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Debt trap still haunts Tanzania
2005-06-23 07:24:56
By Ludger Kasumuni, recently in Dodoma
The news that G8 nations have agreed to write off the US Dollars 40 billion debts accumulated by the 18 poorest countries, including Tanzania, has been welcomed by several legislators as success story.
But analysts say that debt trap still haunts Tanzania and other Least Developed Countries (LDCs).
According to the latest report from the International Monetary Fund (IMF), when the IMF approves the G8 decision on debt cancellation, Tanzania alone will have debts written off worth 4 trillion/-.
This amount of debts is almost a half of total debts owed to the multilateral donors and agencies, which stand at over US Dollars 9bn/-.
But the Minister for Finance Basil Mramba recently said that in the 2005/6 fiscal year at least USD 179m/- would be written off.
He, however, said that his ministry was not in a position to know when half of Tanzania’s debts would be cancelled, as the issue was still under the multilateral negotiations with the IMF/World Bank.
He also insisted that further pressure for cancellation of debts was needed from the international community, because the cancelled debts were those accumulated some 20 years back.
According to him, since Tanzania is creditworthy the country is still borrowing from various bilateral and multilateral sources, hence the recent debts are not earmarked for writing off.
Nevertheless, most legislators seating in the on-going House session have been appealing to the government to use that noble of opportunity of debt-cancellation for increasing the budget for education, health and road and communication infrastructure.
To many of them, debt cancellation is liberation from inability to finance development projects such as construction of more schools, hospitals, tarmac roads and giant water development projects.
Among the legislators who have congratulated the government for debt cancellation are Athman Janguo (CCM-Kisarawe) and Ludovick Mwananzila(CCM-Kalambo).
Others are Paul Ntwina (CCM-Mbeya), Raynard Mrope (CCM-Masasi), Prof. Jumanne Maghembe (CCM-Mwanga), Dr Mbarouk Mwandoro (CCM-Mkinga), Gwassa Sebabili (CCM-Ngara) and Remidius Kissassi (CCM-Dimani).
To them the debt cancellation was a milestone achieved by the third phase government led by President Benjamin Mkapa.
Congratulating the government on the huge debts written off, Kisassi says that now it is a time for the government to increase funding of the Tanzania Education Authority (TEA) for expansion of secondary schools and higher learning institutions.
Sebabili supports that the debt relief funds should go to financing the social services, especially health and education.
Another legislator, Mwandoro, also said that the cancelled debt should raise the capacity of government to increase further the rate of economic growth.
On his part, Prof. Maghembe was quite clear, saying that since the debts have been written off, the school fees and charges like examination charges for secondary schools should be cancelled as well.
'Since the debts have been written off, the obstacles affecting education sector should be removed,' he says.
He also calls upon the government to embark on giant education projects for expansion of universities and subsidizing the private universities in the wake of huge debt cancellation by G8 nations.
He further supports the idea of using the cancelled debts for raising capacity of the TEA.
Mrope, also congratulates the government saying that: “The good news on huge debt cancellation has never happen in Tanzania.
This is a demonstration to the World that our government had done a commendable job.
Ntwina also says that since the government has enjoyed debt cancellation, it must put emphasis on expansion of road projects in the rural areas.
He says the crucial roads like that of Chunya to Itigi to Kigoma must now receive huge funding to take off.
Janguo, on his part, says debt cancellation is a remarkable achievement of the current government.
He calls upon increased financing of the agricultural sector in the wake of debt relief.
But a legislator for Busega-CCM, Dr Raphael Chegeni, has differed from many people thinking that debt cancellation has a direct relationship with increased budget for poverty reduction.
Contributing to the parliamentary debates on the 2005/6-government budget, Dr Chegeni said that the cancelled debts were not in the government’s coffers, but were just the cancelled commitments of government to pay the multilateral creditors.
He said there were many other donors, the bilateral ones, who were still waiting for Tanzania to pay the debts accumulated over the years.
\'We should press for further cancellation of debts. This is not enough,\' says Dr Chegeni.
Contrary to the thinking of many people, including some politicians and ordinary persons, analysts say that the cancelled debts for the LDCs do not have direct or automatic relationship with increased investments in those countries.
Reuters’ publication of last Saturday (June 11) quoted economic analysts saying that the huge debt cancellation would not attract massive investments in many Africa countries, except South Africa.
'With the exception of South Africa, it is just not on the global big-money players’ radar screens,' Reuters quoted a Vice-President of Credit Swisse Asset Management Bob Parker as saying.
African countries are still far apart from other countries in terms of attracting Foreign Direct Investments (FDIs), says Parker.
'Most of these countries do not have developed capital markets. They are miles apart from other emerging regional markets such as Latin America and Asia,' he says.
The Chairman of Confederation of Tanzania Industries (CTI) Reginald Mengi, has also raised the critique against the single panacea for Africa’s problem based on the dogma of debt cancellation.
Debt cancellation is not a lasting solution to problem of dependency in Tanzania and other African countries, says Mengi who is also the Executive Chairman of IPP.
Talking with the CTI guest, the Ambassador of Germany to Tanzania, Wolfgang Ringe, recently, Mengi said that debt cancellation should go with removal of unfair trading practices in the global economy.
Debt cancellation is not the most sustainable way of addressing our problem.
When G8 countries address a debt relief issue they must as well address the issue of level playing field, he says.
If unfair trading practices go on, 10 years later we will again be begging for debts relief.
After begging for aid 10 years later we will go back to square one,he adds.
He says a lot of debts accumulated by poor countries had arisen out of unfair trading practices in the world market.
The issue of economic absorptive capacity of the nations receiving debt relief is at the centre of debates.
Reuters further quotes analysts as saying that by international investing standard, the written off debts of US Dollars 40bn is just a drop in the bucket.
The amount pales, for example, in comparison with the roughly US Dollars 850 billion in the US natural fund assets managed by vanguard Group alone and is less than a tenth of investments managed by Pimco, the world’s largest, bond fund, says Reuters report.
Britain, Japan, Canada, the United States, France, Italy, Germany and Russia said on June 11 that they would write off all the multilateral debts of the 18 poor nations, including 14 of Africa.
Apart from Tanzania, immediate African beneficiaries of the move will be Benin, Burkina Faso, Ghana, Madagascar, Mali, Mauritania and Mozambique.
Others are Ethiopia, Niger, Rwanda, Senegal, Uganda and Zambia.
But report further says what the G8 nations has not focused on in its deliberations about poverty in Africa is development of local capital markets.
Even Pimco, despite having a huge presence in on global bond markets, has little interest in the sub-Saharan region.
Given this trend, analysts argue that Tanzania and African countries receiving debt exemptions have a long way to overcome poverty.
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