Q U A R T E R L Y P U B L I C D E B T R E P O R T

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1 I N S I D E T H I S I S S U E : E X T E R N A L D E B T S T O C K D O M E S T I C D E B T I N F L O W A N D O U T F L O W E X T E R N A L D E B T I N F L O W A N D O U T F L O W T H E M I N I S T R Y O F F I N A N C E & E C O N O M I C A F F A I R S P E R F O R M A N C E 3 N D S I M P L E M E N - 4 Q U A R T E R L Y P U B L I C D E B T R E P O R T F O R F I R S T Q U A R T E R E N D I N G S E P T E M B E R { O V E R A L L D E B T S T A T U S A N D T R E N D } T O T A L D E B T S T O C K P O L I C Y A N A L Y S I S D E P A R T M E N T Tanzania s public debt stock, (Central Government and Other Public Sector Debt) as of end- September 2009, stood at TShs 11,343.1 bn (Figure 1), compared to TShs 10,517 bn registered at the end of June 2009 being the increase of 7.9%. Of this amount Tshs 3,578.2bn is domestic debt and Tshs 7,764.9 bn is external debt. The increase of debt stock is attributed to the new disbursement, issuance of new Government Bonds and accumulation of areas from Non Paris club creditors. Consequently the share of domestic debt to total debt rose from 29.7% to 31.5% and that of external debt to total debt fell from 70.3% to 68.5%. On year-to-year basis, total debt stock has increased by 39.4% from Tshs 8,136.4 bn in quarter ending September, 2008 to Tshs 11,343 bn in quarter ending September, N O T E S T O T A B L E S 4 14, , , , , , ,000.0 Figure 1: Debt Stock Developments (TZS bn) 10,517 11,343 8, % 70.3% 68.5% 37.4% 29.7% 31.5% End-Sept 2008 End-June 2009 End-Sept 2009 Domestic External D O M E S T I C D E B T S T O C K Total Domestic Public Debt Stock as of end September, 2009 stood at Tshs 3,578.2 bn of which Central Government Securities outstanding amounted to Tshs 2,391.8bn and Other Public Sector debt stock stood at Tshs 1,186.4bn. The Domestic debt stock increased by 14.6 percent equivalent to TZS billion from 3,121bn registered at the end of June On year to year basis, the total domestic debt increased by 17.6% from Tshs 3,042.1 bn in the quarter ending September 2008 to 3,578.2 in the quarter ending September The increase was mainly due to issuance of Government bonds for budget support. Domestic debt is mainly comprised of Treasury bills, Treasury Bonds, Government stocks, BoT liquidity paper and other debts. As at September, 2009 Treasury bonds ranked the highest, accounting for 51.8 percent of total debt followed by BOT liquidity paper which accounted for 32.9 percent. Treasury bills(182 day and 364 day), Government stocks, and other debt accounted for 7.8 percent, 7.1 percent and 0.2 percent of total debt respectively..

