88925 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND UNITED REPUBLIC OF TANZANIA Joint Bank-Fund Debt Sustainability Analysis 2014 Prepared by the staffs of the International Development Association and the International Monetary Fund Approved by Jeffrey D. Lewis and Marcelo Giugale (IDA) Roger Nord and Dhaneshwar Ghura (IMF) April 4, 2014 Tanzania continues to face a low risk of debt distress based on the external debt sustainability analysis (DSA). The external debt outlook improves as a result of an increase in the discount rate, but this is partly offset by (i) a slower pace of fiscal deficit reduction and (ii) a shift in the long-term composition of external financing towards more non-concessional loans. While the baseline public debt outlook remains favorable, continued fiscal consolidation is critical. In addition, recognizing the outstanding pension and other liabilities has an impact on the level of public debt. The baseline numerical analysis in this DSA does not take into account prospects related to natural gas resources whose scale, while potentially favorable, remains uncertain. These results highlight the need for Tanzania to sustain fiscal consolidation efforts, to adopt a conservative approach to non-concessional borrowing, to promptly address pension-related liabilities, and to further improve its debt management capacity.1 1 This DSA replaces the previous one prepared in June 2012. Tables and figures are in fiscal years (July- June). For example, 2013 refers to fiscal year 2012/13. Under the Country Policy and Institutional Assessment (CPIA), Tanzania is rated as a strong performer, with an average rating of 3.73 during 2010-12. Although the average CPIA score is slightly below the boundary for strong performance category (3.75), the performance rating remains strong since this is the first year of breaching the boundary and the breach is less than 0.5. 2 I. BACKGROUND 1. Tanzania’s public and publicly guaranteed (PPG) external debt as a share of GDP has steadily crept upwards in recent years (text figure, left panel). Since the Multilateral Debt Relief Initiative (MDRI) in 2006/07, which reduced the external debt-to-GDP ratio from 47 percent to 19 percent, PPG external debt (excluding arrears under negotiation for relief) has increased to about 29 percent of GDP at end-June 2013, or 17 percent of GDP in present value terms using a 5 percent discount rate2. Total public sector debt (external plus domestic) stood at about US$12.4 billion or 40.9 percent of GDP at end-June 2013, rising from a low of 27.5 percent at end-June 2008. Tanzania: Public Debt Composition of PPG External Debt, June 2013 (percent of GDP) Export credit Bilateral - non Paris 60 2% Club Commercial 4% Bilateral - 50 20% Paris Club Domestic 7% 40 External 30 20 Other multilaterals 9% 10 IDA 0 AfDB 47% 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 proj 11% Sources:   Ministry of Finance, Bank  of Tanzania, and  IMF  staff  calculations. Note:  2013/14 projection of domestic   debt includes a  one ‐off adjustment  for   recognizing outstanding  domestic   liabilities,  including past‐due   pension obligations,  Sources:  Ministry of Finance, Bank  of Tanzania,  and  IMF  staff  calculations. guarantees for public  enterprises, and domestic   expenditure  arrears. Note:  Excludes arrears to non‐Paris  Club creditors under  negotiation  for  relief. 2. The majority of Tanzania’s PPG external debt is still concessional, but borrowing on non-concessional terms has increased in recent years (text figure, right panel). At end-June 2013, more than two-thirds of total public external debt was owed to multilateral institutions, of which the International Development Association (IDA) and the African Development Bank (AfDB) constitute the largest creditors. Government borrowing from commercial sources amounted to about 20 percent of the total stock at end-June 2013, having risen rapidly from about 2 percent at end-June 2010. In February 2013, Tanzania raised US$600 million from international capital markets in a private placement transaction.3 Tanzania is currently in the process of obtaining its sovereign risk rating, which would facilitate future Eurobond issuance. 