Tanzania allays fears over soaring domestic debt
The headquarters of the Bank of Tanzania in Dar es Salaam. PHOTO | FILE
What you need to know:
- The domestic debt shot up by over 52 percent in four years from Sh13.96 trillion recorded in January 2018 to Sh21.25 trillion in January 2022, but the Treasury PS says the debt is far from being unsustainable
Dar es Salaam. The government’s domestic debt has risen by over 52 percent in the last four years.
Official data shows that the debt, which stood at Sh13.96 trillion in January 2018, had increased to Sh21.25 trillion by January 2022
However, Treasury permanent secretary Emmanuel Tutuba said the government uses securities as a monetary policy instrument to improve money supply by taking it from a few, and ensure circulation is enhanced for the majority.
“Because when we issue bonds, funds are used for implementation of development projects, say, construction of bridges or classrooms. This means that building material dealers will do business, jobs will be created, food vendors will serve labourers, and the chain goes on and on,” he said.
Mr Tutuba said through domestic borrowing, the government also intends to meet its budgetary obligations, noting, however, that this is always done with caution so that it does not adversely affect the economy.
Regarding the big jump between January 2021 and January 2022, he added that the debt remains sustainable.
According to the Bank of Tanzania (BoT), domestic debts are mainly sourced through issuance of Treasury bonds and Treasury bills.
The total debt owed to lenders in the country jumped by Sh7.29 trillion from Sh13.96 trillion recorded in January 2018.
According to BoT figures, pension funds and commercial banks are the main creditors, while insurance institutions, the central bank itself, special funds, public associations, private companies, and individuals are the other sources.
By January 2022, pension funds and banks jointly accounted for 66.4 percent of the country’s domestic debt.
Speaking to The Citizen, a business and an economics expert, Dr Donath Olomi, said borrowing locally is beneficial to public and private institutions alike because they can make money through doing business with the government.
“It influences national and individual growth because of good earnings from long-term securities,” he said.
An economist and consultant, Prof Samuel Wangwe, echoed Dr Olomi’s sentiments, stating that government borrowing, especially through issuance of bonds, has created a safe haven for investors who are assured of returns on their investments and safety of their money.
In the last five years from 2018 to 2022, BoT reported an increase in contribution of private institutions and individuals to domestic debt from Sh771.2 billion (about 5.7 percent of the total debt) to Sh2.98 trillion.
Commenting on individual appetite for government securities, the chief executive of Zan Securities Limited, Mr Raphael Masumbuko, said demand for the bonds among investors has in part been associated with available liquidity, and rising awareness of financial securities.
He said increasing appetite is also being facilitated by investors’ need to diversify their investment portfolios by adding more avenues to businesses.
“We have seen an improvement in activities at the Dar es Salaam Stock Exchange, where securities are traded at the secondary market, thus giving investors a flexible platform to buy and sell bonds,” Mr Masumbuko said.
However, the rising domestic debt has its drawbacks.
Dr Olomi said increasing borrowing from domestic sources may reduce the amount of funds available for lending to the private sectors.
He said commercial banks may opt to invest more on government securities, which are risk-free, rather than lending to private institutions.
“To counter this, the government can set a benchmark on the amount commercial banks can inject into fixed assets, and leave satisfactory liquidity for the private sector,” he said.
The government can also balance how much it is taking from various to prevent possible economic drawbacks, Dr Olomi added.
But Prof Wangwe said there was a need for the government to use the borrowed money effectively and efficiently on implementation of intended strategic projects in order to ensure they give returns, and build the capacity to repay loans.
