Tanzania

Tanzania risks debt distress, World Bank warns

samia

Tanzanian President Samia Suluhu Hassan. FILE PHOTO | NMG

HARRY MISIKO
citizen

Summary

  • The risk has been exacerbated by the poor performance of the tourism sector due to Covid-19 concerns.
  • Tanzania’s debt risk is still safer as compared to its East African Community (EAC) counterparts.

Tanzania’s risk of debt distress has worsened from low to moderate, the World Bank has said.

According to a survey conducted in September 2021, the risk has been exacerbated by the poor performance of the tourism sector due to Covid-19 concerns.

Tanzania lost business after President John Magufuli, who died on March 17, 2021, downplayed the impact of coronavirus— leading to the isolation of the country by the regional and international community.

While the local economy was not affected by the shutdowns and lockdowns that were imposed by neighbouring East African states, the country lost a big chunk of international business and investments.

According to World Bank’s 17th Tanzania Economic Update, released on March 1, the tough times saw the country borrowing non-concessional loans from lenders to keep the economy afloat. 

Tourism and travel account for more than a quarter of Tanzania’s exports and are major foreign exchange earners.

"The downgrade primarily reflected the collapse of tourism exports during the Covid-19 pandemic in a context of increased non-concessional borrowing and rising debt service," the Bank said.

To help address the rising debt burden, the global lender has tipped Dodoma, now under President Samia Suluhu, on key focus areas. They include enhancement of public-sector debt statistics, focusing on projects that promise clear socioeconomic payoffs and balancing emergency spending with broader development agenda.

World Bank has also called on President Suluhu to step up her fight against Covid-19 to avert future shocks to the local economy.

The Tanzanian leader broke ranks with her predecessor on the handling of the pandemic upon assuming office, with her administration keeping track of infections and making the reports public. She also launched a nationwide Covid-19 vaccination drive in August 2021, with a call to the public to adhere to prevention measures— washing hands, masking and keeping social distance.

Worse off

But even with the rising risk, Tanzania’s debt risk is still safer as compared to its East African Community (EAC) counterparts. For instance, the debt situation of the Democratic Republic of Congo, the newest member of EAC, is “in distress” while Kenya, South Sudan and Burundi are in the “high” distress category. 

Rwanda, Uganda and now Tanzania are in the “moderate” zone, according to World Bank.

In 2021, the average government debt in East Africa shot up by more than 10 percentage points to stand at 72.5 per cent of the region's Gross Domestic Product (GDP) from 61 per cent in 2020.

Meanwhile, the Bretton Woods institution predicts that Tanzania's economy is likely to grow between 4.5 percent to 5.5 percent this year compared to 4.3 percent in 2021.

The expansion, the Bank says, will be driven by the tourism sector as countries, including western source markets, ease corona restrictions.