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United Republic of Tanzania: Staff Report for the 2016 Article IV Consultation, and Fourth Review Under the Policy Support Instrument—Debt Sustainability Analysis

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2016
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The Debt Sustainability Analysis1 (DSA) indicates that Tanzania’s risk of debt distress is low. Under the baseline scenario, which assumes a scaling up of infrastructure investment, all external debt burden indicators are projected to remain below the policy-dependent thresholds. The public debt outlook also remains favorable. However, stress tests highlight vulnerabilities to exchange rate depreciation and lack of fiscal consolidation. These results highlight the need for Tanzania to continue implementing a prudent fiscal policy, with an overall deficit of about 3 percent of GDP remaining a good long-term fiscal anchor. An appropriate financing mix is also required. The increasing recourse to nonconcessional borrowing needs to be gradual and accompanied by strengthened debt management capacity and sustained reforms to public financial and investment management to preserve debt sustainability.

Background and Recent Developments

1. The accumulation of new external public debt has been gradual but steady since debt relief was provided under the Multilateral Debt Relief Initiative. Total public sector debt (external plus domestic public debt) gradually increased from about 20 percent of GDP in 2007/08 to an estimated 37.5 percent of GDP in 2015/16 (Text Figure 1). Most of the increase is due to public and publicly guaranteed (PPG) external debt.

Text Figure 1.Tanzania Public Debt, 2004/05-2015/16

(Percent of GDP)

Sources: Ministry of Finance and Planning, Bank of Tanzania, and IMF staff calculations.

2. While Tanzania’s PPG external debt is mostly concessional, borrowing on non-concessional terms has increased recently, partly due to the decline in aid from development partners. At end-2014/15, more than two-thirds of public external debt was owed to multilateral institutions, primarily the International Development Association (IDA) and the African Development Bank (AfDB). Government borrowing from commercial sources amounted to about 30 percent of the public external debt stock at end-2014/15, against about 2 percent at end-2009/10.

3. Domestic public debt totaled 8 percent of GDP at tend-June 2015. Domestic debt remains dominated by medium and long-term instruments, with Treasury bonds accounting for over 50 percent of total domestic debt and an average maturity of 7 years. Commercial banks continued to hold the largest share of government domestic debt.

4. The coverage of public debt in this DSA is restricted to central government obligations owing to data availability. Local government debt and public enterprise debt are not captured due to lack of reliable and timely data. However, since these entities are often unable to borrow externally without a guarantee from the central government, public debt data captures partially their debt exposure. To get a comprehensive picture of government domestic debt, several outstanding government liabilities and other contingent liabilities2 currently not accounted for in the debt stock are added to the first year of projection (2015/16). These are estimated at 7.6 percent of GDP and mainly include arrears to pension funds and loans to government entities, budget expenditure arrears, TANESCO’s arrears to its suppliers, and other actual or contingent liabilities.

Underlying Assumptions

5. To address the country’s infrastructure gap, the authorities have formulated a new Five-Year Development Plan (FYDP II) with large investment in a number of areas, including hydropower plants, roads, a standard gauge railway, the Dar es Salaam Port, and the water and transportation systems. While a significant share of this investment would be on budget, the authorities also intend to resort to public-private partnerships (PPPs) to limit government borrowing and risks to debt sustainability.

6. The current DSA3 assumes an increase in the fiscal deficit over the medium-term on account of public investment scaling up followed by gradual fiscal consolidation to maintain debt sustainability. The baseline scenario assumes implementation of the authorities’ economic and development agenda. In the absence of a detailed quantitative macroeconomic framework for the FYDP II at the time of discussions, staff explored the sustainability of a plausible medium-term investment scaling up scenario. Accordingly, the deficit is projected to increase to 4.6 percent of GDP in 2016/17 and remain at about 4.5 percent of GDP over the medium-term, before returning to slightly below 3 percent of GDP by 2022/23 consistent with regional commitments to converge toward the East African Monetary Union (EAMU) protocol. Domestic revenues are projected to increase in 2016/17 on account of expected gains from tax administration and policy measures and nontax revenue owing to higher contributions of parastatals to the budget (including a large one-off transfer on account of retained earnings) and higher efficiency in the collection of various fees. The revenue ratio is projected to further increase gradually over the medium-term, reflecting additional revenue mobilization efforts. Public investment would almost double in percent of GDP to about 9½ percent of GDP in 2016/17 and would remain high for a few years.

