Tanzania, like many other countries in the Third World, suffers from a heavy burden of foreign debt. The causes are complex. Some imprudent borrowing may have occurred during the seventies, when records of foreign debt and debt servicing were inadequate and uncoordinated and an overview of the nation’s obligations would not have been possible, while assumptions about economic growth were made that in the event proved much too sanguine. But the main cause was the severe economic recession of the eighties, leading over a number of years to a negative growth rate per head and an economy increasingly unable to bear the weight of debt. As a result, much bilateral debt, especially that owing to countries outside the main industrial group, and many commercial obligations have fallen into arrears, giving rise to the imposition of penalties and leading to the accumulation of new debt by capitalisation of the arrears.

DEBT TAKES 59% OF REVENUE FROM EXPORTS
By 1991 Tanzania had acquired the unenviable status of a ‘low income, debt-distressed economy’ and was no longer able unaided to work its way out of its difficulties without the prospect of further widespread and extremely damaging default on existing obligations. Tanzania’s total external debt, which at the end of 1986 amounted to about $3.9 billion, by the end of 1992 had passed the $6 billion mark. In 1991, expressed as a percentage of gross national product (GNP), the average stock of foreign debts in all countries of the world amounted to 37%, in Sub-Saharan Africa as a whole 109% and for Tanzania no less than 256%. Notwithstanding some alleviation as a result of rescheduling and other relief measures, debt service obligations still remained at 59% of revenue from the export of goods and services in 1990-91. Tanzania’s indebtedness had thus reached crisis proportions and was exercising a damaging influence on the prospects for economic recovery.

In Tanzania arrangements for the recording and handling of foreign debt have hitherto proved ineffective as a control mechanism in the absence of a single authority for the recording, monitoring and supervision of debt and debt servicing. As a result, there could be no clear picture of the extent and nature of the country’s present and prospective external obligations. This situation has now been remedied by placing the responsibility for the monitoring of all external debt and advising the Government on debt management in the hands of the External Debt Department of the Bank of Tanzania. At the same time, with the help of the Commonwealth Secretariat, new computerised procedures for the recording and analysis of debt and debt-related matters have been instituted, using CS-DRMS software.

The central problem facing Tanzania is the insupportable volume of debt and the need to bring it within reasonable limits. The importance of this goes beyond a reduction of debt servicing to the point where it constitutes a reasonable charge on export revenues. An excessive debt burden leads inexorably to default and default undermines confidence and imposes higher and unnecessary costs on commercial transactions. It also discourages foreign investment. Hitherto it has been necessary for each instalment of interest and capital on foreign debts to be the subject of a separate application for foreign exchange and some commercial creditors have been waiting many years for a posi ti ve response, even where debtors have met their obligations in local currency. It is therefore essential to reach a situation in which, once a credit deal has been approved, all subsequent debt servicing is automatic.

At the end of 1991 Tanzania, with one or two exceptions such as the East African Development Bank, the League of Arab States and the OPEC Special Fund, was up-to-date in honouring its obligations to the main multilateral financial institutions, notably the World Bank, and to the principal industrial donor countries. The country’s obligations to the multilateral bodies constitute about 35% of the total external debt, some 90% of which is on concessional terms I free of interest with fifty year periods of maturity. Nevertheless, with the progressive ending of grace periods, the servicing of concessional debts is expected to rise from $19 million in 1992 to $49 million by the year 2000. The servicing of much of the remaining 10%, which is on quasi-commercial terms, will be assisted by the World Bank’s concessional wing, the International Development Association (IDA), under the Special Programme of Assistance for Africa and by bilateral donors. IDA debt, under current rules, cannot. be waived or rescheduled.

