Tanzania: Firm On Bonds

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The Citizen (Dar es Salaam)

10 October 2008
Posted to the web 10 October 2008

Tanzania is still determined to float sovereign bonds despite the on-going financial turmoil.

Speaking at the sidelines of an international investments conference in London on Wednesday the commissioner for policy at the Ministry of Fiance and Economic Affairs, Mr Mugisha Kamugisha said despite concern on the global economic crisis, efforts to issue a Eurobond are underway.

A sovereign rating is expected by March next year and will be followed by a Eurobond to be floated soon after to raise money for infrastructure projects including transport, power and port facilities.

Mr Mugisha told Reuters, however that the the Eurobond issue would be dependent on an improvement in global market conditions.

"We expect our rating by March next year," he told Reuters in London. "The plan is then to have the bond issuance in the course of next year. We hope by then there will be calm in the markets. We have not yet decided how much it will be but probably more than $500 million."

Tanzania is among Africa's largest recipients of aid and received $336 million in debt relief from the International Monetary Fund under the Highly Indebted Poor Countries programme, helping it reached the point where it has been touted as one of Africa's more appealing frontier markets.

But with interest in emerging markets collapsing as Western investors dump any perceived risk from their portfolios and with Western governments forced to spend billions bailing out their own banks, Tanzania would feel a pinch from the economic crisis, he said.

"We think there will be an impact in overseas development aid, foreign direct investment and I'm also worried about tourism," he said. "We know that foreign governments will be using more of their resources to stabilise their financial systems."

Tanzania came to an agreement with the IMF early this year to be enabled to participate in the non-concessional international financial markets through issuing sovereign bonds. But the multilateral institution still insists that the country needs more concessional funding from multilateral and bilateral donors.

This is because borrowing from private international financial institutions is more costly in the long run, especially when used to fund projects that are debatable in their economic viability.

Foreign aid made up 30 percent of Tanzania's budget and 10 percent of the gross domestic product, he said, but still expected donors such as Britain's Department for International Development to meet existing commitments covering the next few years.

Tanzania still foresaw economic growth of more than 7 percent this year, he said, but is now expected to abandon its previous prediction of 9.2 percent in 2009.

"But I would have thought we should still see maybe 8.7 percent," he said. "Certainly more than 8 percent. And we still hope for double digit growth in 2010."

Investor demand for gold as other assets crumbled in value would help support that part of the mining sector although it was only a small part of the wider economy, he said.

Ghana and Gabon last year became the first African countries outside South Africa to issue Eurobonds but issuance has been much reduced this year against the backdrop of the credit crunch.

It dried up completely in recent weeks as credit markets froze and economic turmoil worsened, analysts noted.

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