7. The other main macroeconomic assumptions are:

  • Growth is projected to remain strong in the next few years (about 7 percent), reflecting the scaling up of public investment, mainly in transportation and energy infrastructure. Over the medium term, growth is assumed to revert to its 15-year average of about 6.5 percent; the agriculture sector will remain important, and continued economic transformation through industrialization, human development, and an improved business climate is expected to support economic growth in the long-run.

  • Inflation is projected at about 5 percent consistent with the authorities’ inflation target and assuming a tight monetary stance over the medium-term.

  • The current account deficit is expected to widen to 9.1 percent of GDP in 2016/17 and remain high at an average of 8½ percent of GDP over the medium-term, reflecting high development and infrastructure needs which will continue to lead to large investment-related imports and current account deficits.

  • Aid and FDI flows. External grants and concessional loans are assumed to gradually decrease as a share of GDP consistent with the declining aid trends from development partners. FDI is assumed to partly finance some of the envisaged investment scaling up. Therefore, FDI inflows are expected to remain high at over 4 percent of GDP over the medium-term and then to stabilize at about 4 percent of GDP in the long-term.

  • External nonconcessional borrowing. In line with its medium-term debt management strategy and ongoing discussions with creditors, Tanzania would rely more than assumed in the previous DSA on borrowing from the regular windows of the World Bank and African Development Bank (whose terms remain much more favorable than available on international markets) and on domestic borrowing.4 More than 50 percent of the external financing in the long term would come from nonconcessional sources (see Text Figure 2).

  • Domestic borrowing. Net domestic borrowing would be maintained at moderate levels (about 1 percent of GDP) throughout the projection period. Real interest rate on new domestic debt would be lower than current levels, but would remain relatively high while the average maturity on domestic debt is assumed to be about seven years.

Selected Macroeconomic Indicators, Current vs. Previous DSA
2014/152015/162016/172017/182018/19Long term (average 2020–35)
Real GDP growth (percent)Current DSA7.07.17.27.06.86.5
Previous DSA7.27.27.17.06.96.6
Inflation (average)Current DSA5.46.45.45.05.05.0
Previous DSA5.25.05.05.05.05.0
Fiscal balance (% of GDP)Current DSA−3.1−3.3−4.6−4.5−4.5−2.2
Previous DSA−4.0−4.2−3.0−3.0−2.9−2.4
Current account (% of GDP)Current DSA−8.6−8.6−9.1−8.8−8.6−8.0
Previous DSA−9.5−8.2−7.0−7.2−6.9−8.2
FDI (% of GDP)Current DSA4.14.54.24.24.24.0
Previous DSA4.14.04.04.04.04.0

Text Figure 2.Foreign Financing Assumptions

Sources: Ministry of Finance and Planning, Bank of Tanzania and IMF staff calculations.

External DSA

8. All external debt burden indicators remain below indicative thresholds in the baseline scenario; however, under the most extreme stress test the external debt service-to-revenue ratio slightly breaches its threshold. The three debt stock indicators (relative to GDP, exports and revenue) all increase slightly in the medium-term before declining below initial levels by the end of the projection period, and remain well below their policy-dependent thresholds under the baseline and all shock scenarios. The debt service-to-revenue ratio, however, increases over the medium-term and remains slightly above initial levels at the end of the projection period. Under the most extreme stress test, external debt service as a ratio to revenue slightly breaches its threshold in 2020–23 in the event of a one-time 30 percent depreciation in the nominal exchange rate. In such a borderline case the probability approach is applied to assess the risk of debt distress.5 The results show that under this approach, Tanzania’s risk of debt distress remains low for all external debt indicators.

9. A customized scenario assuming lower growth suggests limited additional debt sustainability risks compared to the baseline scenario (Figure 2). The customized alternative scenario assuming GDP growth of 5 percent, compared to 6.5 percent in the baseline, leads to higher external debt burden indicators, but none of them breaches its threshold.

