TANZANIA COUNTRY PROFILE

Transcription

1 TANZANIA COUNTRY PROFILE 1. Political Background Table 1: Political Overview Date of independence 26 April 1964; Tanganyika became independent on 9 December 1961 (from UK-administered UN trusteeship); Zanzibar became independent on 10 December 1963 (from UK); Tanganyika united with Zanzibar on 26 April 1964 to form the United Republic of Tanganyika and Zanzibar; renamed United Republic of Tanzania on 29 October 1964 Constitution 25 April 1977; major revisions October 1984 Type of government Republic Legal system English common law; judicial review of legislative acts limited to matters of interpretation Executive Branch The President is both the chief of state and head of government, however Zanzibar elects a president who is head of government for matters internal to Zanzibar. The president also appoints the Cabinet from among the members of the National Assembly Legislative Branch A unicameral National Assembly with 357 seats exists, whose members serve five-year terms. In addition to enacting laws that apply to the entire United Republic of Tanzania, the Assembly enacts laws that apply only to the mainland; Zanzibar has its own House of Representatives (with 50 seats) with jurisdiction exclusive to Zanzibar. Judicial Branch Consists of the Permanent Commission of Enquiry (official ombudsman); Court of Appeal (a chief justice and four judges); High Court (Principal Judge and 29 judges appointed by the president); District Courts; Primary Courts (limited jurisdiction and appeals can be made to the higher courts) Capital and largest city Dar es Salaam Geography Total Area Geographic Coordinates Border countries Official language (s) Recognised regional languages Source: Central Intelligence Agency 947,300 sq km 6 00 S, E Border countries: Burundi 451 km, Democratic Republic of the Congo 459 km, Kenya 769 km, Malawi 475 km, Mozambique 756 km, Rwanda 217 km, Uganda 396 km, Zambia 338 km Kiswahili or Swahili (official / Kiunguja (name for Swahili in Zanzibar)English (official, primary language of commerce, administration, and higher education) Arabic (widely spoken in Zanzibar) 1

2 Mainland Tanganyika and its inland neighbour Zanzibar became independent from Britain in 1961 and 1963 respectively. These two independent states merged to form the United Republic of Tanzania in The United Republic of Tanzania was under the leadership of one party system until 1992 when she adopted a new constitution, which enabled the organisation of pluralist political parties. Tanzania s legal system is based on the English Common Law system derived from its colonial master. To date, the 1977 constitution is the source of law for the United Republic of Tanzania. The Map of United Republic of Tanzania 2. Economic and Social Analysis Table 2: Snapshot of Economic and Social Indicators GDP (official exchange rate) $27.98 billion (2012 est.) agriculture: 27.1% GDP composition by sector industry: 24.1% Services: 48.7% (2012 est.) GDP real growth rate 6.5% (2012 est.) Inflation rate (consumer prices) 15.3% (2012 est.) Unemployment rate 8.8% Budget (revenues & expenditures) revenues: $6.075 billion expenditures: $7.67 billion (2012 est.) Population Population below poverty line Life expectancy at birth Source: Central Intelligence Agency,, World Bank; Bank of Tanzania 48,261,942 (July 2013 est.) 36% (2002 est.) total: 60.76years male: 59.48years female: years (2013 est.) Literacy rate total population: 69.4% male: 77.5% female: 62.2% (2002 Census) GDP Per Capita $1,700 (2012 est.) Gini coefficient 37.6 (2007) 2

3 Economic and Social Analysis Upon receiving debt relief under the Highly Indebted Poor Countries (HIPC) Initiative in 2001, the Government of Tanzania committed to allocate resources made available from debt relief to key anti-poverty programmes which are outlined in the Tanzania National Strategy for Growth and Reduction of Poverty (known as MKUKUTA in Swahili). In view of the various interventions made by the government in this respect, real GDP growth has been strong in the country, averaging 7% per annum from 2002 to As of 2012, the services sector accounted for 48.7% of the country s GDP, followed by the agriculture and industry sectors at 27.1% and 24.1% respectively. However, in spite of the above mentioned high rates of economic growth, poverty is still pervasive in Tanzania. The 2007 Household Budget Survey shows that the incidence of monetary poverty has declined only marginally on the mainland from 35.7 percent in 2001, to 33.6 percent in Given the rapid population growth rate (about 2.8 percent), the absolute number of poor people is estimated to have increased by 1.3 million respectively. According to the 2013 United Nations Development Programme (UNDP) s Human Development Index (HDI) listings, Tanzania s HDI value for 2012 is in the low human development category and also positioning the country at 157 out of 187 countries and territories. On a more positive development, it is notable that between 1990 and 2012, Tanzania s HDI value increased from to 0.476, an increase of 35% or average annual increase of about 1.4%. 3. External Debt Analysis 3.1 Tanzania External Debt Trends Faced with the economic difficulties, Tanzania borrowed heavily from a number of credit facilities, including loans related to the Structural Adjustment Programmes (SAPs), the Economic Recovery Programme (ERP) 1 and 11, and the Extended Structural Adjustment Facility (ESAF) to mention a few. As such, the existence of a high external debt burden in the country emerged as major source of concern by the late 1990s. Considering this high debt burden, high dependence on donor funds and high social and developmental needs in Tanzania, the IMF and World Bank considered Tanzania eligible for the Highly Indebted Poor Countries (HIPC) Initiative. Consequently, Tanzania was among the first countries to qualify for the HIPC 3

