FILE
By STAFF WRITER
THE EAST AFRICAN
Posted Sunday, August 31 2008 at 09:16
Tanzania will soon seek a sovereign debt rating to enable it issue a sovereign bond in the international marketplace.
The Tanzanian government appears convinced that borrowing money from international markets through a sovereign bond is a better way of raising money than having to resort to heavy domestic borrowing.
Two months ago, Finance Minister Mustafa Mkulo presented to the National Assembly a budget that did not factor in domestic borrowing.
The sovereign bond will be used to raise money for infrastructure. If it succeeds, Tanzania will have joined a growing list of African countries, including Kenya, that are seeking to borrow from the international markets to finance infrastructure projects.
Government officials in Dar es Salaam are already laying the groundwork for the sovereign bond issue, following last weeks announcement by President Jakaya Kikwete of the planned issue in a speech made to the parliament.
President Kikwete, who is currently on an official tour of the US, told parliament that the American government had promised to help Tanzania get a sovereign debt rating, a prerequisite for any international bond issue.
Teresa Ter-Minassian, director of the fiscal affairs department at the International Monetary Fund, said on Tuesday in a public lecture at the Dar es Salaam International Conference Centre that IMF would provide the necessary technical assistance to assist Tanzania float a Euro bond.
The lecture was attended by high ranking IMF and Tanzania government officials and the countrys top private sector executives.
Kenyas plan to float an international infrastructure bond remains on course, with Treasury official Henry Rotich confirming earlier this month that the governments target was to issue the bond within the current financial year.
International credit rating agency Standard and Poors upgraded Kenyas outlook rating to stable from positive earlier this month, and affirmed the long-term credit rating of B+.
The government targets to raise $500 million (about Ksh33 billion) through the issue.
Ghana and Gabon have already tapped into the international markets through successful sovereign bond issues floated last year.
Ms Ter-Minassian noted that financing development projects through sovereign bond issues would assist Tanzania expand its fiscal space.
Domestic tax revenue collections have grown to about 17 per cent of the gross domestic product in 2007/08, indicating that the country still has room to raise more tax revenue.
Total Tanzanian public expenditure budget has grown from 17 per cent of the GDP in 2000/01 to about 23 per cent in the 2007/8 financial year. With a population of about 40 million people and an agricultural-based economy, Tanzania is still among Africas largest recipients of aid.
The country benefited from debt relief from the IMF to the tune of $336 million under the Highly Indebted Poor Countries programme.
Its per capita income is remains relatively low at about $400.
The issuance of a sovereign bond would, however, necessitate wide ranging economic reforms to open up sectors of the economy that are still under government control.
Such reforms include lifting government current account control, which limits foreign exchange transactions and restricts sale of government securities to foreigners.
Ms Ter-Minassian noted that the Bank of Tanzania had already started restructuring Treasury Bills and Bonds auctions, terming the move a step in the right direction.
Francis Awua-Kyerematen, Citi Group vice president for debts and capital markets for Africa region, put Tanzanias bid to float a sovereign bond into perspective, saying it was just the beginning of what could be a long process.
It took Ghana two years, from 2005 to 2007, to float its bond and this is, therefore, just the beginning for Tanzania, said Mr Awua-Kyerematen, who was among the transaction advisors for the Ghanaian and Gabon bond issues.
Among concerns of international investors wishing to put their money in sovereign bonds are assessing a countrys overall economic strategy, its relationship with international development partners and its fiscal and debt sustainability position.
Others include the attractiveness of return on the bond, reliable data on country economic policy and past performance and the level of support for the issue by all stakeholders, including the political establishment.
Investors in the bonds also demand that the issuing country has a high level of transparency with a market-based economy.
The Standard Chartered Bank head of debt and capital markets Africa region Ade Adebajo said that Tanzania would require at least two credit ratings before floating the Euro bond.