Public DSA

10. Public debt and debt service ratios also suggest a low level of vulnerability. In the baseline scenario, the PV of total public debt as a share of GDP is expected to increase modestly in the next few years (to a peak of 34 percent of GDP in 2019) and then to decline gradually over time. It would therefore remain well below the DSF benchmark level of 56 percent of GDP associated with heightened public debt vulnerabilities for medium performers, and the EAMU convergence criterion of 50 percent.

11. Stress tests confirm the importance of continued prudent fiscal policy. Under the historical scenario, the PV of public debt would keep gradually growing and breach the EAMU convergence criterion of 50 percent of PV of debt-to-GDP ratio in 2033/34. The debt service to revenue ratio would also reach much higher levels. The most extreme shock corresponds to a 10 percent of GDP increase in debt-creating flows in 2016. It highlights the sensitivity of debt dynamics to contingent liabilities, a useful reminder in a context where the authorities plan to utilize PPPs for large infrastructure projects. The simulations also suggest that an overall deficit of about 3 percent of GDP remains an appropriate long-term fiscal anchor for Tanzania to safeguard the low risk of debt distress.

Conclusion

12. Tanzania’s risk of external debt distress remains low with a baseline scenario assuming a prudent scaling up of public investment and temporarily higher fiscal deficits than in the previous DSA. However, creating fiscal space for higher infrastructure investment will necessitate sustained efforts to raise additional domestic revenue and streamline current expenditure, to avoid excessive recourse to debt. Reforms to increase spending efficiency, particularly in the area of public investment and enhancing debt management capacity, will also be needed. More broadly, the targeted high growth and structural transformation of the Tanzanian economy will require sustained efforts to tackle structural reforms.

13. Authorities’ views. The authorities agreed with the main results of the DSA, while stressing the need to find the right balance between continued fiscal prudence and addressing Tanzania’s large development needs guided by the FYDP II. The authorities’ own DSA (conducted in 2015) points to the importance of improving domestic revenue collection and strengthening debt management capacity to address new risks emanating from increased rollover of maturing domestic debt, and financing public investment through external nonconcessional borrowing.

Figure 1.Tanzania: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2016–2036 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026. In figure b. it corresponds to a One-time depreciation shock; in c. to a Terms shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

Figure 2.Tanzania: Indicators of Public Debt under Alternative Scenarios, 2016–2036 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026.

2/ Revenues are defined inclusive of grants.

3/ The volatile profile of debt service is due to the projected armotization for public domestic debt.

Figure 3.Tanzania: Probability of Debt Distress of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2016–2036 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026. In figure b. it corresponds to a One-time depreciation shock; in c. to a Terms shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

