Tanzania Committed to Keep Public Debt at Sustainable Levels

Tanzania’s macroeconomic performance has remained strong in the last decade, registering real GDP growth rates consistently above 5 percent since 2007, making the country one of the fastest growing economies in Sub-Saharan Africa. Prospects remain favorable in the medium-term, with real growth projected to stabilize around 7 percent, supported by public sector investments in infrastructure, particularly those relating to transport and energy sectors. The discovery of natural gas, currently estimated to exceed 50 trillion cubic feet, and subsequent prospects for further gas related infrastructure investments, including gas processing plants as well as gas fired power plants are expected to significantly boost the country’s growth prospects.

Since benefiting from debt relief initiatives (the 1996 Heavily Indebted Poor Countries initiative (HIPC), its 1999 enhancement, and the 2006 Multilateral Debt Relief Initiative), the accumulation of public debt has been gradual but steady. While Tanzania’s public external debt is mostly concessional, borrowing on non-concessional terms has increased recently, partly due to the decline in aid from development partners. To address the country’s infrastructure gap, government has formulated a new Five-Year Development Plan (FYDP II) with large investment requirements in several sectors, including Stigler’s Gorge Hydropower plant, a standard gauge railway, roads, the Dar es Salaam Port, and the water and transportation systems. These projects are expected to require significant financial resources over the next 5 years. Consistent with ongoing decline in the proportion of concessional financing from development partners, a significant portion of these new financing requirements would likely come from non-concessional sources.

Against the background of mounting public infrastructure financing requirements, the Government of Tanzania, with technical assistance from MEFMI, assessed the impact of envisaged new borrowing on the country’s public debt sustainability, and developed a Medium-Term Debt Management Strategy to guide borrowing decisions during the period 2017/18 to 2021/22. This is part of Government’s commitment towards keeping and managing public debt at sustainable levels, in line with the broad objective of sustaining macroeconomic stability.
The debt sustainability exercise informed the government on the amount and terms of financing that are consistent with long-term sustainability. The exercise also informed the development of a medium-term debt management strategy, which defined the direction in which the authorities would steer the funding and structure of the debt portfolio to meet the Government’s debt management objectives. The MEFMI mission also imparted knowledge and developed skills on the use of key public debt management tools for decision-making process, the IMF/World Bank MTDS Analytical Tool and Debt Sustainability Framework for Low Income Countries.

Participants in the DSA and MTDS exercises were drawn from the Planning Commission, the Ministry of Finance and Planning, Bank of Tanzania and the Treasury Registrar’s Office. A total of 46 officials participated in the exercise, of which twelve (12) were female, representing 26 percent of the total.