A macroeconometric approach to the debt problem in Tanzania: 1970 -1990.

This study traces the genesis of the debt problem in Tanzania, a country which is classified among the 20 debt-ridden countries of Sub Saharan Africa. The fundamental problem is that, despite all debt servicing efforts, including adjustment policies to stimulate economic growth and enhance capacity to pay, debt rescheduling and cancellation, the debt problem has remained acute. Several studies on debt problems in Sub Saharan Africa, Tanzania included, indicate that the genesis of the current debt problem can be traced to both domestic and global macroeconomic factors, namely: poor domestic savings, unprofitable investment, low growth rate in out put, high interest on foreign loans etc. A macroeconometric approach has been used to establish the genesis of such a problem in Tanzania with the hypothesis that it is the global factors which have contributed more to such a situation. Both simple and multiple regression methods of estimation were carried out. The results show that global macroeconomic factors have contributed more to the debt problem in Tanzania compared to domestic factors. In light of the above findings it is recommended that priority should be given to policies which aim at proper management of foreign loans, increased domestic savings, high growth in output and proper exchange rate management, while efforts towards rescheduling and cancellation of the debt continue.