2 GOVERNMENT SECURITIES BY HOLDER CATEGORY Government securities ( Excluding Bot liquidity paper), namely; Treasury bills, Treasury bonds and stocks accounted for 67 percent of the total domestic debt stock. As at end September 2009, the analysis of holder Category of Government securities showed that Bank of Tanzania is the leading creditor holding 41 percent of the total government securities particularly special bonds followed by Commercial Banks/ Non Bank Financial Institutions holding 30.3 percent of the total. The relatively low investment risk in Government securities as compared to the private sector, as well as the expansion of the banking sector, explains the dominance of commercial banks in the securities market. The institutional investors (pensions funds and insurance companies) ranked third largest creditor to government holding 23 percent followed by Individuals and other entities holding 5.8 percent of the total government securities. EXTERNAL DEBT STOCK Page 2 Fig 2: Government Securities by Holder Category Insitutional investors 23% Commercia l banks/ NBFIs 30% Individuals/ other entities 6% BOT 41% Fig 3: Public Debt Stock by Creditor Category The total national external debt stock as at end September, 2009 stood at USD 7,474.2mn, of which USD 5,960.6 mn is public debt and USD 1,513.6 mn is Private sector debt. Total Public External Debt, stood at USD 5,960.6mn comprising of Disbursed Outstanding Debt (DOD) of USD 4,907.4 mn (82.3%) and USD 1,053.2mn (17.7%) Interest Arrears. Total public external debt stock in USD terms increased by 4.7% to USD 5,960.6mn from the level of USD 5,691.8mn registered at the end of the previous quarter. The increase was mainly due to new borrowing, accumulation of interest arrears and exchange rate fluctuation over the period. The Major holder of public external debt are Multilateral creditors which account for USD 3,464.5mn (60%) gross of HIPC relief, while Bilateral and Commercial /other creditors account for USD 1,633.3mn (27%) and USD 764mn (13%) respectively. The dominance of multilateral debts is due to the government policy of borrowing from concessional sources currently being offered mainly by multilateral creditors and the impact of debt reduction/relief granted by Bilateral creditors. SDR continued to be the leading currency of Tanzanian s external debt which indicates that the Government has been borrowing more from IDA and ADB. Bilaterals 27% Commercia l/ other 13% Multilateral s 60% DISBURSED DEBT BY USE OF FUNDS Fig 4: Disbursed Outstanding Debt by Use of Fund During the quarter ending Sept 2009, the sectoral breakdown of disbursed public external debt consisted of Budget Support (USD mn), Infrastructure (USD mn), Agriculture (USD mn), Energy and Mining (USD mn), Industry (USD mn), Education (USD 222.5mn), Insurance (USD 74.2 mn), Tourism (USD 70.6 mn) and Others (USD 1177mn).. Education 7% Industry 7% Insurance 4% Energy& M ining 17% Tourism 3% Others 6% Agriculture 11% BoP support 31% Infrastructure 14%

3 DEBT SERVICING Page 3 Debt service payments have been increasing in line with growth of debt stock, during the quarter under review a total amount of TZS 267.6billion (being principal plus interest) was paid on both external and domestic debt. Domestic debt service payments accounts for 97.3% equivalent to TZS 260.3billion of the total debt service while External debt service payments accounts for 2.7% equivalent to TZS 7.3 billion. A total of TZS billion represents principal repayments on Treasury bills and Treasury bonds and foreign debt that were rolled over while interest / principal repayment of TZS 40.3 billion were paid using Government budgetary revenue.. EXTERNAL DEBT INFLOW AND OUTFLOW During the quarter under review, disbursements of external loans totalled USD 517 mn. The drawdown constituted USD mn as project financing and USD 346mn was received for programme financing. The HIPC relief for the quarter under review was 5.8 billion. Negotiations are under way with the remaining Paris Club member countries and the Non-Paris Club to offer HIPC relief in comparable treatment. DOMESTIC DEBT INFLOW AND OUTFLOW During the quarter under review, domestic borrowing was Tshs bn (face value terms) and Tshs bn in cost value, which is in line with the budget estimate. Redemption repayments were Tshs bn while interest payment was 36.7 bn. Domestic interest payments were below budget estimates due to stability of coupon rate during the period. RISK ANALYSIS DEBT SUSTAINABILITY As at June 2008, Debt/GDP ratio was 39.9% compared to 39% at the end of June Most debt sustainability indicators were not adversely affected by the increase in debt stock during the period under review due to improvements in the respective economic indicators. The status of the debt sustainability indicators relative to the targets in the National Debt Strategy (NDS) is summarised in the table below. INDICATOR END JUNE 2006 END JUNE 2007 END JUNE 2008 TARGET (i) Debt/GDP ratio 87.5% 39% 39.9% <70% (iinational External debt/export 173.4% 186% 224% <150% (iii) External debt/total debt 77.5% 59.2% 65.6% <75% (iv) Total debt service/recurrent 31.2% 40% 8.1% <30% Revenue (v) External debt service/export 1.1 <15% RISK INDICATORS For domestic debt, the average nominal interest rate for the quarter was 9.1%, marking a rise by 0.1 percentage points on a year-to-year basis. The average maturity of outstanding debt as measured by duration remains 4 years compared to the preceding quarter. Bank of Tanzania is the major holder of government securities particularly special bonds holding of 41% of the total stock. The SDR continued to be the dominant currency of public external Disbursed outstanding debt, accounting for 45.7%.

