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The Loan Contraction Process in Africa - Making loans work for the poor
The case of Tanzania


Afrodad & Christian Aid


SARPN acknowledges Afrodad as the source of this document - www.afrodad.org
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Introduction

Tanzania is one of the world’s severely indebted poor countries. Without debt cancellation, the country will at least for the years ahead continue paying more in debt service than on health and education. According to the World Bank, Tanzania will have an unsustainable debt burden until at least 2007. The economy is heavily dependent on agriculture, which accounts for more than half of GDP, provides 85% of exports, and employs 80% of the work force. For more than 20 years after independence, its first president, Julius Nyerere, leader of the Chama Cha Mapinduzi, ruled Tanzania. Following a policy of self-help socialism, Nyerere improved welfare and educational standards but was less successful with the economy, which in the 1980s started to decline.

The World Bank, the International Monetary Fund, and bilateral donors have provided funds to rehabilitate Tanzania’s deteriorated economic infrastructure. On 27 November 2001 the Bank and the Fund approved Tanzania’s Poverty Reduction Strategy Paper (PRSP). The PRSP provides the basis for assistance from the Bank and the Fund as well as debt relief under the HIPC initiative. According to the Bank, PRSPs should be participatory, country-owned, and comprehensive in scope; partnership orientated national development strategies for reducing poverty. The bank’s rationale for PRSPs is based on the fact that experience has shown that lasting development and poverty reduction require true transformation of society, driven by the countries themselves, in consultation with civil society and the private sector. Despite the implementation of SAPs, PRSPs and the HIPC initiative in Tanzania, its external debt continues to balloon.

Tanzania’s inability to serve its debt is vividly reflected not only in massive build-up of arrears but most importantly by the number of frequency of rescheduling. The structural adjustment programmes (SAPs) that have been designed to rescue debtors seem to have made the situation worse as Tanzania’s debt increased rapidly from US$2 257 million in 1980 to more than US$5bilion at the beginning of the 1990s.1 . A combination of both external and domestic factors has caused Tanzania’s debt problems. Tanzania’s economic woes were compounded in 1979 and 1981 by a costly military intervention to overthrow President Idi Amin of Uganda.

Apart from external causes of poverty and continued indebtedness, internal factors such as domestic budget deficit, structural rigidity of the economy, inappropriate economic policy, inefficient public sector, the misconcepted investment policy, bureaucracy and corruption have been mentioned in various literature as some of the causes of poverty and indebtedness in Tanzania. In 1995, Benjamin Mkapa won the presidency in the first Multi-party elections as an anti-corruption crusader. It is against such a background that AFRODAD and Christian Aid commissioned a study in Tanzania to look at how external loans can be better utilized in order to benefit the poor. The study sought above all things, to identify existing bottlenecks that continue to perpetuate the debt crisis within the institutional and legislative framework of Tanzania.



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