TANZANIA REACHES COMPLETION POINT – BUT HER DEBT REMAINS UNSUSTAINABLE

27th November 2001

On 27^th November 2001, Tanzania became the fourth HIPC country to reach completion point under the enhanced HIPC initiative. As a result, her total external debt burden has been reduced by 54%, or some $2,026m in net present value terms[1]. The reduction will mean that debt service payments will be cut by an average of 47% over time, from $193m before HIPC assistance in 1999/00, to an average of $116m overt 2001/02 – 2010/11.

The amount of relief provided to Tanzania comes as no surprise – as is standard in the HIPC process, the amount of debt to be reduced at completion point was agreed as far back as March 2000, when Tanzania reached decision point. But this is precisely the problem. The World Bank’s own analysis at decision point showed that Tanzania would not have a sustainable level of debt until at least 2007[2]. And this was, of course, well before the onset of global recession, the terrorist attacks of September 11, and the catastrophic fall in the prices of Tanzania’s key exports, in particular coffee and cotton, during 2001[3]. If Tanzania had little hope of achieving debt sustainability in the world of March 2000, she has even less hope now.

The World Bank have, rightly, identified the need for additional debt relief at completion point for countries facing ‘exogenous shocks’ which are ‘beyond the control of the country’s authorities’ [4]. They have carefully identified the circumstances under which such relief may need to be provided, emphasising the need for the HIPCs themselves to ‘respond appropriately’ to any new developments and maintain ‘prudent macroeconomic management.’ Tanzania would seem to be an ideal candidate for such additional relief. Global recession and the slump in commodity prices can hardly be said to be within Tanzania’s control, and the World Bank’s own assessment states that she has made ‘substantial progress’ in carrying out structural economic reforms[5].

But, as usual, there has been no public consultation in either debtor or creditor countries as to whether Tanzania should get such additional relief. Moreover, the World Bank have now denied that Tanzania’s debts will be unsustainable. According to them, the ‘debt-to-export ratio is expected to remain below the target ceiling of 150% throughout the period 2000-2020[6].’ Our calculations show that this would require an increase in exports of almost 20% over the projections given at decision point, which under the most optimistic scenarios seems unlikely.

All in all, Tanzania seems to be following the same old pattern, with too little debt relief being given, and without any public discussion of the need for additional relief. While we welcome the fact that the fourth country has – at last – reached the end of the grindingly slow HIPC process, the celebrations will be short lived. Whatever the World Bank may say, Tanzania still has little hope of a sustainable exit from un-payable debts.