THE GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA MINISTRY OF FINANCE PUBLIC DEBT REPORT

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1 THE GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA MINISTRY OF FINANCE PUBLIC DEBT REPORT QUARTERLY PUBLIC DEBT REPORT FOR JULY SEPTEMBER 2

2 KEY DEVELOPMENTS: The deadline to conclude bilateral agreements under Paris Club VII with Brazil and Japan expired on the th September 2, however, by request of the Tanzanian government a further extension was received from Paris Club Secretariat. DEBT REPORT: Public Debt Stock Decreases Moderately As can be seen in Figure 1 beneath, Tanzania s total public debt stock decreased by.8% or TShs 68bn during the first quarter of this fiscal year from TShs 8,489.4bn at end-june 2 to TShs 8,421bn at end- September 2. Of the two debt components, domestic debt rose by.5% but external debt fell by 1.1%, which drove the overall domestic debt decrease of TShs 68bn. 9,1 7,8 6,5 5,2,9 2,6 1, - Figure 1: Debt Stock Movements (TZS bn) 8,12 8,489 8,421 8.% 82.% 82.% 17.% 17.7% 18.% End-Sept 22 End-Jun 2 End-Sept % Domestic Domestic Debt Stock Rises External Total public domestic debt stock increased by.5% in the first quarter, from TShs 15.2bn at end-june 2 to Tshs 1,54.9 at end-september 2. This increase was driven by a.2% increase in outstanding central government securities to TShs 87bn, caused by the issuance of new five, seven and ten year government bonds and a.9% increase in other outstanding public sector liabilities. These were influenced by a 2.2% rise in parastatal-related liabilities, brought about by the inclusion of certain non-securitised liabilities that had not previously been accounted for, and a 1.1% increase in the issuance of BOT liquidity papers. Looking at the year from September 22 to September 2 an overall increase in the domestic debt stock by 17.5% has been witnessed, which was mainly caused by a 72.7% increase in BOT liquidity paper to bring the stock to Tshs 26.4bn, reflecting heavy sterilisation undertaken by BOT to neutralise the effects of increased foreign inflows for government spending and an overall increase in central government domestic securities by 5.1% which has been attributed to the issuance of the new five, seven and ten year government bonds. External Debt Stock Falls of the quarter, to USD 6,585.7mn at the end of the quarter. This decrease has mainly been attributed to 67.% increase in principal repayments over this period. In Tanzanian Shilling terms the fall in the external debt levels over the same period from TShs 6,956.2bn to TShs 688.1bn has also been influenced by the.% currency appreciation (see figure 2). 7, 6,9 6,8 6,7 6,6 6,5 6,4 Figure 2: The Impact of Currency Depreciation on External Debt Ex.rate (TZS/USD) in TZS bn in USD mn End-Sept 22 End-June 2 End-Sept 2 1,6 1,4 1,2 1, Domestic Borrowing Deviates Slightly from Budget Target For the quarter ending September 2, actual domestic borrowing (TShs 12.bn) was above repayments (TShs 96.9bn) by TShs 2.4bn, equivalent to 14.6% of the budgeted amount. To September 2 there has been a 25% reduction in gross domestic borrowing accompanied by a 45% reduction in redemption repayments. The fall in redemption payments has arisen primarily due to the issuance of longer-term government securities, which has altered the debt redemption profile. Figure, depicts domestic borrowing against repayments for the period under review. Tshs Billions FIGURE : Domestic Borrowing Vs Repayments, July September T-Bills T-Bonds Stocks Others Total Repayments (PR) Borrowing (CV) Borrowing (FV) Total public external debt stock fell by.8% in foreign currency terms from USD 6,641.5mn at the beginning 2