REDUCING THE DEBT RATIO
That part of intergovernmental debt that is owing to the Principal industrial countries (about 40% of the total in 1991) has already been rescheduled four times, providing relief in respect of debt service obligations. In January 1995, it is hoped that it will prove possible to include within the scope of the new arrangements what is known as the ‘Trinidad terms’. This plan, originally put forward by the UK Government in 1990, provided for the writing off of two thirds of the stock of non-concessional inter-governmental debt. The effect of this measure, if confirmed, has been estimated to bring Tanzania’s stock of debt as a percentage of GNP down to a level marginally below the average for Sub-Saharan Africa. Further growth of the economy on present prospects should reduce the ratio to below 60% by the year 2000. Debt cancellation would also reduce the annual cost of debt servicing to the region of 20% of the earnings from the sale abroad of goods and services by 1996 and to the region of 10% by the end of the century. It is hoped that in the meantime debt to countries not included in the above arrangements can be rescheduled on similar lines.

Some of the outstanding commercial debts have been protected by export credit guarantee arrangements in the creditor countries and therefore in effect rank as official debts, subject to the arrangements described in the foregoing paragraph. Arrangements are now in train to redeem the remaining uninsured debts and outstanding suppliers’ credits by means of a buyback scheme operated under the IDA Debt Reduction Facility. The effect of the buyback scheme is to purchase debts in convertible currency at discounted rates by means of an IDA loan, thus converting the obligation into a highly concessional debt of 50 year maturity.

It is hoped that the complex of measures described in this paper will enable Tanzania within a few years to regain control of its foreign debt servicing to a reasonable charge on its external resources. Such an outcome can powerfully stimulate the economy by releasing valuable foreign exchange hitherto used for debt servicing, but more importantly, by restoring Tanzania’s reputation as a good trading partner. Essential to the changes now in train is the new centralised system of debt management, which will enable the Government, to forestall any future tendency towards over-commitment.

While the reduction of the debt stock to a manageable size and the restoration of automatic debt servicing is likely to provide a boost to the economy, the newly imposed self-discipline will also restrain over-hasty development. Almost all new development increases the demands made on the external sector of the economy, but any attempt to meet such external obligations by borrowing beyond prudent limits cannot fail to damage economic prospects. It is thus necessary for planners to calculate the foreign exchange implications of all major planning proposals, including the subsequent external requirements for maintenance purposes. Data of this kind is as essential for orderly debt management as it is for successful economic development.
J Roger Carter

EXCHANGE RATES Bureau de Change August 19
Dollar – Shs 465
Pound – Shs 690

NET INFLOW. Tanzania registered a net inflow of some US$ 20 million in the first ten months of activity by the Bureaux de Change shops first opened in April 1992.

MORE THAN 430 PROJECTS worth Shs 200 billion have been approved by the Investment Promotion Centre in Oar es Salaam since 1991.

NEW BANKS. The first two foreign banks under the Banking Reform are the Meridien BIAO which opened on August 9th (1,200 people opened accounts on the first day) and the Standard Chartered which was due to open in September 1993. The Government owned National Bank of Commerce (NBC) closed 29 non-viable branches in July.

Bank of Tanzania Governor Gilman Rutihinda (49) died of cancer of the pancreas in London on June 20th. Thousands of people attended his funeral in Dar es Salaam. He is succeeded by Dr. Idris Rashid who was formerly Managing Director of the NBC.

“TANZANIA HAS ALL THE CRITERIA NEEDED FOR JAPANESE INVESTMENT” said Dr. K Konoike, President of the Koinike Construction Company and Honorary Consul of Tanzania in Os aka . These included a good human rights record and the move towards a market-oriented economy. Dr. Konoike’s company is engaged in rehabilitating Dar es Salaam’s road system as part of the Shs 20 billion Japanese aid programme in the 1992/93 financial year.

PRIVATISATION AND OWNERSHIP. ‘Parastatal enterprises have become a burden to the Government and to the economy as a whole …. the move to privatisation rests on the need for the Government to relieve itself of this enormous burden …. the offer of shares to the public is not possible in the absence of a capital market and (in selling) the enterprises the balance of advantage is in favour of the ethnic minorities – the Asians and Arabs for not only do they have long experience but they also have the capital … what matters in the end is to get a commitment to the goal of developing the indigenous entrepreneurial class without necessarily putting breaks on the growth of other groups’ – F M Kazaura, Principal Secretary, Planning Commission in an article in the ‘Business Times’ .

