By Enyichukwu Enemanna
Latest report by the International Monetary Fund (IMF) on least indebted countries in Africa puts East Africa’s Tanzania on a clear lead, standing as a beacon of fiscal responsibility in the region and the continent in general. Grabbing the number one spot, it leads nine other countries featured in the list as having an averagely manageable debt profiles despite economic challenges several African countries grapple with.
It boasts of a debt-to-GDP ratio of 41.8 per cent, an accomplishment believed to be reflective of a prudent and balanced monetary approach, which in turn makes significant contributions to the country’s economic stability and resilience.
Debt-to-GDP ratio is a key metric that compares a country’s total debt to its economic output, with lower ratios indicating economic stability while higher ratios show potential danger in meeting debt obligations, influencing global investment decisions and interest rates on government bonds.
Tanzania’s relatively low ratio signifies robust economic stability, a positive indicator which highlights the country’s ability to meet its debt obligations, setting the stage for sustained economic growth.
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The recently released IMF Regional Economic Outlook report also paints an optimistic picture for sub-Saharan Africa, forecasting a 4.2 per cent growth in the region’s economy in 2024, a notable improvement from the 3.6 per cent recorded in 2023.
On what the development implies, a Dar Es Salaam-based Economist, Dr Isaac Safari at a press conference, said by being listed as the least indebted country in Africa by IMF, Tanzania still has ability to obtain loans from development funders and service them.
“It is the responsibility of the government to ensure all loans bring the desired outcome of fostering development, especially in executing development projects which can later contribute to generating government revenue.
“Debt are not sins as long as they stimulate production which can generate income for repaying them rather than borrowing to repay previous loans,” he said.
He urged the government to diversify production in an effort to make a shift from the lower middle income status to the upper middle income whereby ultimate inclusivity of all citizens in development will be realised.
A Holistic Approach
Debt management in Africa is multifaceted and interconnected with a range of economic, social, and political factors. Many African countries face the challenge of balancing the need for infrastructural development and social welfare programmes with the imperative to maintain sustainable debt levels.
Nations across the continent rely on external borrowing as a common source for financing critical development projects, but it also raises concerns about sustaining such debts, as well as the risk of default.
It therefore requires a holistic approach to address debt sustainability, which largely anchors on fiscal discipline, increased internally generated revenue (IGR), reduction in cost of governance, transparent management of resources and effective utilization of borrowed funds.
The significant milestone recorded by Tanzania may have come as a result of several of these factors put together, most especially through mopping up revenue internally. With effective utilization of resources, the confidence of the people has been bolstered, leading to a steady increase in tax revenue since 2020.
According to a report published by Statista Research Department of Tanzania, in 2020/2021 for instance, the government revenue was over 21.7 trillion Tanzania shillings (TZS) (approximately 9.4 billion U.S. dollars). Taxes accounted for most of the total amount collected. About 6.5 trillion TZS (2.8 billion U.S. dollars) originated in taxes on imports, while other six trillion TZS (2.6 billion U.S. dollars) were from income taxes. Taxes on local goods and services resulted in about 3.7 trillion TZS (1.6 billion U.S. dollars) in revenue.
The Heritage Times HT recalls that the East African nation’s economy largely relies on tourism, mining, agriculture and manufacturing. It laid emphasis on agricultural development in the FY2022/23 budget in order to reduce over-reliance on external borrowing. President Samia Suluhu Hassan had in April 2022 unveiled her agricultural transformation strategy named ‘Agenda 10/30’ – which, as the name implies seeks to accelerate the pace of output growth in the sector to 10 percent by 2030.
At the centre of this strategy is a planned, massive expansion in the amount of labour and land allocated to the sector. An extra 3 million workers are expected to be added to the sector by 2025, a third of which will likely be young people, and land under cultivation is expected to reach 20 million hectares by 2030. These are all approaches put in place to ensure a sustained economic growth
The country’s tourism industry has also remained a reliable source to bolster IGR, as it makes a remarkable comeback four years after its revenues plummeted, arising from the COVID-19 pandemic.
A recently released data from the Bank of Tanzania reveals that tourism has staged an impressive recovery, contributing $2.99 billion to foreign exchange earnings as at the month of July 2023, compared to $1.95 billion in July 2022. Because of the modest investment in service, especially security, tourist arrivals increased by 37.2%, reaching a record 1,658,043 a Business Insider Africa source says. Also, Europe and the United States remain primary sources of tourists visiting Tanzania for leisure and holidays.
Nigeria as Second Least Indebted?
Surprisingly, with a 41.3% Debt-to-GDP Ratio in IMF’s list, Africa’s most populous nation, Nigeria came very close to Tanzania, emerging second least indebted country amidst domestic concerns. It came ahead of eight other countries, including Cameroon, Chad, Comoros, Equatorial Guinea, Guinea, Ethiopia, Botswana and Democratic Republic of Congo.
Repeated attempts to get the Special Adviser to the Nigerian President on Economic Affairs (office of the Vice President) Mr. Tope Fasua to speak on what this means to Nigeria amidst surging inflation and drop in value of local currency, the Naira, proved abortive as several inquiries were unanswered.
Nigeria’s public debt stock which includes external and domestic debt stood at N87.38 trillion (US$113.42 billion) in Q2 2023 from N49.85 trillion (US$ 108.30 billion) in Q1 2023, indicating N37.53 trillion increase in total public debt. This therefore shows a growth rate of 75.27% on a quarter-on-quarter basis, the country’s Debt Management Office (DMO) says, a report that was corroborated by the statistics office, Nigeria Bureau of Statistics (NBS) and published in its website.
The debt office in the report said the surge was occasioned by the N22.71 trillion ways and means advances obtained by the federal government from the Central Bank of Nigeria (CBN).
“Nigeria’s total public debt stock as at June 30, 2023, was N87.38tn ($113.42bn). It comprises the total domestic and external debts of the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory,” DMO said.
IMF in its report in December 2023 ranked Nigeria along with Egypt, Angola, South Africa, Côte d’lvoire and Kenya as countries with highest debts to the Fund.
While Nigeria’s total debt to the Fund as at December 6, 2023, stood at $1,840,875,000, Egypt, Angola, South Africa, Côte d’lvoire and Kenya had $11,968,321,674, $3,153,816,667, $2,669,800,000, $2,117,559,620 and $2,058,982,100 respectively.
The DMO had in May last year, just before the President Bola Tinubu-led administration was inaugurated advised Nigerian government to resolve its revenue problems in order to increase turnover, which on the other hand is expected to reduce dependence on borrowing to fund budget deficit.
The debt office in the report expressed optimism that the reforms already introduced by the Tinubu administration and those that may emerge from “the recommendations of the Fiscal Reform and Tax Policies Committee, are expected to impact debt strategy and improve debt sustainability”.
‘Burden for Future Generations’
At a meeting on January 4 with awardees of the Future Africa Leaders Foundation, Nigeria’s former leader, Olusegun Obasanjo expressed doubt about future debt forgiveness for countries in Africa, citing past mismanagement of previous debt relief efforts.
The respected elder statesman may have spoken to twin problems of corruption and ineffectual leadership in Africa, which has led to militancy, jihadist movements and banditry in several countries, causing a sweeping wave of coups particularly in West African sub-region.
He said, “With the level of mismanagement of the previous debts written off for the country, it will be almost impossible for any administration to make similar gestures on the continent.
“The coming generations will have no choice but to pay the current debt being incurred by different countries in the continent.”
Countries can boost their financial resilience by enhancing domestic resource mobilization and diversifying the economy so as to contribute to reducing reliance on external borrowing.