Table 1.Tanzania: External Debt Sustainability Framework, Baseline Scenario, 2013–2036 1/(Percent of GDP, unless otherwise indicated)
ActualHistorical 6/ AverageStandard 6/ DeviationProjections
2013201420152016201720182019202020212016–2021 Average202620362022–2036 Average
External debt (nominal) 1/26.527.028.630.632.433.534535.235.329.722.1
of which: public and publicly guaranteed (PPG)22.923.722.924.226.427.528.429.029.023.014.6
Change in external debt2.00.61.61.91.81.20.90.80.0−1.1−0.4
Identified net debt-creating flows233.63.51.92.92.52.42.21.71.92.6
Non-interest current account deficit10.210.48.28.72.07.98.68.17.87.67.17.07.373
Deficit in balance of goods and services10.810.9837.68.28.17.97.8736.86.7
Exports19.919.119321.220.921.421321.221325.129.7
Imports30.729.927.728.829.229.529.229.128.732.036.4
Net current transfers (negative = inflow)−1.9−1.6−1.2−2.60.8−0.9−0.9−1.1−1.1−1.1−1.0−0.8−0.5−0.7
of which: official−1.2−0.9−0.6−0.1−03−03−03−03−03−0.2−0.1
Other current account flows (negative = net inflow)131.11.11.2131.11.00.90.80.91.0
Net FDI (negative = inflow)−4.6−44−41−3.90.7−45−42−42−42−42−4.2−40−40−4.0
Endogenous debt dynamics 2/−3.2−2.4−0.5−1.5−1.5−1.4−1.3−1.3−1.2−1.1−0.7
Contribution from nominal interest rate03030.40.70.60.70.80.80.90.70.7
Contribution from real GDP growth−13−1.7−1.8−2.2−2.0−2.1−2.1−2.1−2.1−1.8−13
Contribution from price and exchange rate changes−2.2−1.00.9
Residual (3–4) 3/−0.3−3.0−1.90.0−1.1−1.3−1.4−1.4−1.6−2.9−2.9
of which: exceptional financing0.00.00.00.00.00.00.00.00.00.00.0
PV of external debt 4/20.622.724.225.226.026.726.622.8183
In percent of exports106.4107.1115.6118.01223125.5124.490.961.7
PV of PPG external debt14816318.219.219.920.520.316210.8
In percent of exports76477.087.189.893.696495.1643364
In percent of government revenues114.9112.8115.11241127.2127.8125.190.758.6
Debt service-to-exports ratio (in percent)3.63.44.37.78.69.511.913.213.410.58.2
PPG debt service-to-exports ratio (in percent)2.32.93.54.95.97.19.410.710.98.26.0
PPG debt service-to-revenue ratio (in percent)3.64.15.27.27.89.812.814114.311.59.6
Total gross financing need (Billions of U.S. dollars)2.63.12.4233.03.13.63.93.95.713.4
Non-interest current account deficit that stabilizes debt ratio8.29.86.66.06.86.96.96.97.08.07.6
Key macroeconomic assumptions
Real GDP growth (in percent)6.27.17.06.40.67.17.27.06.86.66.56.96.56.56.5
GDP deflator in US dollar terms (change in percent)10.04.0−3.14.86.0−1330.41.81.91.91.9−0.92.01.92.0
Effective interest rate (percent) 5/1.4131.71.00.42.22.0232.52.72.72.42.63.22.8
Growth of exports of G&S (US dollar terms, in percent)4.46.65.112.98.21.86.411.3838.59.17.612.010.011.1
Growth of imports of G&S (US dollar terms, in percent)−0.68.5−4313.912.7−3.49.210.27.98.26.96.511.09.010.4
Grant element of new public sector borrowing (in percent)22.018.619.219.018320.219.513.08.910.7
Government revenues (excluding grants, in percent of GDP)12.813.512.814.515.815.515.716.016.217.818.418.0
Aid flows (in Billions of US dollars) 7/1.11.00.60.8131.2131.41.4132.5
of which: Grants1.11.00.60.40.60.60.60.60.60.91.9
of which: Concessional loans0.00.00.0030.70.60.70.70.80.40.7
Grant-equivalent financing (in percent of GDP) 8/1.52.22.01.91.81.71.21.01.1
Grant-equivalent financing (in percent of external financing) 8/43.936.536.935.233.435338.035.136.5
Memorandum items:
Nominal GDP (Billions of US dollars)41.946.648.444.948352.757362367.7102.2234.9
Nominal dollar GDP growth16.911.33.7−7.27.78.98.88.78.65.98.68.68.7
PV of PPG external debt (in Billions of US dollars)6.47.28.710.011.312.613516325.0
(PVt-PVt-1)/GDPt-1 (in percent)533.22.72.4231.52.90.70.60.6
