Tanzania’s national debt escalates to $33.7bn

Tanzania's national debt has escalated to a staggering $33.7 billion at the end of July this year, marking a significant increase of $3.9 billion from the previous year. The government's decision to implement infrastructure projects and enhance social services has been at the forefront of driving this surge in debt. Ivan Tarimo, Partner at the Bankable Tanzania, shed light on the current economic landscape of Tanzania in a recent interview with CNBC Africa. Tarimo highlighted the resilience of the Tanzanian economy amidst the global pandemic, with a growth rate of 4.8% registered last year and a projected 5.1% growth for 2021. Tanzania's strong growth in gold exports has been a key factor in supporting the economy during these challenging times. Despite facing setbacks in sectors like tourism and global trade disruptions, Tanzania has managed to maintain positive growth, outperforming many of its regional counterparts. Moving forward, the government's focus appears to be on sustaining livelihoods and enhancing economic resilience as the world navigates through the ongoing pandemic. The increase in national debt to $33.7 billion may seem alarming at first glance, but Tarimo reassured that Tanzania has historically been a conservative borrower. The current debt level, which accounts for around 40% of GDP, is considered sustainable by many standards. The external debt, comprising about 60% of the total debt increase, has primarily been utilized for ongoing infrastructure projects across the country. Tarimo emphasized that the government is closely monitoring the situation and has been proactive in seeking concessional multilateral debt support to ensure long-term debt sustainability. A considerable portion of the injected funds has been directed towards infrastructure projects, particularly in the transport and telecommunication sectors. While these investments are substantial, given the liquidity challenges faced globally, questions arise regarding their timeliness. Tarimo defended the projects, labeling them as legacy initiatives that promise significant long-term benefits to the economy. Projects such as expanding electricity output and enhancing regional connectivity are expected to drive industrial growth and boost trade ties with neighboring countries. However, the government must navigate the immediate financial strain caused by heavy upfront capital expenditures and manage the eventual dividends that these projects will yield over time. Despite the current debt level not breaching the thresholds set by the IMF and World Bank, maintaining this pace of borrowing indefinitely is not a viable strategy. Tarimo highlighted the government's strategic shift towards alternative financing methods, aiming to attract investment while reducing reliance on public funds. Discussions around utilizing capital markets, including municipal bond structures, to fund local government projects are gaining traction. The administration is also exploring opportunities to access global capital markets, potentially becoming a regular issuer and establishing Tanzania as a borrower with a strong profile and repayment track record. These strategic moves indicate a shift towards a more diverse and sustainable debt strategy that aligns with Tanzania's long-term economic goals.