Tanzania has qualified for debt relief under the Heavily Indebted Poor Countries Initiative (HIPC) of 1996. This news was revealed by World Bank Country Director for Tanzania, James Adams, on April 7. He was quoted in the Dar es Salaam Guardian as saying that Tanzania would, effective from April 2000, start to benefit from a $2.2 billion debt relief programme extended by the IMF and World Bank/International Development Association (IDA). Tanzania’s eligibility, he said, was a recognition by the international community of the progress it had made in implementing economic reforms and achieving poverty reduction.
The $2.2 billion debt reduction would reduce the current total of $6.4 billion due to the international agencies and ‘Paris Club’ creditor nations participating in the relief operation to $2.6 billion. Some $2.4 billion of this debt was due to the International Development Association (IDA) the concessional lending arm of the World Bank, $294 million to the IMF and $20 million to the World Bank itself. Tanzania currently spends some 35% of its annual recurrent income to service its foreign debt which totals altogether $8.6 billion. Several other creditor such as China and Eastern Europe are not included in the debt relief operation.
However Tanzania would have to implement several conditions (or ‘conditionalities’ as they are described) before the bulk of the relief would be available. The country would have to implement a participatory poverty reduction strategy, maintain a stable macro-economic environment, implement measures specifically related to poverty reduction and get confirmation from other creditors that they would participate in the debt relief operation.
According to Adams the IDA debt relief of $1.2 billion would be spread over a period of 20 years and would cover 69% of the country’s debt servicing costs. The IMF debt relief of $152 million was expected to be delivered over 10 years and would on average cover 58% of the debt service obligation. There were two stages in the debt relief process -the ‘decision point’ when a country became eligible for relief which started now and a ‘completion point’ likely to be in 2001 after the conditionalities had been met. At ‘completion point’ the settlement was intended to bring about a level of debt which could be regarded as sustainable. Between now and the completion point, Tanzania would receive interim relief amounting to $26.5 million immediately and about $80.7 million in the immediately following years. After ‘completion’ Tanzania should be able to save $100 million annually.
Before the latest decision an assessment team from the US General Accounting Office which visited Tanzania in February had praised the arrangements being made by Tanzania and its sound plans for the use of funds from the HIPC initiative. They described Tanzania’s plans as better than those of Nicaragua, Bolivia and Uganda, countries already visited by the team. They intended to portray a positive image of Tanzania so that it would get priority in the debt initiative.
On February 16 it had been announced that Britain, whose Chancellor of the Exchequer Gordon Brown has been in the forefront of negotiations to relieve the debt of poor countries, would support the inclusion of Tanzania in the list of countries to receive debt relief.
HOW MUCH IS IT REALLY WORTH?
The subject of debt relief was the main theme of a full day international tribute to Mwalimu Nyerere organised by Jubilee 2000, the Tanzanian High Commission and the Africa Centre in London on April 19. Speaker after speaker condemned the World Bank/IMF and the Western powers and demanded total debt relief for third World countries. The situation was frequently described as a new form of slavery.
Mwalimu’s daughter Rosemary said that her father had always insisted that Tanzania’s debt was unpayable. Tanzania was spending $4 on debt servicing for every one dollar on education and $9 on debt servicing compared with one dollar on health. The debt was equivalent to $267 for each individual in the country even though the average annual income of Tanzanians was only $210.
Jubilee 2000 Senior Research Officer John Garrett told ‘Tanzanian Affairs’ that the real worth of the new debt relief was much less than indicated above and that the figure of $100 million per year was deceptive because much of the relief was on debt which could not be repaid -described as ‘unpayable’ debt. He estimated that the actual debt relief would amount to a probable drop in debt service payments from the present figure of $162 million p.a. to $150 million p.a., a reduction of some $12 million (7%) which would be nothing like enough to enable the government to significantly increase its expenditures on poverty reduction. However, a number of creditor countries were now giving 100% relief or were likely to do so in the near future. The recent sale of IMF gold would make only a small contribution to debt relief for Tanzania as it had to be spread over many indebted countries.
At a reception given by Tanzanian High Commissioner in London Dr. Abdul Shareef, he and Prime Minister Frederick Sumaye, who had been the opening speaker at the Jubilee 2000 meeting, explained to ‘Tanzanian Affairs’ the apparent contradiction between the World Bank’s interpretation of the proposed relief and that of Jubilee 2000. They said that Tanzania had never been able to pay the $1 billion p.a. of debt service charges that it should have been paying. It had been averaging only about 20%. Much of the difference had been paid through bilateral grants from creditor nations including the UK but Dr Shareef said that promised grants were not always received. The World Bank’s figures were based on a formula related to the start of the IllPC in 1986 when Tanzania’s debts were around $5 million and assumed that full payments were being made by Tanzania.
Dr Shareef said that, provided that nothing went wrong (he mentioned acts of nature such as cyclones or severe droughts) and that Tanzania a) continued to do as well or better economically as it was doing now, b) investment continued at the present pace, and c) the Tanzania Revenue Authority continued to collect adequate taxes then, in two or three years time, the country would begin to receive about the sum which Jubilee 2000 had estimated ($12 million p.a.) and that the 80% service charges which Tanzania had not been able to pay would be written off over a period of 20 years. He added that at the last meeting of the ‘Paris Club’ Tanzania had asked for 90% of the debt to be written off. Were this to be done the country would continue to pay what it was paying now provided that donor grants continued as at present.
The High Commissioner pointed out that Tanzania’s annual recurrent expenditure was about $110 million which meant that the debt relief represented only a very small contribution in real terms. He added that the $12 million per annum of relief was for a country with a population of some 30 million people. He likened the debt initiative to the situation in a hospital where a patient is on his deathbed, extremely ill and with a lot of pain. The doctor, instead of giving a blood transfusion, continues to take a pint of blood from the patient every month. He gives the patient two aspirins a day to relieve the pain!