4 US$ millions % Initiative, reaching the HIPC completion point in November 2001, being the fourth country to do so, after Bolivia, Mozambique and Uganda. Accordingly, between 2000 and 2001, there was a 12.7% decline in the country s external debt stock, from US$7.9 billion to US$6.9 billion respectively. This was due to debt cancellations under the Paris Club VII arrangements. As shown in fig 1 below, in 2006, there was a further 51.5% decline in the country s external debt stock from the 2005 position of US$8.4 billion. This was due to an approximately US$3 billion upfront cancellation of debt under the Multilateral Debt Relief Initiative. However, as also depicted in fig 1 below, the country s external debt stock has continuously been on the rise since 2007 reaching US$ 9.8 billion as of end This has been driven by foreign disbursements, exchange rate fluctuations and the accumulation of non Paris Club bilateral and commercial debt among others. Figure 1 shows Tanzania external debt stock increasing at an increasing rate for the period The increase is not complemented by equal increases in economic activity, as evidenced by a rising external debt/gdp graph in the figure. To this extent, if no economic stimulating policies and tight borrowing and external financing management strategies are put in place, the country will plunge into a debt trap in the near future. The country s economy will also be subjected to external shocks. From 2008, the growth in external debt is higher than that of GDP meaning that the country s ability to service its future external obligations is being compromised. Figure 1: External Debt Position of Tanzania ( ) 12,000 10,000 8,000 6,000 4,000 2, External debt stock External debt/gdp Source: Compiled from the Bank of Tanzania data, Quarterly Economic Bulletin,

5 US$ Millions 3.2 External Debt by Creditor Analysis of Tanzania outstanding external debt by creditor shows that the country mainly borrows from multilateral institutions as shown in fig 2 below. Bilaterally, it has outstanding debts from such countries as Iran, Iraq, Japan, Brazil, Angola, Zambia, China, India, Egypt and United Arab Emirates. From 2008, the country also increased its commercial borrowings, which as of 2011 were higher than bilateral debt as shown below. Figure 2: External Debt by Creditor 6, , , Bilateral Debt 3, , , Multilateral Debt Commercial Other Private/Export Credits 0.00 Source: Compiled from the Bank of Tanzania data, Quarterly Economic Bulletin,

6 % 3.4 External Debt to Exports Figure 3 below shows a sharp decrease in the Debt/Exports ratio, a condition which is a result of both debt relief received from multilateral and bilateral (Paris Club) creditors, especially in 2006, and improvement in export performance to The 2008/09 global financial crisis however contributed to the decrease in export proceeds and the rise in debt/exports ratio after 2009 driving the ratio above the indicative sustainability threshold of 150%. Figure 3: External debt-to-exports Indicative threshold External debt/exports Source: Compiled by the Author using Bank of Tanzania data, Quarterly Economic Bulletin, NB The government of Tanzania is in 2013 intending to borrow externally US$581 from the international money market to finance the construction of a gas pipeline and reconstruction of its power utility. This initiative, which is being done on non-concessionary basis, is likely to push the public debt of the country. AFRODAD recommends that the government of Tanzania takes due measures that help to keep the public debt situation under control. This involves, among other things, borrowing only on concessionary levels (concessionary loans carries low rates of interest), opting for long maturity debts and making use of the Borrowing Charter publication. 6

7 TZS Billion % of GDP 4. Domestic Debt Analysis 4.1 Evolution of Tanzania Domestic Debt Fig 4: Evolution of Tanzania s Public Domestic Debt, September 2002 September Total Domestic Debt Domestic Debt/GDP Source: Compiled from the Bank of Tanzania Annual Reports Database As shown in figure 4 above, Tanzania s public domestic debt has been on an upward trend, increasing by 470% from TZS billion as of September 2002 to TZS 4, billion as of September This has been mainly characterised by the issuance of government securities to finance the government s budget deficits. The annual increases in the country s domestic debt have become more significant since 2009 as compared to the previous years (2003 to 2008) where the average annual increases have generally been below 10%. The only exception was in 2005, when the country s domestic debt stock increased by 77% from TZS billion as of September 2004 to TZS 1, billion as of end of September 2005, as a result of a huge increase in treasury bills issued during the fiscal year. Primary reliance on concessional financing for funding the government s net borrowing requirement has generally been the government s borrowing strategy as stipulated its 2002 National Debt Strategy. However, due to the difficulties in accessing foreign credit markets and/or concessionary financing due to the 2008/09 global financial crisis and the corresponding decline in domestically collected revenue, the government resorted to borrowing on the domestic debt market to meet the country s infrastructure and other borrowing requirements. Consequently, domestic debt increased by 21% from TZS 1, billion as of September 2008 to TZS 2, billion as of end September As the country s overall deficit continued to widen as shown in fig 5 below, domestic debt stock also increased accordingly, rising by 26%, 30% and 16% in 2010, 2011 and 2012 respectively. 7