4 R E D E M P T I O N P R O F I L E O F G O V E R N M E N T S E C U R I T I E S Page 4 The maturity structure of long term Government securities (bonds and stocks) reveals imminent repayment and rollover risks in financial year 2010/11, 2018/19 and. 2019/20 whereby the Government will pay principal amounting to TZS billion, TZS billion and TZS billion respectively, as principal repayment on existing bonds and stocks only. This poses liquidity (rollover) risk given the limited absorption capacity of domestic market TZS IN BN / / / / / / / / / / / / / / / / / / / /29 L E G A L A N D I N S T I T U T I O N A L D E V E L O P M E N T S During the quarter under review, two National Debt Management Committee (NDMC) meeting were held on 3rd July 2009 and 15th August 2009 consecutively to analyse, discuss and consider 4 guarantee applications from Ministry Departments and Agencies (MDAs). Also three loan borrowing request were discussed. The decision of the meeting were submitted to MDA s as required by the law. N O T E S T O A T T A C H E D T A B L E S Tables 1-5 attached with this report contain detailed data on public domestic and external debt stocks and flows. Stocks and flows are reported as at end-september Tables 6,7 and 8 summarize the status of negotiations with Paris Club and Non-Paris Club creditors.

5 Page 5 TABLE 7: STATUS OF RELIEF NEGOTIATIONS WITH NON-PARIS CLUB CREDITORS AS AT END SEPTEMBER 2009 S/N CREDITOR COUNTRY C U R R E N T S T A T U S 1 Angola Negotiations Pending 2 Algeria Negotiations underway 3 Bulgaria Concluded 4 China Concluded 5 Slovak and Czeck Concluded 6 Egypt Pending 7 Hungary Concluded 8 India Concluded 9 Iran Negotiations underway 10 Iraq Negotiations Pending 11 Korea DPR N/A 12 Kuwait Concluded 13 Libya Concluded 14 Romania Negotiations Pending 15 Saudi Arabia N/A 16 United Arab Emirates Negotiations Pending 17 Zambia Negotiations underway 18 Zimbabwe N/A Note: N/A (Not Applicable) refers to all Post Cut off Debt as per Agreed Minute

6 Page 6 TABLE 6: STATUS OF PARIS CLUB VII AS AT END SEPTEMBER 2009 S/N Creditor Country Response /Status 1 Austria Agreement concluded on 24 June Cancelled Euro 29.9 mn. 2 Japan Agreement concluded on 3 Feb 2004 and JPY 12.0 mn were cancelled 3 Belgium Bilateral agreement with the Belgium Government on state-tostate loans concluded on 22 November Cancelled Euro 21.25mn. Agreement with Ducloire concluded on 29 November Cancelled Euro 11.0 mn. 4 Netherlands 5 France Bilateral agreement with NCM concluded on 17 March Cancelled 100% of debt. Bilateral agreement with COFACE and Banque de France concluded in March Cancelled 100% of pre cut-off debt. 6 Russia Bilateral agreement concluded PC VII on 18 th July Germany Bilateral Agreement concluded on 28 th April Will cancel Euro 52.2mn. 8 Canada Can- Bilateral agreement concluded on 16 th October celled Canadian Dollar 83.6 mn. 9 United Kingdom Cancelled USD mn of the debt through letter. 10 Norway Bilateral agreement concluded on 5 th December Cancelled Norwegian Kronor 55.0 mn. 11 Italy Bilateral agreement concluded on 18 October Cancelled USD mn 12 USA Bilateral agreement concluded on 4 July Cancelled 21.0 USD mn. 13 Brazil Negotiation underway.