By Abbas Berya
1999
Realizing of the criticality of the debt burden Tanzania is facing the Government of Tanzania decided to keep a constant review of the debt situation with a view to prevent the build-up and be able to obtain relief currently offered by international institutions . In doing so, the Government of Tanzania on top of benefits already obtained under what is termed as traditional relief mechanisms, embarked on carrying out the sustainability analysis to be able to access the debt relief offered under the so called Heavily Indebted Poor Countries (HPIC) Initiative.
This paper is written basing on various DSA’s conducted for Tanzania since 1997. Chapter I is this Executive Summary, summarizing all other chapters. Chapter II is the introduction which shows that the paper is prepared as a pre-requisite for MEFMI Fellows Development Programme with the aim of assessing whether Tanzania could be eligible for HIPC debt relief and whether the debt sustainability indicators were enough to give the required relief to indebted countries.
In chapter III, the paper described the HIPC Framework as formulated by the World Bank and IMF in 1998. The chapter shows how debt relief has evolved from the traditional mechanism to a much more coordinated effort by all international financial institutions. It is in this chapter where the details are provided on the eligibility criteria, the HIPC Debt Initiative process , key feature of the Initiative like decision point and completion point, key debt sustainability indicators like the PV/XGS, PV/DBR and TDS/XGS, the vulnerability indicators which are additional to key indicators and country specific and the mode of financing the HIPC initiative which has been termed as the burden sharing approach an approach geared towards sharing the costs of HIPC Initiative among all multilateral and bilateral.

Chapter IV, is a summary of how Tanzania has kept on a continuous analysis using the HIPC Frameworks detailed as in Chapter III. It shows that Tanzania started this process in 1997 with the help of MEFMI, DRI and COMSEC. The First DSA conducted indicated that Tanzania was a borderline case therefore could or could not quantify for relief. These results kind of confirmed the results of the IMF Mid Term Review 1996/97 which showed that the PV /XGS ratio was 194 percent which was below the minimum ratio of 200% which became clear that Tanzania was unsuitable. As a result of having a well validated data and after agreeing with IMF on a more realistic macroeconomic projections and as a result of fall in exports in 1999, the preliminary Tripartite DSA fully confirmed that Tanzania debt was unsustainable at PV/XGS of 334% at the completion point. These results were also confirmed by another work, the Fiscal Debt Sustainability Case Study conducted by DRI which also combined the domestic debt scenarios and the social sector spending. This case study showed that Tanzania was unsustainable at PV/XGS ratio of 335% by 1999 and 304% by 2002. The chapter therefore shows the progression of the analysis of Tanzania’s debt which finally led to be eligible under the HIPIC Initiative.
In chapter V is a review of the eligibility criteria. It is showed here that the criteria is too restrictive to allow indebted countries to obtain relief as early as possible. It is difficult for a country to have a big debt a big debt burden and at the same time have a good track record. The six years a country has to wait to be eligible for the relief was found to be long. The assessment of the good track record was also found to be too subjective . There are countries like Tanzania which have been pursuing structural adjustment programmes for more than 10 years but were considered to have bad records . It is also observed that the initiative has its own other setbacks. For example, the issue of negotiating for comparable treatment from Non-OECD creditors is a non-starter as these creditors have not agreed to these terms and this portion of the debt is still accumulating. The Chapter therefore calls for a need to review the whole framework.
Chapter VI, attempts to review the link between the HIPIC Initiative and the social sector development. It shows that Tanzania’s social indicators are qualitatively well below the international acceptable standards. Various studies have shown that it is possible to increase expenditures in these various social sectors and achieve international targets . The Government of Tanzania should therefore prepare a medium term budget framework and improve its absorptive capacity.
Chapter VII gives concluding remarks and recommendations. This chapter concludes that the HIPC Initiative has good intentions of reducing the debt overhang of poor countries, but the framework has only afforded this opportunity to a certain extent. It therefore recommends the review of the whole framework taking into consideration the views of the NGO’s, Civil Society and the international community on how it could be structured to deliver the best results. Indeed the G8 Cologne summit recommended that the eligibility criteria be broadened to afford more relief to poor countries. The PV/XGS ratio was reduced to 150% from 200% and the PV/DRB ratio reduced 250% from 280% and the additional requirements on this ratio have been revised downwards. This requirements on this ratio have been revised downwards. This chapter is also concluding that there is an implication to HIPC’s Government in the capacity building needs. It is shown that the process of HIPC debt relief is very well involving and if a country does not have that capacity it is bound to be wrongly judged. It is for this reason that all the efforts were directed towards building capacity of its officials to be able to deal with the staff of the IMF and World Bank in the negotiation. Finally, the chapter shows that there are prospects for Tanzania to obtain more relief as a result of review of the HIPC Initiative by the G8 countries in their June 1999 Cologne Summit. To do this the chapter recommends that Tanzania has to continue pursuing its ESAF programme in order to meet the track record requirements. It has fully adhere to other conditionality like borrowing on concessional terms and deal with the domestic debt burden to be able to reap the maximum benefits from the HIPC Initiative.