Use of CS-DRMS for Monitoring of Private Sector External Debt in the MEFMI Region: A Case Study of Tanzania

10. Use of CS-DRMS for Monitoring of Private Sector External Debt in the MEFMI Region: A Case Study of Tanzania
May 2011

Private Sector External Debt (PSED) has gained significant importance globally since mid-1980s following increased role of the private sector as an important partner to economic development. The share of PSED to total debt increased globally from 3.5 per cent in 1990 to 21.1 per cent in 2000 and further to 41 per cent in 2008. In Tanzania, the ratio increased to around 23 per cent in the later 2000s from 11.0 per cent recorded in 2005. Although the increase in private sector external debt was welcomed as a means of augmenting domestic savings, the inflows were vulnerable to perils as evidenced during the Asian financial crisis of mid 1990s and partly in the 2008 global financial and economic crisis. The key factor that featured in all the crises was poor monitoring of the PSED, and even where there were prudential guidelines, there were no centralized databases monitored by monetary authorities as was the case in Indonesia prior to the crisis.

Subsequent to the crises, there has been great concern for the need to regulate operations of the private sector including external borrowings. The process, that requires among others, maintenance of detailed database of the PSED within the custody of the financial sector regulatory authority. In that respect, Tanzania monitors PSED using CS-DRMS 2000+. This study analysed Tanzania’s experience in using CS-DRMS, as a case study in the MEFMI region, which others can emulate. CS-DRMS 2000+ has proved to be an important tool in monitoring PSED subject to an effective legal framework and intuitional arrangements, as well as technical skills. The legal and institutional aspects play a key role in ensuring information flow to the monitoring authority.

In short, the study has managed to: underscore the need to monitor PSED irrespective of the foreign exchange regime; show that monitoring PSED is very possible and practical and as such other countries in the MEFMI region can start if not already monitoring; accentuate the need for effective legal framework and institutional arrangements for monitoring PSED; identify the sources and methodologies of collecting PSED information under different foreign exchange regimes; and the capability and weaknesses of CS-DRMS 2000+ in monitoring PSED.

However, since the system was developed to manage public sector debt, and long-term in particular, the short-term debt module needs to be made flexible enough to cater also for private sector debts, within the whole range of requirements from controlled to liberalised economies. The best approach would be to make it more user-customisable to fit specific local requirements.

Findings of the study, if adopted, will enhance use of CS-DRMS in monitoring PSED in the MEFMI region and ultimately improve provision of accurate, timely and reliable statistics of PSED for compilation of Balance of Payments and International Investment Positions. Accurate and timely information forms a basis for formulation of prudent macroeconomic policies.