FIRST TANZANIA-CHINA JOINT VENTURE. President Mwinyi has launched the Tanzania Jeifang Company Ltd in Dar es Salaam. It will assemble 6-ton trucks and later manufacture local components.

TCFB ROLE QUESTIONED. Participants in a workshop on trade facilitation in Dar es Salaam questioned the relevance of the Tanzania Central Freight Bureau (TCFB) saying that its existence was a burden to the already long and complicated import procedures and documentation process. One participant cited the eleven stages which had to be followed when exporting.

The INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT ( IFAD) has granted US$15.1 million for the Southern Highlands Extension and Rural Financial Services Project.

The WORLD BANK/IDA has made four new credits: – US$ 74 million for the execution of part of a multi-donor Telecommunications Rehabilitation Programme;
– US$ 34.9 million to support public sector institutional capacity building;
– US$ 24.5 million to help pay for institutional changes in the Ministry of Agriculture;
– US$ 200 million for a hydroelectric power facility near the little and great Ruaha rivers.

The EUROPEAN COMMUNITY has granted Shs 25 billion for the import of commodities under the Structural Adjustment Programme.

BRITISH AID. Britain was the chief foreign supplier (£78.6 million in value) and main export market (£21.1 million) for Tanzanian goods in 1992. Britain supplies over 25% of Tanzania I s imports, Italy 18%, Germany 16%, the USA 10% and Japan 9%. Some 370 Tanzanians are studying in Britain at present and 120 VSO volunteers are working in Tanzania.

TANZANIA TOOK ADVANTAGE OF THE RECENT INCREASE IN THE GOLD PRICE. The Bank of Tanzania raised $50 million for 129,000 ounces of pure gold @ 381 and 392 dollars per ounce.

TANZANIA COULD OVERTAKE SOUTH AFRICA, CANADA AND AUSTRALIA IN MINERAL PRODUCTION according to the Commissioner for Mineral Resources. Last year the mining sector contributed 16% of the GNP and, given proper mining machinery and tools, Tanzania could produce 30 grammes of gold per tonne compared with 2 grammes per tonne in South Africa. There were good prospects for nickel, cobalt, copper, diamonds, rubies, tourmaline, tanzanite, saphire, emerald, and amethyst.

“TIMES HAVE CHANGED” said the head of the Swedish International Development Agency. “Tanzania used to have a very special place in our hearts. But a lot of the good theories and ideas (we admired) failed. Instead, a lot of uneconomical state organs and authorities were built up …. The previous relationship, during which Tanzania took the largest single portion of Swedish aid is not (now) there …. I was here in 1974 and Government control systems were much better then – there were reporting systems, follow-up systems, auditing … but they don’t function today …. you need to have very strong government coordinating bodies to ensure the implementation of the rules otherwise you won’t get the money . … Tanzania should speed up its civil service and parastatal reform programme”.

BUSINESS OPPORTUNITIES. Each week the Dar es Salaam ‘Express’ publishes lists of business opportunities received by the Board of External Trade from foreign countries. The following are recent examples: sisal (enquiry from a company in India), blue cowhides (Italy), dried sea cucumbers (Singapore), Beeswax (UK), Portland cement (Malaysia), spices (Holland), dried shark fins (Hong Kong), sesame seeds (France).

SALE OF PARASTATALS. The Parastatal sector Reform Commission has advertised for sale 100% of Rubber Industries Limited and a majority equity interest in Southern Paper Mills Ltd.

BEWARE OF FRAUDULENT NOTES! Conmen in Dar es Salaam are producing false 100/- and 500/- notes.

