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This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Tanzania: New Debt Proposals

Tanzania: New Debt Proposals
Date distributed (ymd): 000615
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Southern Africa
Issue Areas: +economy/development+
Summary Contents:
The posting contains a report from Christian Aid UK (http://www.christian-aid.org.uk), on World Bank proposals for new lending to Tanzania. This preliminary analysis indicates that the new lending would increase Tanzania's external debt burden by almost $1 billion reversing the debt reduction Tanzania is due to receive under the Heavily Indebted Poor Countries initiatives.

Internal inconsistencies in openness to new thinking within the World Bank are also shown in the news that Ravi Kanbur, the lead author of the Bank's flagship World Development Report, has submitted his resignation before the report has been completed. The resignation reportedly comes in protest against pressure from U.S. Treasury Secretary Larry Summers to tone down critical remarks on globalization within the report. [For more details, see the Bretton Woods Project web site http://www.brettonwoods.org]

The Bank's newly released report "Can Africa Claim the 21st Century?", developed in collaboration with several African institutions, also shows a complex mix of diverse points of view. In July APIC will be distributing several documents from the Bank and other sources on different aspects of current thinking in international circles on the road ahead for African development.

+++++++++++++++++end profile++++++++++++++++++++++++++++++

APIC Note:

The Africa Policy Electronic Distribution List will be taking a break during the next two weeks, due to staff travel. We will resume postings the first week of July. In the meantime we invite you to visit the newly redesigned Africa Policy Web Site (http://www.africapolicy.org).


The World Bank Set to Agree Aggressive Lending Programme in Tanzania

1.0 The World Bank proposes to increase Tanzania's external debt burden by almost US$1 billion over the next three years.

1.1 Less than three months after Tanzania received its HIPC debt relief agreement, the World Bank is considering a new lending programme that could entail lending almost US$1 billion to Tanzania over the next three years. Today, the Board of the World Bank will consider a new Country Assistance Strategy (CAS) for Tanzania. As long as Tanzania stays on track with its IMF-supported adjustment programme, the World Bank intends to lend the government at least US$790 million over the next three years. There is also a proposal to increase lending in the third year of the CAS by US$200 million if the government performs exceptionally well in its adjustment programme, increasing lending over the period to some US$990 million.

1.2 This new lending programme will almost double the World Bank's lending portfolio to Tanzania. In June 1999, Tanzania owed the World Bank almost US$2.5 billion. After HIPC debt relief, which should be delivered in full sometime next Summer, Tanzania should owe the World Bank some US$1.3 billion. The three year lending proposal in the CAS would take Tanzania's debt to the World Bank back up to around US$2.3 billion by June 2003 - almost as much as before HIPC debt relief.

2.0 A Closer Look at the Lending Programme

2.1 These figures may also be underestimated. In looking at some specific project proposals, World Bank lending is higher than stated in the CAS. For instance a loan to be disbursed this year for the Tanzania Social Action Fund is recorded as US$50 million in the CAS, but US$60 million in the project description. World Bank lending for specific projects is also often accompanied by other lending. For example, a World Bank loan of US$45 million for a Water Supply and Sanitation project slated for this year has an overall cost to the government of US$125 million. Another project loan of US$170 million for the Songo Songo Gas Development and Power Generation project is only part of the overall financing of some US$275 million.

2.2 While World Bank IDA loans are some of the most concessional loans Tanzania could hope for, these loans will still have to be repaid in hard currency. None of projects mentioned in the CAS will directly generate hard currency with which to repay these dollar loans. One of the key sectors that generates hard currency, the agricultural sector, is only indirectly supported by some US$30 million in the CAS lending programme.

2.3 The largest loan listed in the CAS - US$170 million for the Songo Songo Gas Development and Power Generation project - is for an industry that is to be privatised. It would seem the World Bank is lending the government money to plump up an industry for sale to the private sector. Almost half a century after the government has relinquished ownership of companies in the sector, it will be obliged to service its debts. This CAS also includes loans in the water sector, which has already been partially privatised.

3.0 Continuing Problems with Debt Sustainability after HIPC Relief

3.1 World Bank sources have indicated that Tanzania's present value debt-to-exports ratio will be around 160% at HIPC completion point - rather than the targeted 150%. Need for HIPC debt relief is based on the most recent debt data before the decision point - in this case end-June 1999. Because this new debt is not yet on the books, it did not figure into HIPC debt relief calculations. But it will be on the books by completion point, pushing Tanzania's debt ratios above the sustainable level. If Tanzania is to reach the target of 150% present value debt-to-exports after HIPC debt relief, this new debt will have to be considered in the debt sustainability analysis (DSA) calculations.

