World Bank: Tanzania debt distress risk is worse

Tanzania is facing a looming financial challenge as the World Bank releases a report indicating a shift in the country's risk of debt distress from low to moderate. While Tanzania managed to avoid a total lockdown during the pandemic, the nation's debt indicators have raised concerns. Ombeni Uhuru, a Senior Investment Analyst at Tanzania Securities, sheds light on the factors contributing to this shift. Uhuru highlights the key parameters used to assess financial distress, including the present value of debt to GDP, debt to exports, debt service to exports, and debt service to revenue. He points out that while Tanzania meets the central bank's thresholds for debt to GDP, debt to revenue, and debt service to revenue, the nation surpasses the limit for debt service to exports. Uhuru attributes this shift to various factors, including the suspension of debt payments in the previous year, leading to an increase in interest expenses for the future repayment of debts. Additionally, the decline in tourism exports due to the COVID-19 pandemic has impacted Tanzania's financial outlook. Despite these challenges, Tanzania's macroeconomic factors remain stable, with a projected GDP growth of 4.5 to 5.5 percent and inflation within the 5 percent range. Uhuru emphasizes that the primary issue driving the shift to moderate financial distress is the accumulation of interest expenses from 2022 to 2027. He assures that Tanzania's overall economic performance remains robust. The report also highlights Tanzania's fiscal policies, indicating a shift towards non-concessional loans for funding mega projects. While non-concessional loans have been a significant factor in Tanzania's borrowing, Uhuru notes that the country's debt to GDP ratio remains at around 30 percent, well below the 55 percent threshold. This leaves room for increased concessional loans and expanding the revenue base to mitigate financial distress. To address the current situation, Uhuru proposes focusing on revenue enhancement to boost growth and prioritizing projects with high socio-economic significance. By emphasizing concessional loans over non-concessional ones and strategically selecting impactful projects, Tanzania can navigate its way out of the moderate financial distress. In conclusion, Uhuru reassures that Tanzania's financial challenges are manageable, with the World Bank acknowledging the nation's ability to absorb shocks in the long term. Despite the current risks, Tanzania's economy and monetary policies remain stable, with a positive outlook for the future driven by the expected improvement in the tourism sector.