Tanzania faces new debt crisis ...AS NATIONAL DEBT SOARS TO MORE THAN $10 BILLION
By ThisDay Reporter
25th October 2010
TANZANIA is facing a new debt crisis as budget crunches in rich countries are bringing cuts in aid spending, forcing the government to seek loans to meet budget deficits.
During the year ending July 2010, the national debt stock soared by more than $1.185 billion to a staggering $10.1 billion, according to Bank of Tanzania figures.
At the end of December 2006, the country's national debt stood at around $7 billion.
This means that the national debt has increased by a whopping $3 billion since President Jakaya Kikwete's government came into office towards the end of 2005.
Analysts have warned that the nation's debt could balloon further in the coming years, following a decision by development partners to cut aid to poor countries, including Tanzania.
The government's current budget reflects a reduction in foreign aid from $840 million in 2009/10 to $534m this year, a figure that still represents 25 percent of the country's projected takings.
Experts say an overall cut in bilateral aid is only one worrying aspect of Africa's financing equation, according to a Reuters report.
Just as alarming is the potential for donors to inflate their aid figures by switching assistance from grants, which are in effect a gift, to concessionary loans, which have to be repaid, albeit at cheap rates.
"You've got the double whammy of African countries struggling because of the crisis, and then donors potentially switching more to loans than to grants," said Daniel Coppard, an aid analyst at Britain's Development Initiatives in an interview with Reuters.
The implications of such a switch by other donors would be dire, burying many African states under the same mountain of obligations that triggered the 2005 Heavily Indebted Poor Countries debt forgiveness initiative of the IMF and World Bank.
For example, if all its overseas grants became loans tomorrow, Tanzania would be running a budget deficit of a staggering 25 percent of gross domestic product (GDP).
The signs that donors' austere response to their own financial problems may end up exacerbating Africa's are already there.
According to a study by the International Monetary Fund (IMF), total public debt for low-income countries like Tanzania rose to 35 percent of GDP in 2010 from 30 percent in 2008.
The government has already shown a growing appetite for borrowing following the decision of donor countries to cut aid.
The government announced earlier this year it had revived plans to issue its first eurobond, worth $500 million to raise funds for infrastructure projects.
The Bank of Tanzania has also been borrowing more money from the private sector by issuing government securities.
A recent analysis by Dar es Salaam based civil society organization, Uwazi, shows that at present for every 1 shilling it collects as tax revenue, the Tanzanian government spends 1.9 shillings.
The difference between the two is borrowed money and foreign budgetary grants.
"If Tanzania's existing debt was apportioned equally to every living Tanzanian, each Tanzanian owes lenders 332,000 shillings in public debt," says part of the report.
"Of this, 264,354 shillings (80%) is owed to foreign lenders. With the borrowing planned in 2010/11, each Tanzanian will add 54,300 shillings to their debt obligation.