VZCZCXYZ0000
PP RUEHWEB

DE RUEHDR #1483/01 2440346
ZNY CCCCC ZZH
P 010346Z SEP 06
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 4696
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

C O N F I D E N T I A L DAR ES SALAAM 001483 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT AF/E FOR B YODER AND AF/EPS FOR T HASTINGS 
DEPT FOR SCA/RA FOR SECOR ANDS EB/OMA FOR DETWILER 
PASS TO TREAS FOR DONOVAN 
 
E.O. 12958: DECL: 08/29/2011 
TAGS: EFIN PREL EAID TZ
SUBJECT: EXPORTS KEY TO TANZANIA'S DEBT SUSTAINABILITY 
 
REF: STATE 106631 
 
Classified By: Mary B. Johnson, Economic Counselor, for reason 1.4(d). 
 
¶1. (SBU) SUMMARY.  New lines of bilateral credit from 
non-Paris Club Members do not currently appear to be 
threatening Tanzania's long-term prospects for achieving debt 
sustainabilty.  Neither the Bank of Tanzania (BOT) nor the 
International Monetary Fund (IMF) reported significant, 
bilateral loans in the recent past or on the horizon from 
non-Paris Club creditors.  Post did learn that China will 
soon extend a new line of credit to Tanzania for 
rehabilitation of the Tanzanian-Zambia Railway Authority 
(TAZARA) and that South Korea has provided financing to 
Tanzania for the construction of four vocational centers. 
Tanzania continues to have outstanding debts with several 
non-Paris club creditors, including Iran, who have not yet 
officially offered debt relief.  To ensure long-term debt 
sustainability, Tanzania's export performance will be 
critical along with debt relief efforts and prudent borrowing 
from bilateral partners and commercial sources.  In FY 2006, 
Tanzania's export sector grew as a result of increased 
exports of tobacco, cotton, cloves, manufactured goods and 
tourist receipts.  Still, however, the export sector remains 
vulnerable to external factors such as weather and terms of 
trade shocks. END SUMMARY. 
 
New Lending from China, South Korea, Islamic Development Bank 
--------------------------------------------- --------------- 
¶2.  (SBU) On June 29, China, Tanzania and Zambia signed a 
loan agreement to assist the Tanzanian-Zambia Railway 
Authority (TAZARA), which China helped finance and construct 
some 30 years ago.  Access to this new line of credit was a 
result of Chinese Premier Wen Jiabo's eight day African visit 
in mid June 2006, which included stops in both Dar es Salaam 
and Lusaka.  According to the Guardian newspaper, the loan 
agreement amounted to USD 10.8 million.  Few other details 
about the loan agreement were released, however, if the loan 
resembles previous loans from China to Tanzania, interest 
rate terms are probably near or close to zero. 
 
¶3.  (SBU) South Korea has also opened up a line of credit to 
Tanzania for the establishment of four information and 
communications (ICT) vocational centers in Lindi, Manyara, 
Dar es Salaam and the coastal region.  South Korea agreed to 
loan the Government of Tanzania USD 18 million toward the 
total project cost which was estimated at USD 22.5 million 
and the GOT agreed to cover the remaining cost of USD 4.5 
million.  This loan agreement was one outcome of a high-level 
visit to Tanzania by South Korean Foreign Minister, Ban 
Ki-Moon, in January 2005. 
 
¶4.  (SBU) The Islamic Development Bank (IDB) has also 
recently announced a new, albeit small, loan for the 
Government of Tanzania.  On July 2, 2006, the Islamic 
Development Bank reported its decision to provide USD 4.4 
million as part of an export finance operation for petroleum 
products from Arab countries to Tanzania.  Terms of the loan 
or further details on the program have not yet been released. 
 
External Debt Stock: Relatively Stable 
--------------------------------------- 
¶5.  (C) Tanzania's total external debt stock amounted to 
about USD 8.23 billion in June 2006 compared to 8.13 billion 
in June 2005. The GOT owes approximately 67.7 percent of its 
external debt to multilateral institutions such as the World 
Bank, International Monetary Fund (IMF), and African 
Development Bank, 21.4 percent of its external debt to 
bilateral creditors and the remaining 10.9 percent to 
commercial and export creditors.  Tanzania's debt stock has 
stabilized largely as a result of both bilateral and 
multilateral debt relief initiatives.  As of June 2006, 
multilateral institutions under the Heavily Indebted Poor 
Country's Initiative have provided Tanzania with cumulative 
debt relief of approximately USD 435 million.  Under the more 
recent Multilateral Debt Relief Initiative (MDRI), the World 
Bank, IMF and African Development Bank will provide relief 
over the next ten years for all of Tanzania's debt 
outstanding since 2004. 
 
