Tanzania: Country to Issue International Bond for Infrastructure Money

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The Monitor (Kampala)

29 August 2008
Posted to the web 29 August 2008

Washington Gikunju

Tanzania has announced plans to issue an international bond to raise money for infrastructure financing, joining a growing list of African countries- including Kenya- that are seeking to tap into the international markets to finance their development plans.

Government officials in Dar es Salaam are already laying the groundwork for the sovereign bond issue, following last week's announcement by President Jakaya Kikwete of the planned issue in a speech made to the country's parliament.

Mr Kikwete, who is currently on an official tour of the United States, told parliament that the US had promised to assist Tanzania get a sovereign debt rating, a prerequisite for any international bond issue.

The international Monetary Fund director- fiscal affairs department Ms Terminassian said this week in a public lecture at the Dar es Salaam International Conference Center that IMF would provide the necessary technical assistance to assist Tanzania float the Euro bond.

The lecture was attended by high ranking IMF and Government officials, and the country's top private sector executives.

Kenya's plan to float an international infrastructure bond remains on course, with Treasury official Henry Rotich confirming earlier this month that the Government's target was to issue the bond within the current financial year.

International credit rating agency Standard and Poor's upgraded Kenya's outlook rating to stable from positive earlier this month, and affirmed the long term credit rating of B+.

The government targets to raise $500 million through the issue.

Ghana and Gabon have already tapped into the international markets through successful Sovereign bond issues floated last year.

Ms Minassian noted that financing development projects through sovereign bond issues would assist Tanzania expand its fiscal space. Domestic tax revenue collections have grown to about 17 per cent of the GDP in 2007/08, indicating that the country still has room to raise more tax revenue.

Total Tanzanian public expenditure budget has grown from 17 per cent of the GDP in 2000/01 to about 23 per cent in the 2007/8 financial year. With a population of about 40 million people and an agricultural based economy, Tanzania is still among Africa's largest recipients of aid.

The country benefited from debt relief from the IMF to the tune of $336 million under the Highly Indebted Poor Countries programme.

Per Capita income is remains relatively low at about $400. The issuance of a sovereign bond would however necessitate wide ranging economic reforms to open up sectors of the economy that are still under Government control.

Such reforms include lifting Government current account control which limits foreign exchange transactions and restricts sale of Government securities to foreigners.

Ms Minassian noted that the Bank of Tanzania had already started restructuring Treasury Bills and Bonds auctions, terming the move as a step in the right direction.

The Citi Group Vice President debts and capital markets for Africa region Francis Awua-Kyerematen put Tanzania's bid to float a sovereign bond into perspective, saying that it was just the beginning of what could be a long process.

"It took Ghana two years from 2005 to 2007 to float its bond and this is therefore just the beginning for Tanzania," said Mr Kyerematen, who was among the transaction advisors for the Ghanaian and Gabon issues.

Among the concerns of international investors wishing to put their money in sovereign bonds include assessing a country's overall economic strategy, its relationship with international development partners and its fiscal and debt sustainability position.

Others include the attractiveness of rate of return on the bond, reliable data on country economic policy and past performance and the level of support for the issue by all stakeholders, including the political establishment.

Investors in the bonds also demand that the issuing country has a high level of transparency with a market based economy.

The Standard Chartered Bank head of debt and capital markets Africa region Ade Adebajo said that Tanzania would require at least two credit ratings before floating the Euro bond.

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