By Hassan Mghenyi
Sept 29, 2009
The Government has to pay billions of shillings more in interest on its ballooning external debt from the first month of the current financial year compared with a similar period a year earlier.
The interest rate on the external debt amounted to $1,534.4 million (Sh2 trillion) as of July this year against $1,516.3 million (Sh1.97 trillion) the preceding month, according to the Bank of Tanzania's August 2009 monthly review.
The national debt stock as at the end of July 2009 stood at $8,844.1 million, representing an increase of 1.2 per cent from $8,740.5 million recorded at the end of the preceding month.
The increase was attributed to exchange rate fluctuations, recording of new disbursements, accumulation of interest arrears on the external debt and issuance of new government bonds.
Out of the total debt stock, the external debt was 80 per cent while the domestic debt was 20 per cent.
Once a country borrows, it has to repay the borrowed (loan) amount plus interest and any associated costs. To meet these expenditures, the Government needs to have financial resources (revenue).
Essentially, the Government would use its domestic revenue arising from tax and non-tax sources, according to the Finance and Debt Policy.
Hence, the situation would force the Government to tax more in the next financial year's budget. The Government plans to collect a total of Sh5.096 trillion from domestic sources to meet its budgetary obligations this financial year, up from Sh4.728 trillion last fiscal year.
As of July this year, the external debt increased by one per cent to US$7,071.9 million, up from the $6,999.4 million that had been borrowed by June.
The debt was used to support balance of payment and budget support to the tune of $1,972.6 million in July against $1,935 million the previous month.
Over 62.8 per cent, or $3,480 million, of external debt was owed to multilateral institutions, bilateral creditors $932 million (16.8 per cent). The remaining portion amounting to $706 million and $419 million were owed to commercial and export creditors, respectively.
During the month under review, disbursements received and recorded amounted to $49.6 million. External debt service payments amounted to $6 million, out of which principal repayments amounted to $3.2 million and interest payments were $2.8 million.
The Government's financial year begins in July and ends June in the following year, and is marked by the reading of the Budget, where the Government lays down its financial proposals.
The outstanding domestic debt stock as at the end of July 2009 stood at Sh2,327.5 billion. The domestic debt recorded an increase of Sh65.2 billion (2.9 per cent) from Sh2,262.3 billion registered at the end of preceding month mainly due to the increased issuance of government bonds.
Out of the total domestic debt, government securities accounted for 99.6 per cent and the rest was unsecuritised. Government papers debt amounted to Sh2,327.5 billion as of July, up from Sh2,254 billion the preceding month.
The profile of the domestic debt by holder category shows that BoT is the leading creditor to the Government, holding 42.6 per cent of total domestic debt followed by commercial banks with 27.1 per cent.
Other creditors are pension funds, non-bank financial institutions, official entities, insurance companies, individual creditors and BoT special funds.