3 Positive Net External Flows Experienced, However, External Debt Service Grows During the first quarter of this financial year the Tanzanian economy experienced a 1% increase in it s net inflows and transfers from USD mn and USD mn for the quarter ending June 2 to USD 18.9mn and USD 1.8mn for the quarter ending September 2 respectively. Additionally, when comparing net inflows and transfers over the year to September 2, a 674% and 751% increase has been received respectively. This large increase has mainly been caused by substantial increases in the levels of loans and grants received for both project and programme support from multilaterals. Nonetheless, during the first quarter of this financial year external debt servicing increased by 29.2% from USD 1.5mn paid in the quarter before to USD 16.86mn, largely caused by a 19% increase in principal repayments to the IMF and higher interest repayments to the IDA (net of HIPC), ADB and others. Figure 4, beneath, shows the external debt service for the quarter Actual 1 8 Estimate *Key:- Comm Commercial, Bil Bilateral, Mult - Multilateral Comm Bil Mult total debt stock, the decline in the Debt/GDP ratio is primarily attributable to a 2.5% growth in GDP at current market prices during the first quarter. Although still above the 7% target in the National Debt Strategy, the trend is in the right direction. The decrease in the Debt/Revenue ratio was driven by a 14.4% increase in domestic revenues compared bythe debt stock reduction. The External Debt/Exports ratio increased by 15.9% from 429% at end-june 2 to 58% at end-september. This increase was caused by a 25.8% decline in exports of goods and non-factor services (XGNFS) over the quarter from USD1695.2mn at end-june 2 to USD1258.1mn. This decline in XGNFS was primarily caused by 16% decline in Gold exports and a 14.1% decline in traditional exports. The real interest rate on external debt turned negative at the end of this quarter from 5.9% at end-june 2 to -2.2% at end-september. This development is mainly on account of the reduced rate of depreciation of the Tanzanian Shilling over the quarter from 1% at end-june 2 to 2.2% at end- September 2. By contrast, the real interest rate on domestic securities increased by.5% from.2% to.7% due to an increase in yields. Yield Curve Maintains a Positive Trend As depicted in figure 5, the yield curve for government securities for two, seven and ten year maturities at end-september 2 rose above the levels attained at the end of the previous quarter. However, the yields for the government s five year securities fell beneath those attained at end June 2. The yields for the quarter under review remained above the prevailing inflation rate of 4.2%. DEBT POLICY IMPLEMENTATION SUMMARY: 1.% Figure 5: Yield Curve for Government Securities Progress Made on HIPC Initiative The deadline to conclude bilateral agreements under Paris Club VII with Brazil and Japan expired on the th September 2. However, following a request by the Tanzania government, a further extension was received from Paris Club Secretariat. The new date by which bilateral agreements under Paris Club VII are to be reached is now the 1 st December 2. Further, negotiations with Libya, Iran, and Bulgaria are currently being undertaken to request relief under comparable Paris Club terms. Debt/GDP and Debt/Revenue Sustainability Indicators Improve, However, the External Debt/Exports worsens The Debt/GDP ratio and the Debt/Revenue ratio fell between end-june 2 and end-september 2 from 81.7% to 79.1 % and 697% to 65% respectively. In addition to the moderate decline in 8.% 6.% 4.% 2.% End-Sept 22 End-June 2 End-Sept Years to maturity Notes To Attached Tables 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 2. Tables 6 and 7 summarize the status of negotiations with Paris Club and Non-Paris Club creditors.

4 TABLE 6: STATUS OF PARIS CLUB VII AS AT END SEPTEMBER 2 S/n Creditor Country Date first contacted Date of reminder Response /Status letter 1 Austria 22 February 22 N/A Agreement concluded on 24 June 22. Cancelled Euro 29.9 mn. 2 Japan 22 February 22 May 2 Negotiations on PC VI and PC VII ongoing. From April 2 adopt a new approach in offering relief to HIPCs. Belgium 22 February 22 N/A Bilateral agreement with the Belgium Government on state-to-state loans concluded on 22 November 22. Cancelled Euro 21.25mn. Agreement with Ducloire concluded on 29 November 22. Cancelled Euro 11. mn. 4 Netherlands 22 February 22 N/A Bilateral agreement with NCM concluded on 17 March 2. Cancelled 1% of debt. 5 France 22 February 22 N/A Bilateral agreement with COFACE and Banque de France concluded in March 2. Cancelled 1% of pre cut-off debt. 6 Russia 22 February 22 N/A Bilateral agreement concluded PC VII on 18 th July 2. 7 Germany 22 February 22 N/A Bilateral Agreement concluded on 28 th April 2. Will cancel Euro 52.2mn. 8 Canada 22 February 22 N/A Bilateral agreement concluded on 16 th October 22. Cancelled Canadian Dollar 8.6 mn. 9 United Kingdom 22 February 22 N/A Cancelled USD 129. mn of the debt through letter. 1 Norway 22 February 22 N/A Bilateral agreement concluded on 5 th December 22. Cancelled Norwegian Kronor 55. mn. 11 Italy 22 February 22 N/A Bilateral agreement concluded on 18 October 22. Cancelled USD 12. mn 12 USA 22 February 22 N/A Bilateral agreement concluded on 4 July 22. Cancelled 21. USD mn. 1 Brazil 22 February 22 May 2 Waiting for final version of bilateral agreement for PC VI. Silent on PC VII. Source: Policy Analysis Department (MoF) and Bank of Tanzania TABLE 7: STATUS OF RELIEF NEGOTIATIONS WITH NON-PARIS CLUB CREDITORS AS AT END SEPTEMBER 2 4

5 S/n Creditor Country Current status 1 Angola Negotiations Pending 2 Algeria Negotiations Pending Bulgaria Negotiations Underway 4 China Concluded 5 Slovak and Czeck Negotiations Underway 6 Egypt Negotiations Pending 7 Hungary Negotiations Pending 8 India Concluded 9 Iran Negotiations Underway 1 Iraq Negotiations Pending 11 Korea DPR N/A 12 Kuwait Concluded 1 Libya Negotiations Underway 14 Romania Negotiations Pending 15 Saudi Arabia N/A United Arab 16 Emirates Negotiations Pending 17 Zambia Negotiations Pending 18 Zimbabwe N/A Note: N/A (Not Applicable) refers to all Post Cut off Debt as per Agreed minute 5