3.2 It is not as if the mission conducting the DSA did not know about this new debt. The DSA includes calculations for new debt. As far as Christian Aid has been able to find out, the only new debt on the table is IMF and World Bank - multilateral - debt. The DSA projects that by June 2002, the present value of new debt will overtake the present value of old multilateral debt (US$693 million compared to US$568.3 million). By June 2006, the present value of total new debt will overtake the present value of HIPC rescheduled debt (US$1,768.7 million compared to US$1,510.3 million). We should bear in mind these calculations only include lending currently in the pipeline. These calculations may be underestimated as well if lending attached to CAS lending (see paragraph 2.1) is not included.

3.3 HIPCs will need to borrow resources after HIPC debt relief - if only at concessional rates in the medium to long term. The HIPC Initiative is not designed to allow for this potential new borrowing. If a HIPC borrows soon after delivery of its HIPC debt relief, even at the most concessional rate, its debt ratios will exceed the World Bank and IMF determined level of debt sustainability. Any amount of borrowing in Tanzania over the next few years will take its present value debt-to-export ratio over the 150% level (especially considering the 150% target is projected to be exceeded by 10 percentage points at completion point). If HIPCs are to be allowed the room for new borrowing, the HIPC Initiative must be redesigned to take ratios well below the sustainability target. [Please note that Christian Aid's position is that the 150% target is inappropriate to begin with and that debt sustainability should be determined relative to needs for development spending. This point is to illustrate that even by World Bank and IMF standards, the HIPC Initiative falls short of the mark.]

4.0 The Policies Behind the Loans

4.1 When considering the World Bank lending programme, the quality of loans is as important as the quantity. If the policies supported by the World Bank loans do not have the desired outcome, the government will be using scarce resources to service debts for poorly, or worse non, performing projects. When loans attached to adjustment programmes, rather than specific projects, go wrong, governments will still be addressing the same (if not worse) structural problems years later, in addition to servicing an inflated external debt.

4.2 Christian Aid has previously criticised the quality of the World Bank's lending portfolio in Tanzania, especially in the agricultural sector, citing examples of how bad policy advice by the World Bank led to poor performance of loans (Christian Aid, Debt Without Development, April 1999). The World Bank has just agreed to relieve almost half of the debt Tanzania owes it, in large part because these loans did not produce the intended development results. It would seem high time for the World Bank to consider its actions in Tanzania in a more measured manner.

4.3 If the World Bank seemed to be addressing some of its core policy problems with regard to Tanzania, this new lending programme would be less worrying. Last year, the World Bank's Operations and Evaluation Department (OED) reviewed the World Bank's recent lending performance in Tanzania. One weakness identified by OED, and the first listed, was the continued lack of a strategy to address growth constraints, especially in the agricultural sector. This new CAS does not address this continuing weakness in any fundamentally new way. Dealing with problems in the agricultural sector is a pressing issue for the government, especially if it hopes to generate the hard currency needed to service external debt.

5.0 The World Bank's Role as Donor

5.1 Christian Aid does not categorically oppose new lending in HIPCs and other countries receiving debt relief (but see paragraph 3.3 on how HIPC allows little room for new lending). However, we have made it clear that the policies upon which lending is based must be improved and that lending governments should pursue sensible debt management strategies which must be respected by lenders. The obvious fear being that if such changes are not made, the same countries will find themselves facing another debt crisis in ten or twenty years. There is no real evidence that the World Bank has fundamentally changed the way it operates in Tanzania. The Government of Tanzania is also relatively new to implementing a comprehensive debt management strategy, so newly proposed lending should be approached cautiously by the government and potential lenders. This new lending programme proposed in the CAS seems by no means cautious and is intended to support questionable programmes.

5.2 Rather than pursuing such an ambitious lending programme, Christian Aid would like to see the World Bank putting its weight behind lobbying for more aid for Tanzania. Tanzania needs as much grant financing as possible and the World Bank could use its influence with donors to enhance Tanzania's aid package.

15 June 2000

Karen Joyner
Christian Aid

This note is the first draft of a larger, more comprehensive, note on this issue intended for the G8.

Sources: World Bank and IMF, Tanzania: Decision Point Document Under the Enhanced HIPC Initiative (20 March 2000); The Tanzanian CAS and CAE; and specific project descriptions.


This material is being reposted for wider distribution by the Africa Policy Information Center (APIC). APIC provides accessible information and analysis in order to promote U.S. and international policies toward Africa that advance economic, political and social justice and the full spectrum of human rights.

URL for this file: http://www.africafocus.org/docs00/tan0006.php