Tanzania's public debt management: strategies to sustainability.
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Date
2004
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Publisher
University of Dar es Salaam
Abstract
Since independence, Tanzania has relied heavily on loans and foreign aid as a source of capital to speed up the economic growth. Tanzania has and still is receiving significant amounts of foreign aid in forms of technical assistance, soft loans, food aid and grants. Nevertheless, the level of development as reflected by the economic and social indicators is still low by any standard. External borrowing has impact on economic growth of recipients. The flow has important supportive role to play to foster economic growth. That, is a powerful development tool adding to the total resources available to an economy, by supplementing its export earnings and private investment. Also external borrowing can be used to finance investment that contributes to raising the economic welfare of the country to levels that might not be attained otherwise (Degefe, 1992) supports this view. External borrowing puts a borrowing country on a future obligation to pay, the growth potential of a borrowing country will necessarily be negatively affected. It has been argued that debt servicing is imposing a real burden on such an economy, since a significant percentage of exports is devoted to the servicing. Debt Servicing seems to have had strong adverse effect on the economic growth of Tanzania, it has also been a heavy burden on the balance of payments of Tanzania. This study examines the National Debt Strategy adopted by the government of Tanzania to keep public and publicly guarantee debt at manageable level. It aims at finding out and explain whether strategies adopted by the government ensure that its financing needs and its payment obligations are met on time at the lowest possible cost over the medium to long run consistent with a prudent degree of risk. Time series data on debt ratios are used to examine qualitatively and quantitatively effectiveness of strategies on keeping public debt at manageable level. The variables involved in the analysis of strategies are external debt, domestic debt, total debt, exports of goods and services, debt servicing, government revenue, debt relief, and Gross Domestic Product (GDP). These results have important policy implication. First, the government should reduce reliance on concessional financing and local financial markets should be given priority to ensure that external debt to total debt ratio is slowing down. Government has to ensure effective utilization of external resources by channeling them to viable projects. Second, the government should modernize agriculture by investing in irrigation schemes to reduce over dependence on rainfall. Third, the government should increase recurrent expenditure proportional to the increase in the revenue and at the same time keep an affordable level of deficit. Fourth, the government should reduce its dependence on the export of limited range of primary commodities by diversify its output. Fifth, the government should create conducive environment to attract local and foreign investors to invest their capital in Tanzania.
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Keywords
Public dept, Tanzania, National debt strategy, Economic growth
Citation
Lupindo, A. E. (2004). Tanzania's public debt management: strategies to sustainability. Masters dissertation, University of Dar es Salaam. Available at (http://41.86.178.3/internetserver3.1.2/detail.aspx?parentpriref=)