Tanzania Risk of External Debt Distress Remains Low

As in the rest of the world, the COVID-19 pandemic has weakened near-term macroeconomic prospects for Tanzania. Much of the adverse impact of the pandemic to the Tanzanian economy is transmitted through external channels. These include the collapse of international travel (tourism accounts for 15 percent of Gross Domestic Product (GDP) and 35 percent of export receipts), lower activity in the hospitality and foodservice sectors, and a slowdown in the economies of the country’s main trading partners.

High-frequency data for the first half of 2020 shows a deterioration in economic conditions, with economic growth for 2020/21 expected to be lower by 1 percent compared to the 10-year historical average of 6.5 percent. Fiscal revenue is also projected to fall in line with GDP, while spending needs are expected to rise owing to additional spending on health and other measures required to protect small businesses and the vulnerable groups. This is expected to widen the fiscal and balance of payment financing gaps, with potential adverse implications on the country’s debt sustainability.

In this regard, the Ministry of Finance in Tanzania requested MEFMI for technical assistance to assess the potential implications of these developments on the country’s public debt sustainability. MEFMI provided the support remotely through the Zoom video conferencing facility from 2 to 13 November 2020.

The findings of the Debt Sustainability Analysis (DSA) showed that Tanzania’s public debt dynamics are stable, with the country’s risk of external debt distress remaining low. All debt burden indicators are projected to stabilise at levels consistent with low rollover risk under both the baseline and stressed scenarios.

A draft DSA report, which summarised key findings and recommendations for consideration by senior officials, was produced. Government is expected to use the DSA findings to inform budget formulation for the fiscal year 2021/22 and determine the amount of borrowing that is consistent with medium-term debt sustainability and macroeconomic stability.

A total of 38 officials from the Ministry of Finance, Bank of Tanzania and Bureau of Statistics participated in the mission and are expected to now undertake subsequent DSAs with minimal external support.

The workshop was facilitated by four (4) resource persons, comprising Dr. Nebson Mupunga (a MEFMI Accredited Fellow from the Reserve Bank of Zimbabwe), Mr. Yasin Mayanja (a MEFMI Graduate Fellow from the Ministry of Finance, Planning and Economic Development of Uganda), Mr. Tawedzerwa Ngundu (a MEFMI Graduate Fellow from the Reserve Bank of Zimbabwe) and Mr. Tiviniton Makuve of the MEFMI Secretariat.

Prepared by Tiviniton Makuve