Gross workers’ remittances (Billions of US dollars)0.00.10.00.00.00.00.00.00.00.10.1
PV of PPG external debt (in percent of GDP + remittances)14.816318.219.219.920.520316.210.8
PV of PPG external debt (in percent of exports + remittances)76.176.786.889.593396.194.864.2363
Debt service of PPG external debt (in percent of exports + remittance3.44.95.97.09.410.610.88.16.0
Sources: Tanzanian authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Tanzanian authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 2.Tanzania: Public Sector Debt Sustainability Framework, Baseline Scenario, 2013–2036(Percent of GDP, unless otherwise indicated)
ActualEstimateProjections
201320142015Average 5/Standard 5/ Deviation2016201720182019202020212016–21 Average202620362022–36 Average
Public sector debt 1/29.731.430.640.341.542.242.642.842.234.624.2
of which: foreign-currency denominated22.923.722.924.226.427.528.429.029.023.014.6
Change in public sector debt2.51.7−0.89.71.20.70.40.2−0.6−1.4−0.7
Identified debt-creating flows1.61.44.29.71.10.70.70.80.0−0.9−0.2
Primary deficit3.82.01.62.81.21.72.92.72.62.51.72.30.40.40.4
Revenue and grants15.415.614.015.417.216.716.817.017.118.719.2
of which: grants2.62.11.21.01.31.21.11.00.90.90.8
Primary (noninterest) expenditure19.217.615.617.120.119.419.319.518.819.219.6
Automatic debt dynamics−2.2−1.71.90.1−1.8−2.0−1.8−1.7−1.7−1.3−0.6
Contribution from interest rate/growth differential−1.3−1.3−1.3−1.3−2.2−2.1−1.9−1.8−1.7−1.3−0.6
of which: contribution from average real interest rate0.30.60.70.80.50.70.80.90.90.90.9
of which: contribution from real GDP growth−1.6−2.0−2.0−2.0−2.7−2.7−2.7−2.7−2.6−2.2−1.5
Contribution from real exchange rate depreciation−0.9−0.33.21.40.40.00.10.00.0
Other identified debt-creating flows0.01.00.77.90.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.07.60.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.01.00.70.30.00.00.00.00.00.00.0
Residual, including asset changes0.90.3−5.00.00.10.0−0.4−0.6−0.6−0.5−0.5
Other Sustainability Indicators
PV of public sector debt22.632.433.433.934.234.233.527.820.4
of which: foreign-currency denominated14.816.318.219.219.920.520316.210.8
of which: external14.816.318.219.219.920.520.316.210.8
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/5.93.94.04.96.26.66.96.96.74.63.8
PV of public sector debt-to-revenue and grants ratio (in percent)160.6210.1194.7203.9203.7200.9195.9148.4106.4
PV of public sector debt-to-revenue ratio (in percent)175.6224.0210.7219.4218.0213.6206.6155.8111.0
of which: external 3/114.9112.8115.1124.1127.2127.8125.190.758.6
Debt service-to-revenue and grants ratio (in percent) 4/13.812.116.820.919.223.225.626.129.122.318.1
Debt service-to-revenue ratio (in percent) 4/16.614.018.422.320.825.027.427.830.723.518.9
Primary deficit that stabilizes the debt-to-GDP ratio1.30.32.4−8.01.72.02.22.32.21.91.1
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)6.27.17.06.40.67.17.27.06.86.66.56.96.56.56.5
Average nominal interest rate on forex debt (in percent)1.51.51.81.00.52.32.02.42.72.82.82.52.73.83.1
Average real interest rate on domestic debt (in percent)6.29.59.44.13.89.43.34.04.75.25.6’5.46.47.26.6
Real exchange rate depreciation (in percent, + indicates depreciation−4.7−1.414.5−147.86.5
Inflation rate (GDP deflator, in percent)9.16.35.89.82.26.05.35.05.05.05.05.25.05.05.0
Growth of real primary spending (deflated by GDP deflator, in percent)0.10.0−0.10.10.10.20.30.00.10.10.00.10.10.10.1
Grant element of new external borrowing (in percent)22.018.619.219.018.320.219.513.08.9
Sources: Country authorities; and staff estimates and projections.