8 % Millions of TZS Fig 5: Tanzania Overall Deficit (before Grants) between 2002/03 and 2010/ , ,000, ,500, ,000, ,500, ,000, ,500, ,000, Source: Compiled from the Bank of Tanzania 2011 Economic and Operations Annual Report 4.2 Proportion of Domestic Debt in the Total Public Debt Portfolio Reflecting the country s debt strategy of relying more on external concessionary loans to fund the government s net borrowing requirements, the country s debt portfolio is largely characterized by a high share of external debt in the total public debt stock as shown in Figure 6 below: Fig 6: Proportion of Domestic Debt to Total Public Debt Total Domestic to Total National Debt Total External to Total National Debt Source: Compiled from Ministry of Finance Data 8

9 4.3 Holders of Domestic Debt Instruments As shown in Fig 7 below, holders of domestic debt instruments in Tanzania include the Bank of Tanzania, Commercial Banks, Non Bank FIs, Pension Funds, Insurance Companies and Other Individuals. Fig 7 Holders of Tanzania s Domestic Debt Instruments, 2009 to % 90% 80% 70% 60% 50% 40% 30% 20% Others Insurance Companies Pension Funds Non Bank FIs Commercial Banks Bank of Tanzania 10% 0% Source: Compiled from the Bank of Tanzania Data As shown above, the dominant holder of government securities in Tanzania is the banking system, with the Bank of Tanzania and Commercial Banks holding approximately 73% of all the outstanding government securities as of September The commercial banks are the leading owners of securities in this category, holding a total of 52%, while the Bank of Tanzania (BOT) held an average of 21% respectively. The relatively low risk in Government securities as compared to lending to the private sector as well as the expansion of the banking sector helps explain the dominance of commercial banks in the securities market. The holdings of the Pension Funds have however decreased from an average of 23% as of September 2009 to 17% as of September On the other hand, insurance companies and other individuals increased their holdings during the same period from 1.7% and 2.1% to 5.5% and 2.8% respectively. 4.4 Impact of Domestic Debt on the Economy Funds borrowed from the domestic debt market have successfully been used to finance infrastructure development, a specific example being the construction of the Mabibo Hostel at the University of Dar-Es-Salam (UDSM). Initially, UDSM borrowed these funds from the National Social Security Fund (NSSF). This debt was however taken over from UDSM by the Government of Tanzania in As of February 2012, this debt had been fully paid off. 9

10 TZS Billion % TZS Billion % On the other hand, from a cost perspective, interest payments on domestic debt have actually been commanding a greater proportion of both government revenue and recurrent expenditure as compared to external debt interest payments as shown in fig 8 and fig 9 below: Fig 8: Domestic and External Debt Interest Payments as a % of Government Revenue Domestic Debt Interest Payments External Debt Interest Payments DDIP as a % of revenue EDIP as a % of revenue Source: Compiled from the Bank of Tanzania Data Fig 9: Domestic and External Debt Interest Payments as a % of Recurrent Expenditure Domestic Debt Interest Payments External Debt Interest Payments DDIP as a % of recurrent expenditure EDIP as a % of recurrent expenditure Source: Compiled from the Bank of Tanzania Data 10

