Geza Ulole
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- Oct 31, 2009
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Three EAC states to pay Sh35 trillion in debt servicing
By Samuel Kamndaya @TindwaSamuel stindwa@tz.nationmedia.com
Dar es Salaam. When Tanzania dodged the allure of acquiring more debt to cushion the economy from adverse impacts of Covid-19, it may have realised how costly it had become for member states of the East African Community (EAC) to service their debts.
An analysis has shown that the three largest EAC economies would have to spend up to Sh35 trillion in debt servicing in the 2020/21 financial year starting on July 1.
Top on the list is Kenya. The country, which has been on a borrowing spree in the past few years, will have to spend a staggering Ksh904.7 billion (about Sh19 trillion) in the new financial year on public debt servicing.
With a debt servicing budget of Sh10.4 trillion, Tanzania will spend just close to half of what Kenya will spend. During the 2019/20 financial year, Uganda spent Ush10.32 trillion (about Sh6 trillion) on debt servicing.
The amount that Kenya, Tanzania and Uganda would have to pay in debt servicing is almost the same as Tanzania’s entire budget for 2020/21: Sh34.88 trillion.
It is also Sh12.7 trillion more than Uganda’s total 2020/21 budget of Ush37.792 trillion (about Tsh22.29728 trillion).
By the end of this month, Kenya’s total public debt is expected to close the financial year at Ksh6.4 trillion (about Tsh134 trillion). As a percentage of Gross Domestic Product (GDP), Kenya’s debt currently stands at 55 per cent of its GDP.
Tanzania’s Finance and Planning Minister Phillip Mpango told Parliament last week that, as of April, 2020, the total national debt stood at Sh55.43 trillion. This is less than half of Kenya’s total debt.
Uganda’s total debt stood at $13.3 billion (about Tsh30 trillion) as of December 2019, while Rwanda’s total debt was estimated at $4.9 billion by the end of 2018, representing 53.6 per cent of its GDP, according to the ministry of Finance.
The four countries - along with Burundi and South Sudan - have accumulated about $110 billion in loans.
Borrowing for Covid-19
While Tanzania avoided contracting more debts to fight the Covid-19 pandemic, Kenya, Uganda and Rwanda embarked on a borrowing spree over the past two months, adding about $2.3 billion new loans in two months.
Kenya borrowed about $1.5 billion while Uganda and Rwanda borrowed $540.2 million $223.65 million respectively.
In his address from his Chato hometown in April this year, President Magufuli called for debt relief, saying Tanzania currently spends about Sh700 billion each month on debt repayment.
“Out of that sum, between Sh200 billion and Sh330 billion goes to the World Bank alone… Since the World Bank has shown its concern and willingness to help us out of this pandemic, allow me to request that the help should come in the form of a relief in repayment of existing debts or at least the interest,” President Magufuli said in April.
Last week, the IMF approved $14.3 million in debt relief for Tanzania, under the Catastrophe Containment and Relief Trust, to help the country in its fight against Covid-19.
Sustainable
The IMF has repeatedly said that, despite some spikes, Uganda and Rwanda remain at low risk of debt distress.
Dr Mpango told Parliament last week that a Debt Sustainability Analysis (DSA) conducted in December 2019 confirmed that Tanzania’s debt was sustainable in the short, medium and long terms. The minister based his argument on five key parameters which experts use to measure the sustainability of a debt. The parameters include: the ratio of total public debt to GDP; the value of external public debt to GDP; the value of external public debt to exports; the value of external public debt to exports; ratio of external debt servicing to domestic revenue and value of external debt service to exports.
“In the analysis, solvency indicators showed that the ratio of present value of total public debt to GDP was 27.1 percent compared to the recommended threshold of 70 percent; present value of external public debt to GDP was 16.3 percent compared to a threshold of 55 percent; and present value of external public debt to exports was 103.9 percent compared to a threshold of 240 percent,” said Dr Mpango.
On liquidity indicators, he said the DSA results showed that the ratio of external debt servicing to domestic revenue was 11.9 percent compared to a threshold of 23 percent, while the value of external debt service to exports was 11.9 percent compared to the set threshold of 21 percent.
Source: The Citizen