Gross public sector debt covers general government or non-financial public sector.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

Gross public sector debt covers general government or non-financial public sector.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 3.Tanzania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2016–2036(Percent)
Projections
20162017201820192020202120262036
PV of debt-to GDP ratio
Baseline1618192020201611
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/1618202122242419
A2. New public sector loans on less favorable terms in 2016–2036 21619222325262421
A3. Alternative Scenario: Low growth1619202122222014
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–20181618192021201611
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/1618212122221711
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20181618202121211711
B4. Met non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/1618192021201611
B5. Combination of B1-B4 using one-half standard deviation shocks1617181819191511
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/1626272829282315
PV of debt-to-exports ratio
Baseline7787909496956436
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/778691991051109665
A2. New public sector loans on less favorable terms in 2016–2036 277921001101181219570
A3. Alternative Scenario: Low growth7689941001051057847
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–20187786889295946336
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/77891051091111107339
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20187786889295946336
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/7786909497956436
B5. Combination of B1-B4 using one-half standard deviation shocks7779828689886035
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/7786889295946336
PV of debt-to-revenue ratio
Baseline1131151241271281259159
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/113114126134140145135105
A2. New public sector loans on less favorable terms in 2016–2036 2113121139149156159134113
A3. Alternative Scenario: Low growth11111713013613913811076
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–20181131151251281291269159
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/1131151341371371339558
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20181131151281311321299360
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/1131141251281281259058
B5. Combination of B1-B4 using one-half standard deviation shocks1131061141171131168657
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/11316117417817917512782
Debt service-to-exports ratio
Baseline5679111186
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/5679101098
A2. New public sector loans on less favorable terms in 2016-2036 25679910910
A3. Alternative Scenario: Low growth467121212108
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-20185679111186
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/56811121297
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20185679111186
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/5679111186
B5. Combination of B1-B4 using one-half standard deviation shocks5679101086
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/5679111186
Debt service-to-revenue ratio
Baseline78101314141210
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/7891213141313
A2. New public sector loans on less favorable terms in 2016-2036 27891211131216
A3. Alternative Scenario: Low growth68101415161413
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-201878101314151210
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/78101315151210
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–201878101315151210
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/78101314141210
B5. Combination of B1-B4 using one-half standard deviation shocks78101214141110
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/711141820201614
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/22122222
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Export values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Export values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 4.Tanzania: Sensitivity Analysis for Key Indicators of Public Debt 2016–2036(Percent)
Projections
20162017201820192020202120262036
PV of Debt-to-GDP Ratio
Baseline3233343434342820
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3233343535364052
A2. Primary balance is unchanged from 20163232323130303034
A3. Permanently lower GDP growth 1/3233343435342925
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017-20183234353636363228
B2. Primary balance is at historical average minus one standard deviations in 2017–20183234363636363022
B3. Combination of B1-B2 using one half standard deviation shocks3234363636363226
B4. One-time 30 percent real depreciation in 20173243404040393531
B5.10 percent of GDP increase in other debt-creating flows in 20173243444444433627
PV of Debt-to-Revenue Ratio 2/
Baseline210195204204201196148106
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages210195206207206207215273
A2. Primary balance is unchanged from 2016210188190185178173158176
A3. Permanently lower GDP growth 1/210195205205203199157133
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017–2018210198212214213210171145
B2. Primary balance is at historical average minus one standard deviations in 2017–2018210201218217214208159114
B3. Combination of B1-B2 using one half standard deviation shocks210199214215214210168138
B4. One-time 30 percent real depreciation in 2017210235242239234228185162
B5.10 percent of GDP increase in other debt-creating flows in 2017210252262261256249192139
Debt Service-to-Revenue Ratio 2/
Baseline2119232626292218
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages2119232627302838
A2. Primary balance is unchanged from 20162119232424272226
A3. Permanently lower GDP growth 1/2119232626292321
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017–20182119242627312523
B2. Primary balance is at historical average minus one standard deviations in 2017–20182119242728302419
B3. Combination of B1-B2 using one half standard deviation shocks2119242727312522
B4. One-time 30 percent real depreciation in 20172121283233373232
B5.10 percent of GDP increase in other debt-creating flows in 20172119273232352823
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

This full Debt Sustainability Analysis replaces the previous update prepared in June 2015 in the context of the second PSI Review (IMF Country Report No. 15/181). The updated three-year average Country Policy and Institutional Assessment (CPIA) rating for 2012–2014 is 3.76 and now breaches the 3.75 boundary for a strong policy performer. However, narrow breaches less than 0.05 require two consecutive years of breach to qualify for an upgrade in the policy performance category. Therefore, as in the June 2015 assessment this DSA uses the policy-dependent thresholds for medium policy performers.

Government guaranteed debt is included in total public debt stock.

The baseline macroeconomic framework underlying the current DSA does not yet factor in the potential impact of possible future natural gas production from emerging offshore projects. Deep water exploration by major petroleum companies has confirmed large natural gas deposits but final investment decisions to construct natural gas terminals are still pending. Thereafter, the development phase would start, and it would take several additional years before commercial production and exports of LNG could begin.

Discussions with these two multilateral creditors are well advanced, and significant project financing was already contracted from the African Development Bank and will start disbursing in 2016/17.

The probability approach is applied to a borderline case, which is defined as one where the largest breach or near breach falls within a 10-percent band around the threshold. It incorporates a country’s individual CPIA score and average GDP growth rate, whereas the traditional approach uses one of the three discrete CPIA values (3.25 for weak performers, 3.50 for medium performers, and 3.75 for strong performers), and an average growth rate across LICs (for details see the Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (SM/13/292).

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