Caution over foreign loans with ‘toxic' clauses

Dar es Salaam. Economic experts yesterday cautioned the government to carefully handle foreign loans to avoid acquisition of facilities and resources once it fails to meet contractual obligations.

But, the Tanzania government allayed the fears, saying the government has not and will never use the facilities as surety to access foreign funding.

Experts’ observations come at the moment when Uganda is facing the risk of surrendering the Entebbe International Airport to China over a loan acquired from the Export-Import (Exim) Bank of China on March 31, 2015.

Efforts made by Entebbe to seek renegotiation on the ‘toxic clauses’ in the $200m (Shs713b) loan picked six years ago was recently rejected by authorities in Beijing.

The ‘toxic clause’ in the contract include exposing Uganda’s sovereign assets to attachments and take-over upon arbitration awards in Beijing.

China announced similar measures to the Zambia government in 2018 when it threatened to take over the Kenneth Kaunda International Airport, Electricity Company, national broadcasting network and major road projects owing to failure to repay $8.7 billion loan.

But, yesterday, the Repoa executive director, Dr Donald Mmari, said the government should make comprehensive feasibility studies to confirm beyond reasonable doubt that a certain project can be timely implemented and return the financial feasibility.

“Projects lacking economic benefits shouldn’t be lined-up for implementation. Contracts with clauses requiring sovereignty assets or resources such as minerals and gas given as surety should be completely avoided,” he said.

According to him, the decline in the value of resources in the global market reduces the country’s ability to service the loan and therefore puts it at the risk of acquisition.

Dr Mmari was seconded by a senior economist, Prof Samuel Wangwe, who said the country’s negotiators should only ink contracts with conditions that can be implemented and reject those with doubtful clauses.

“The government should make better use of local experts in such issues. Also, domestic banks should cooperate with foreign financial institutions in mobilising with friendly conditions,” he said.

Prof Wangwe said despite having no worries over contracts of development projects implemented in the country, following what is reported elsewhere on the continent, the Tanzanian government should increase its circumspection and make an analysis to identify the things the country was lacking and secure soft loans.

But, the deputy minister for Finance and Planning, Mr Hamad Yussuf Masauni, said Tanzanians have no reason to worry, noting that President Samia Suluhu Hassan’s leadership is cautiously handling financial issues.

“There is no place where the government has used the country’s resources as surety in order to secure loans and there is no plan of doing so even to on-going development projects,” he said.

He said the country secures loans according to provisions of the law with preference to those that will stimulate the country’s economy and make a significant contribution to the country’s Gross Domestic Product (GDP).

“President Hassan has instructed us to look for concessional loans in order to benefit with a long grace period, elements of grants which is equivalent to 35 percent and low interest rates,” he said.

He said the Sh1.3 trillion loan from the International Monetary Funds (IMF) fell in this category, saying, however, that there were some concessional loans with difficult conditions requiring strong negotiations in the interest of the nation.

“It’s only when we have no alternatives that we move to commercial loans. This is done whenever we are looking for funds to implement the most viable projects like the Standard Gauge Railway (SGR),” he said.

Mr Masauni, who doubles as the Kikwajuni MP in Zanzibar, said President Hassan is working hard to improve the country’s diplomatic relations with the international community that will lessen the processes of getting concessional loans and maintain sustainability of the national debt.