Tanesco debts pose risk to Tanzania’s economy: World Bank

The state power utility firm, Tanzania Electric Company (Tanesco), which has accumulated huge debts is mounting risks to the government, in terms of managing the rising national debt stock and subsequent debt payments’ demand.

Reading the fourth Economic Update prepared by the World Bank, lead Economist of Burundi, Tanzania and Uganda, Mr Jacques Morisset, said that  Tanesco has already accumulated $260 million (Sh416 billion) that has to be shouldered by the government.

Mr Morisset said, the government has to rethink incurring more debts because it has big commitment to pay debts incurred by Tanesco apart from the debts arising from financing infrastructure development.

He also said the government will have to decide between either increasing the power tariff or budget reallocation involving expenditure cuts in other economic sectors.

“Decisive actions will be needed to close Tanesco’s projected financial gap, which will grow in approximately $250 million in 2013. The required actions will involve politically contentious measures such as tariffs increase or budget reallocations involving significant expenditure cuts in other areas,” reads part of the report circulated in the World Bank’s meeting held in Dar es Salaam recently. 

According to the World Bank’s lead economist, alternatively these actions may involve non-concessional borrowing at high future cost, which needs government rethinking.  “The size of Tanesco deficit is itself sensitive to a number of factors outside government control, including hydrology conditions and world oil prices. A combination of bad luck or delay in the implementation of Tanesco action plan would add significant risk to the government’s fiscal accounts,” World Bank report further reads.

Apart from Tanesco’s huge debt, the World Bank report has shown other risks associated with rising debt services’ payments as short term risk relating to implementation of projects under Big Results Now (BRN) and shortfalls in revenue collection.

The World Bank has also enlisted the third risk as accumulation of government payment arrears relating to the pension sector and the management of contingent liabilities from the parastatals.

The manager for World Bank projects in Africa, Mr Albert Zeufact also cautioned that the tendency of most African countries in continuing to meet the cost of running inefficient parastatals  leads to unnecessary debts.

 “What is important is to make sure that when government borrows for huge public investment it targets the most productive ventures that can give positive returns,” said Mr Zeufack.