11 The higher burden on the government budget in terms of domestic debt interest payments as compared to external debt is a reflection of the expensive nature of domestic debt which is mainly attributed to the higher interest rates on domestic debt in contrast to those on external debt which are mainly on concessional terms. Holding everything constant, this expensive nature of domestic debt implies a trade off in investing in social and other MDG related expenditures as more and more resources are continually being channelled towards domestic debt servicing. 5. Sustainability of Domestic Debt Unlike the case of external debt, there are currently no internationally agreed benchmarks for assessing the sustainability of domestic debt. However, Debt Relief International (DRI) has suggested some provisional benchmarks that can be used as a rule of thumb in domestic debt sustainability analysis. These thresholds which are based on the DRI s experience in the HIPC Capacity Building Programme are as shown in Table 3 below: Table 3: Preliminary Benchmarks for Domestic Debt Sustainability Domestic Debt indicator Threshold range (%) Debt/GDP Debt/Revenue Debt Service / Revenue Interest / Revenue Source: Johnson (2001) Domestic Debt Stock/GDP measures the level of domestic indebtedness relative to the country s economic activity. It implicitly assumes that all of GDP is accessible for financing the domestic debt burden, which is generally not the case. Domestic Debt Stock/Domestic Budget Revenue measures the level of domestic indebtedness relative to the government s ability to repay, demonstrating the number of years of revenue required to repay the entire debt stock. Domestic Debt Service/Domestic Budget Revenue measures the government s ability to pay debt service from domestic resources, with debt service being the sum of interest and principal. Interest/Domestic Budget Revenue measures the interest cost of domestic debt. Based on these on these thresholds, countries with debt ratios at, or near, the top of the threshold range set out in Table 3 above will have already accumulated payments arrears and will be facing an unsustainably high domestic debt burden. Those with ratios below, or near, the bottom of the range do not have arrears and hence their debt can be considered sustainable. Countries with ratios falling within the range can be considered to have potentially unsustainable domestic debt burdens. 11

12 % Using this framework, Tanzania would seem not to have any domestic debt sustainability problems from the Domestic Debt/GDP and Domestic Debt/ Government Revenue perspectives, as the ratios remained well below the bottom ranges of 20% and 92% respectively, between 2002 and 2012 as shown in Table 4 below. However, the country s Domestic Debt Interest Payments/ Government Revenue give a different picture as shown both in fig 10 and Table 4 below. Between 2002 and 2012, the ratio consistently fell within the 4.6 to 6.8 range, and even exceeding the top range in According to the DRI ratio interpretation, Tanzania can be considered to have a potentially unsustainable domestic debt burden from this point of view. The prevailing of this ratio in the potentially unsustainable range should sound as a warning of the increasing domestic debt burden in the country and should thus be treated with caution. Fig 10: Interest Cost of Domestic Debt, 2002 to Total Domestic Debt Interest Payments/Government Revenue (exc grants) DRI Bottom Threshold DRI Top Threshold Source: Compiled from the Bank of Tanzania Data and the DRI Thresholds 12

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14 Table 4: Domestic Debt Indicators against the DRI Thresholds DRI Thresholds Domestic Debt Stock/GDP Domestic Debt Stock/ Government Revenue (excluding grants) Domestic Debt Interest Payments/Government Revenue (excluding grants) Source: Calculated from the Bank of Tanzania Annual Reports Publication 14

15 6. Conclusions and Policy Recommendations According to the Joint World Bank/IMF Debt Sustainability Analysis for 2012, Tanzania s risk of debt distress remains low even when taking into account government borrowing from both domestic and external sources, including on non-concessional terms. However, it is indicated that debt indicators are sensitive to further borrowing on expensive terms. In addition, public debt sustainability analysis also raises concerns under an alternative scenario of persistently large primary deficits. This highlights that a sound debt management strategy, a conservative approach to non-concessional borrowing, and commitment to fiscal discipline are important factors for maintaining debt and fiscal sustainability. On the positive side, it is notable that debt- and debt service indicators could be substantially more favourable than in the current position of sustainability analysis if the country s recent favourable deep-water gas exploration results were to result in successful commercialization of new large-scale reserves over the coming decade with a rise in natural gas exports and associated government revenues. This however calls for proper institutional and governance frameworks if the country is to effectively realise such benefits from its gas exploration activities. 15

16 7. Annexure TABLE 5: SELECTED PUBLIC DEBT INDICATORS Economic Variable Units EXTERNAL DEBT 1Total External Debt US$ M 8,154 8,541 8,326 5,372 5,368 5,857 6,999 8,969 9,789 1Total Public External Debt US$ M 6,011 6,529 7,144 4,613 4,607 4,685 4,795 6, Total Private External Debt US$ M 2,143 2,012 1, ,171 2,205 2,735 1,871 2Multilateral Debt/Total Debt % External Debt/Exports US$ M DOMESTIC DEBT 1Total Domestic Debt Stock TZS Billion 2Domestic Debt/GDP % 2Domestic Debt/Government % Revenue (exc grants) , , , , , , , , Domestic Debt Interest Payments/Gov Revenue (exc grants) 1GDP (at current market prices) 1Government Revenue (exc grants) % TZS Billion TZS Billion , , , , , , , , , , , , , , , , , , , ,

17 Sources: 1 Bank of Tanzania (2003 to 2012 Economic Bulletins for the quarter ending 31 December) 2 AFRODAD Staff calculations Africa Statistical Year Book 2012, African Development Bank Statistics 2012, Africa Economic Outlook AfDB/OECD 2012, United Nations, World Population Prospects, CD ROM, African Development Indicators 2012, World Economic Outlook data files, October 2011, GDF Online Database, World Bank Site, February 2012, World Economic Outlook data files, October