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Astute use of debt relief
2005-12-28 08:59:21
By Editor
Last week, Tanzania’s entire debt owed to the International Monetary Fund (IMF) was written off. The arrears had reached over Tsh.386 million by January this year and had become one of the major components of the debt burden on the national economy.
In practice, the relief means Tanzania will, from next year, pay USD12m, or only 38 percent of total debt due annually.
This reprieve could not have come at a better time, bearing in mind that over Tsh.100bn was spent on financing the just ended general elections. Much of the financing came from domestic sources, meaning that close to two thirds of government’s monthly revenue was expended on one item.
Election spending in most economies in transition has tended to fuel inflation, especially when running costs may exceed the planned budget. Fortunately, Tanzania didn’t recourse to printing money to fund the elections, as the IMF itself has attested.
Yet, government finances, though not in a shambles, have to some extent been overstretched due to the elections.
Analysts see the automatic cancellation of the IMF debt as a sort of bridging finance whose effect is to offset the probability of a supplementary budget, a notorious fiscal measure whose ultimate effect is to erode disposable incomes and dampen consumer demand.
As one of the beneficiaries, Tanzania should be proud to qualify for total debt relief that comes as an appreciation of the country’s commitment to prudent economic management.
Caution is important though. The released resources should judiciously be directed to the priority areas of education, health care, agriculture, HIV/AIDS, rural infrastructure and water supply, irrigation as well as sanitation in urban areas.
The financial assistance comes under the umbrella of the Multilateral Debt Relief Initiative (MDRI) whose financing operations are managed from the Poverty Reduction and Growth Facility Trust Subsidy Account.
Fortunately, at the domestic level, we are much more focused this time than say four years ago when we first qualified for debt relief benefits.
We now have in place the National Strategy for Growth and Reduction of Poverty (NSGRP) or (Mkukuta). Priority areas are now well known, down to the ward level
What is urgently needed is a resolve to put in place a self-rewarding system from the top down to the grassroots, which upholds the tenets of good governance and the desire to see results of any programme.
Incidentally, the new president, Mr. Jakaya Kikwete, has already vowed to go by the principles of good governance, investment in people and the promotion of economic freedom.
By the way, these are the same points of reference the US is looking for before any country qualifies for its multi-billion dollar, rigorously managed Millennium Challenge Account (MCA).
Tanzania has been tipped as one of the potential beneficiaries in the next round of disbursements. The judicious expenditure of debt relief money will obviously upgrade our image and credibility before the eyes of the Millennium Corporation’s decision makers. We need to be prudent in order to mobilize more international support.
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