THE BUDGET FOR 1993-94

Three decisions of the greatest importance to the future of Tanzania distinguished the budget for 1993-94. Firstly, a gradual withdrawal of the Government from direct involvement in the productive sector of the economy will make possible greater concentration on basic economic and social infrastructure and the creation of an environment favourable to economic progress. The resulting contraction of the Government machine will enable it to close the gap between revenue and expenditure, which hitherto has been brought into balance by foreign grants and by borrowing from the banking system, in the latter case with serious inflationary consequences.

Secondly, measures have been taken to strengthen economic services by increasing the provision of resources for maintenance – particularly important for road maintenance and telecommunications services.

Thirdly, the effectiveness of resource allocation will be increased by compiling a rolling three year plan. The five year plan, which it has been the custom hitherto to issue at equivalent intervals, will henceforth be confined to broad indications of development policy, while operational decisions and priorities will be guided by the rolling three year plan. It is expected that the new system will not only provide a rational basis for the planning of priorities but also enable the Government to confine development within sustainable limits.

The progressive withdrawal of Government from productive activities and measures to increase the efficiency of the Civil service will inevitably lead to the termination of employment of large numbers of civil servants. The Government is sensitive to unemployment and, following a survey of opportunities for employment in the informal sector, the Planning Commission is working on a National Employment Policy to identify areas for job creation and measures necessary for increasing efficiency and productivity. At the same time the Government aims to create a smaller, highly motivated and skilled Civil Service with levels of remuneration commensurate with their contribution to the work of government.

Throughout the budget proceedings runs an emphasis on the role of the private sector and the mobilisation of private capital. To this end, a study on the establishment of a stock exchange is to be undertaken and the Government is also investigating the steps necessary for the establishment of a money market, of which the beginnings already exist in Bureaux de Change.

The budget of 1993-94 has been drawn up under the shadow of retrogression in the previous year. Inflation, which had ducked below 20% in 1990, rose to 23% in 1992. One cause of this was the drought in the catchment area of the Mtera dam, leading to a fall in the water level and interruptions in the supply of electricity to the national grid, with serious consequences for industry. Another cause has been the continuing widespread use of borrowing from the banks to balance the books. In the face of this unfavourable trend, the budget combines retrenchment with measures to increase revenues. Twelve diplomatic missions abroad are being closed and the money saved used in part to help fund the remaining missions. Apart from savings arising from the reduction in strength of the Civil Service, the provision of fringe benefits to entitled officers will be carefully controlled. Payment of water, electricity and telephone bills by the Government will be replaced by the issue of cash up to a specified limit. stricter rules will be applied to the use of Government transport, the number of vehicles will be restricted and the surplus sold by auction. A commission is to be set up to examine other possibilities of saving in the provision of Government services.

After taking account of grants from donors, a recurrent account deficit of Shs 32,416 million will remain. Part of this will be met by improvements in tax collection. Adjustments in the rates of tax are expected to yield a revenue of Shs 10,498 million. These changes are also designed to facilitate the introduction of Value Added Tax in next years budget. Other fiscal measures are expected to raise Shs 21,918 million, sufficient to cover the deficit. The Government has set its face firmly against the resort to borrowing from the banks to meet a revenue shortfall. On the contrary, provision has been made to repay outstanding obligations to the banks in the sum of Shs 39,392 million out of revenue. Any deficiency arising incidentally during the year will be financed by the issue to the public of Treasury Bills.

Throughout the proceedings in Parliament there has been a clear recognition of the limited time during which external support for the economy can be expected. As the Minister of state (Planning) reminded the House, any outside help that might be given should play a catalytic role and complement local efforts. Meantime, a growth target of 4.5% per annum, a fall of inflation to 10% by June 1996 and a reduction of reliance on external financing were the reasonable objectives of the rolling plan for 1993-96 and it is devoutly to be hoped that they will not be frustrated by the vagaries of climate or other unexpected catastrophe.
J Roger Carter