Tanzania uses IMF/World Bank revised framework for DSA

Tanzania is the first member-country assisted by MEFMI to conduct a debt sustainability analysis (DSA) in-house training on the use of the International Monetary Fund (IMF) and World Bank revised Debt Sustainability Framework (DSF). A DSA workshop was held from 3 to 14 December 2018 at the Bank of Tanzania in Arusha, Tanzania. The Boards of the IMF and World Bank approved the revised framework in September 2017 and the framework was launched on 1 July 2018 for use in low income countries.

The main enhancement to the DSF is that it includes additional parameters to assess debt sustainability unlike the previous framework. Previously, a country’s debt carrying capacity was assessed mainly based on the quality of its policies and institutions as measured by the World Bank’s Country Policies and Institutional Assessment (CPIA). While the revised DSF maintains the CPIA, it also takes into account other factors, measured by a Composite Indicator Index (CI). These factors include real GDP growth, foreign reserves, remittances and access to the international capital market.  The revised DSF also introduced additional realism tools to support stronger baseline projections, particularly on fiscal adjustment and the investment-growth nexus.

The aim of the workshop was to assess the impact of existing public debt in Tanzania and the prospective external and domestic borrowing on the country’s debt sustainability. The government’s Second Five Year National Development Plan (FYDP II, 2016 – 2021) envisages a significant scaling up of investment to be financed through revenues and borrowing. It also aimed at building the capacity of participants on the use of the IMF/World Bank revised debt sustainability framework to conduct a DSA. 

A total of 23 officials from the Ministry of Finance and the Bank of Tanzania attended the workshop, of which 57 percent were male and 43 percent female. The workshop comprised presentations on the key features of the revised DSF, including its theoretical underpinnings. Participants were taken through the Excel DSF template and procedures for preparing the requisite data. Participants were also trained on how to analyze and interpret the outputs from the template. The presentations were complimented by working groups and discussions. Participants were divided into four (4) technical groups, with specific tasks undertaken under the guidance of MEFMI facilitators.

The workshop was facilitated by MEFMI staff and resource persons, namely: Dr. Nebson Mupunga (MEFMI Accredited Fellow from Reserve Bank of Zimbabwe), Mr. Juan Carlos Vilanova (Independent Consultant from Spain), Mr. Yasin Mayanja (MEFMI Candidate Fellow of the Ministry of Finance in Uganda) and Ms. Cristina Dimande of the MEFMI Secretariat.

The findings of the DSA indicated that Tanzania has a low risk of external debt distress, with all the relevant debt ratios remaining below their thresholds throughout the projection period under both the baseline macroeconomic scenario and stress tests. This is mainly premised on continued strong economic performance in the medium to long term. The DSA results also suggest that total public debt ratios would remain below their respective thresholds throughout the projection period under the baseline macroeconomic scenario. However, there are vulnerabilities under the tailored stress tests, especially those arising from a commodity price shock. Moreover, total debt service is particularly high in 2019 due to significant amount of maturing treasury bills.

The main output of the workshop was a draft report on the findings of the debt sustainability analysis, which participants were expected to finalise and present to the authorities in the Ministry of Finance and the Bank of Tanzania. In addition, the workshop enhanced the knowledge and skills of participants on the use of the revised DSF.  

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