By Helen Saria
2007
This Paper has looked at the issue of debt management in Tanzania. In so doing it has covered the economic background in which the subject matter operates in. further it has also looked at the theory behind the subject matter and the current best practice that have been established. In its final chapters the Paper analysed the evolution of capacity building efforts in debt management Tanzania and finally closed with recommendations on the way forward.

Since independence 1961, the Government of Tanzania has been preoccupied with three development problems namely, ignorance, disease and poverty. National efforts to tackle these problems were initially channelled through centrally directed, medium-term and long-term development plans, and resulted in a significant improvement in per capita income and access to education, health and other social services until the 1970s. Thereafter, these gains could not be sustained because of various domestic and external shocks, and policy weaknesses.
Despite sustained efforts since the mid-1980s, to address the country’s economic and social problems, one half of all Tanzanians at the end of the eighties were considered to be basically poor, and approximately one-third live in abject poverty. This trend was reversed in the 1990s after the government had put in place corrective measures and by the mid-1990s progress had been achieved toward macroeconomic stability. In particular, inflation was reduced to a single digit level, and fiscal imbalances were in a prudent range and the government’s objective was to consolidate the substantial progress that had been achieved in this area.
However, these gains were not complete in light of the huge external debt stock that continued to hinder Tanzania’s effort to achieve sustained economic growth and poverty reduction. Thus more efforts were put into addressing the issue of debt sustainability. This was achieved through the Heavily Indebted Poor Countries (HIPC) Initiative on debt relief. In order to sustain this relief it has been incumbent upon the authorities to deal with the issue of capacity in debt management.
In a broader macroeconomic context for policy, governments should seek to ensure that both the level and rate of growth in their public debt is fundamentally sustainable, and can be serviced under a wide range of circumstances while meeting cost and risk objectives. Poorly structured debt in terms of maturity, currency, or interest rate composition and large and unfunded contingent liabilities have been important factors in inducing or propagating economic crises in many countries throughout history. Therefore sound risk management by the public sector is also essential for risk management by other sectors of the economy. Sound debt structures help governments reduce their exposure to interest rate, currency and other risks.
Another requisite of debt management is the importance of sound debt management practices and the need for an efficient and sound capital market. It is said that even although government debt management policies may not have been the sole or even the main cause of debt crises, the maturity structure, and interest rate and currency composition of the government’s debt portfolio, together with substantial obligations in respect of contingent liabilities have often contributed to the severity of the crisis. Even in situations where there are sound macroeconomic policy settings, risky debt management practices increase the vulnerability of the economy to economic and financial shocks.
However, irrespective of whether financial shocks originate within the domestic banking sector or from global financial contagion, prudent government management policies, along with sound macroeconomic and regulatory policies, are essential for containing the human and output costs associated with such shocks.
In line with the need for prudent government management and debt sustainability Tanzania in 2003 amended its Government Loans, Grants and Guarantees Act Nos. 9 and 30 of 1974. The Act oversees the activities and operations of public debt – the contraction of both external and domestic debt by the Minister of Finance.
The strengthening of the law was in support of other measures taken in May 2001 when the Government of Tanzania (GOT) and donors jointly carried out a Country Financial Accountability Assessment (CFAA). This assessment brought to the fore the fact that despite a number of significant improvements in financial accountability, issues of non-compliance, limited execution, inadequate monitoring, insufficient capacity and lack of enforcement need to be resolved and developed a total of 170 recommendations. Hence the government decided to revise the Public Financial Management Reform (PFMR) – first put in place at the Ministry of Finance in 1995 – to take forward relevant CFAA and the IMF’s Report on the Observance of Standards and Codes (ROSC) recommendations and take account of recent developments including the new Public Finance and Public Procurement Acts.
The purpose of the revised Programme continued to be the establishment of effective and sustainable financial management arrangements to support the equitable delivery of public services with a strong strategic perspective, minimise resource leakages and strengthen accountability. Under the (PFMR) a number of activities to enhance capacity in the respective Units, Departments and Institutions were mooted.
It is from the above areas of concern and corrective measures that Tanzania has now moved its debt management capacity building programme from what could be term as below par at the beginning of the 1990s to have its debt management structures among the best organized among its peers.
This purpose of this Paper was to trace the evolution of debt management in Tanzania and its readiness to tackle issues of debt sustainability in the aftermath of debt relief that the country obtained from its external creditors.
It is the belief of the author that this objective has been achieved and that the Paper will serve as material for further work by others in the future.