Zitto na Demokrasia

Zitto na Demokrasia

#TZPublicDebt: Back to #HIPC? The time to act is now.

with one comment

The debate about Tanzania’s national debt appears and disappears on the public discourse, however recently national debt became the focus of national discussion due to statements from the Controller Auditor General (CAG) and Minister of Finance. Media has also shoved this issue into the spotlight; The Citizen on Sunday of 26th January, 2014 calls it ‘a new debt dilemma’ with quotes from various opinion makers. Some of the opinion coming through this article appears or try to dispel the anxiety surrounding national debt with dismissive words and even wrong data.

Without mincing words, the issue is that Tanzania is about to face a debt crisis. And as an economist, I would like to add my voice to the national debt discussion with brief clarifications.

According to Bank of Tanzania’s monthly economic review for December 2013, national external debt was USD 13 billion and domestic debt stood at TZS 6 trillion. This makes a total public debt at TZS 27 trillion as of December 2013. Is this sustainable?

Debt to Gross Domestic Product (GDP) ratio is one of the indicators used to measure sustainability. It is a gauge of what is happening with the government’s finances since GDP is a measure of the government tax base. A rising debt-GDP ratio means that the government’s indebtedness is increasing relative to its ability to raise tax revenue.

The government is always arguing that national debt is sustainable because debt-GDP ratio is around 38%. This figure was quoted by Prof. Richard Mshomba from the United States in The Citizen article mentioned above. However this ratio is not the whole truth as it is an external debt-GDP ratio. The government uses this figure as a spin and it seems to stick as a fact. It is a wrong figure as the right indicator is total debt-GDP ratio. Public debt is paid mainly through revenues from taxes: this is true for both domestic and external debt. Ignoring domestic debt in measures for debt sustainability is self-pleasing.

Actually, the government has borrowed domestically above ceiling to the tune of 1.2% of GDP and this has reduced the capacity of private sector to borrow from financial institutions and hence decrease production in industries and increase unemployment.

Tanzanian GDP stands at TZS 52 trillion at current prices as of November 2013, thus Debt-GDP ratio is already above 50% and growing. Does it matter? To answer this one has to look into our budget and we will find out that the largest budget item is that for servicing national debt. In 2013/14 the government will spend TZS 2.3 trillion on national debt account alone. The debt crisis happens when the amount of money used to service debt is much higher than budget for social services like health, water services and education.

National debt now is no longer a matter of intellectual debate, because we stand on the precipice and could possibly face a debt crisis. Without urgent intervention, Tanzania will soon be back to highly indebted poor countries (HIPC) years.

Let’s stop talking about national debt and let us as a nation TACKLE it! For that we need all hands on the deck, from all quarters.

The time to act is now.

Written by zittokabwe

January 27, 2014 at 3:12 PM

One Response

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  1. Enough is enough this is because since independence lmost all the efforts have been applied by the government proved fruitless and many of them failed on the table even before its implementations starts. I think it is the time to make changes.

    ely wecytrymord

    August 25, 2014 at 6:48 PM

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