Tanzania to spend $3bn to service debt

Tanzania, a country in East Africa, is set to spend 9.09 trillion Tanzanian shillings equivalent to $3.9 billion US dollars on debt servicing in the upcoming financial year 2022-2023. This significant allocation towards debt servicing has raised concerns and sparked discussions on the sustainability of Tanzania's debt, especially in the face of global economic uncertainties. In a recent interview with Ivan Terimo, a partner at Bankable Tanzania, he shed light on the country's debt situation and its economic projections. Terimo highlighted that Tanzania's debt sustainability is a key concern, with the country's risk of external debt distress moving from low to moderate according to a World Bank analysis conducted in September last year. While the Tanzanian debt level seems reasonable compared to other sub-Saharan African countries, external factors such as the uncertainties around COVID-19, the Ukraine war, and inflation in Western economies pose challenges for accessing debt markets. Terimo emphasized the importance of driving foreign direct investment, increasing exports, and stimulating domestic consumption to alleviate debt pressures. He acknowledged that Tanzania's lower growth rate, currently around 5%, compared to the peak of 6-7% over the past decade, adds to the concerns about heightened risk levels. As global economic conditions worsen with rising inflation and increasing interest rates, Tanzania's debt servicing plans may face challenges. Despite over 55% of Tanzania's outstanding debt being concessional, the country has seen an increase in external non-concessional borrowing in recent years. With the absence of sovereign debt issuance in the market, Tanzania may feel the impact of changing interest rates on debt servicing. However, Terimo mentioned that the current debt pricing is relatively low, which cushions some of the debt servicing effects. Regarding the country's economic projections, Tanzania aims to return to a growth rate of 6-7% in the next two to three years, barring any severe escalations of global risks. Efforts to attract investments in sectors like tourism, manufacturing, and agriculture, along with infrastructure development, are expected to drive economic growth. The upcoming budget for the financial year 2022-2023 will play a crucial role in resource allocation and sectoral focus. Terimo anticipates continued public investment in infrastructure projects, education, and welfare, with a significant emphasis on agriculture to enhance food security and production capacity. Moreover, the manufacturing sector is identified as a key area for growth, requiring clear agendas and tax incentives to unlock its potential. Terimo emphasized the need to identify manufacturing niches that align with Tanzania's strengths and leverage access to regional markets to stimulate growth. By prioritizing sectors like pharmaceuticals and cooking oil for local production, Tanzania can strengthen its industrial base and reduce import vulnerabilities. The upcoming budget is poised to reflect the government's efforts to revitalize the economy post-COVID-19 and accelerate recovery through strategic investments and sectoral incentives.