Tanzania's Debt Stock with Non-Paris Club Creditors 
--------------------------------------------- -------- 
¶6.  (SBU)  Tanzania's total debt stock with non-Paris club 
creditors amounted to USD 859 million as of June 2006, 
according to statistics provided by Tanzania's IMF country 
office.  Tanzania's largest debt is owed to Iran: USD 262 
million (77 million in DOD and USD 184 million in interest 
arrears).  Tanzania's second largest debt is owed to Iraq: 
USD 171 million (with 36.3 million in DOD and 135.1 million 
in interest arrears); and its third largest debt to China: 
USD 145.5 million (145.5 DOD with 0 in interest arrears). 
 
¶7.  (C)  Brazil, a Paris Club Member on a case-by-case basis, 
has been another significant creditor for Tanzania, providing 
financing for the construction of roads, dams and other 
infrastructure projects.  Tanzania owes Brazil approximately 
USD 239 million from a series of loans which it took in the 
late 1980s.  While Brazil has not officially provided any 
type of debt relief,  Brazil's Ambassador to Tanzania, Appio 
Claudio Acquarone, told Econoff on August 29 that the 
Government of Brazil had agreed in 2002 to waive all of 
Tanzania's debt and is currently working with the GOT to 
finalize a bilateral agreement to that effect.  Ambassador 
Acquarone also noted that until a bilateral agreement on debt 
relief was signed, credit lines to Tanzania would be 
suspended so that the two countries could start from a clean 
slate. 
 
Bilateral Debt Relief from Non-Paris Club Creditors 
--------------------------------------------- --------- 
¶8.  (C)  As noted above, Tanzania has received significant 
debt relief from bilateral creditors, including Paris and 
non-Paris club members.  As of June 2006, total debt relief 
from bilateral creditors amounted to USD 1.04 billion, 17.7 
percent of which came from non-Paris Club creditors. 
According to the BOT, non-Paris Club creditors have provided 
the following in terms of debt relief for Tanzania (USD): 
 
-- Libya: In 2005, Libya canceled 101.7 million in debt and 
restructured 40 million into Treasury Bonds.  Tanzania used 
financing from Libya for its energy sector. 
 
-- China: In 1999, China canceled 15 interest free loans 
amounting to 37.7 million or one-third of Tanzania's 
bilateral debt to China.  Tanzania used financing from China 
for rail transport (40.8 percent), ground transport (27.9 
percent), industrial development (4.9 percent) and general 
budget support (26.3 percent). 
 
-- India: In 2004, India eliminated all of Tanzania's debt 
worth 19.7 million. Tanzania used loans from India primarily 
for rail transport. 
 
-- Kuwait: Recently, Kuwait canceled Tanzania's debt worth 
31.8 million. The BOT did not specify the date when debt 
relief was granted. 
 
-- Bulgaria: Recently, Bulgaria has also canceled USD 15.1 
million.  The BOT did not specify the date when debt relief 
was provided. 
 
Comment: Strength of Tanzania's Export Sector is Key 
--------------------------------------------- ------- 
¶9.  (SBU)  Representatives from both the BOT and IMF 
emphasized the importance of Tanzania's export sector to its 
overall debt position.  (Note: One measure of debt 
sustainability is the ratio of external debt to exports).  In 
FY 2006, exports of goods and services increased by 8.9 
percent and 5.1 percent respectively.  The rise in exports 
emanated from increased traditional exports such as cotton, 
cloves, and tobacco and a rise in non-traditional exports 
such as gold, textiles and other manufactured goods.  The 
positive trend for Tanzania's export performance, coupled 
with additional bilateral and multilateral debt relief 
initiatives, bodes well for Tanzania's debt situation 
overall.  Important vulnerabilities do remain such as 
Tanzania's dependence on foreign aid, drought conditions that 
exacerbate food and energy shortages, and external factors 
such as terms of trade shocks. END COMMENT. 
RETZER