3. Domestic public debt stood at 12 percent of GDP at end-June 2013, and mostly consisted of Treasury bonds. Domestic public debt is held primarily by commercial banks (39 percent), the Bank of Tanzania (35 percent), and pension funds and insurance companies (23 percent). Private external debt has risen in recent years to about 5 percent of GDP in 2012/13, though there is considerable uncertainty regarding private external debt data. 2 The discount rate was increased to 5 percent as of October 2013. See “Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries” (SM/13/292). 3 This is an amortizing bond with a maturity of seven years, and was priced at 600 basis points over 6-month LIBOR at the time of issuance. The amortizing feature helps reduce rollover risks, whereas the floating interest rate on the bond implies increased exposure to changing interest rates. 3 4. The current DSA only covers central government debt. Owing to data limitations, borrowing by local governments and most public enterprises is excluded, thus potentially understating the total debt level. The external public debt stock includes the foreign currency portion of commercial loans contracted by the state-owned power utility TANESCO4. For the purpose of the current DSA, the domestic public debt stock incorporates starting in 2013/14 several outstanding government liabilities that have yet to be formally recognized as debt (but that were included in the DSA published by the MoF), amounting to about Tsh4 trillion or 7 percent of GDP. These include outstanding liabilities to the Public Service Pension Fund (Tsh1160 billion)5, outstanding unpaid domestic claims (Tsh892 billion)6, government guarantees for public enterprises (Tsh912 billion), and other actual liabilities arising from past PPP transactions, court orders, and explicit government guarantees.7 5. Stock-flow adjustments have accounted for a sizeable portion of the rise in Tanzania’s public debt in recent years. A decomposition of annual change in gross public debt shows that stock- Stock Flow Adjustments flow residuals averaged 2.4 percent of GDP over (percent of GDP) 12 2008-13, peaking at 5.2 percent of GDP in 2011. 10 The primary fiscal deficit also made a sizable 8 Stock flow adjustment 6 contribution to the debt ratio increase. The interest- 4 Primary deficit growth differential (i.e., the difference between 2 0 Interest growth effective interest rates8 and output growth rates) was -2 differential -4 considerably negative, reflecting the still-high -6 Change in public debt stock concessionality of the debt stock, thereby slowing 2008 2009 2010 2011 2012 2013 Sources:  IMF staff  calculations. the pace of the debt ratio increase. 6. The authorities continue to make progress in upgrading their debt management capacity. With technical support from the World Bank and the East African MEFMI, the MoF conducted a debt sustainability assessment in September 2013. The authorities’ medium-term debt strategy (MTDS) was also updated in November 2013 with support from a joint IMF-World Bank technical assistance mission. Both the DSA and the MTDS report have been published on the MoF’s web site, and are expected to serve as key inputs that will guide the government’s borrowing policy going forward. There is an ongoing process to put into operation a centralized debt management office (DMO), housed at the MoF, that will bring together the fragmented debt management functions. 4 TANESCO borrowing in foreign currency amounts to about US$20 million in 2012/13 and US$84 million in 2013/14. 5 Estimate from the government’s verification exercise, and consistent with estimates by the World Bank and the Genesis Report. Contingent liabilities arising from financial weakness of the broader pension sector can be substantially higher. 6 Unpaid claims of duration above 90 days, estimated as of end-December 2013. Ministries with large claims include Works, Health, Education, Agriculture, Home Affairs, and Defense. 7 In addition, the government has significant multi-year commitments arising from existing contracts, especially in the road sector, which are not included in the DSA. 8 Effective interest rates are computed by dividing total interest payments by last period’s debt stock. 4 Selected Macroeconomic Indicators, Current vs. Previous DSA 2014 2015 2016 Long term 1/ Real GDP growth (percent) Current DSA 7.1 7.1 7.1 7.0 Previous DSA 6.9 7.1 7.1 7.5 Fiscal balance (% GDP) Current DSA -5.2 -4.9 -4.0 -3.0 Previous DSA -4.5 -3.9 -3.4 -2.6 Current account balance (% GDP) Current DSA -14.5 -13.8 -12.9 -10.2 Previous DSA -12.5 -12.2 -11.9 -9.8 Net FDI (% GDP) Current DSA 6.0 6.7 6.7 6.1 Previous DSA 6.1 6.0 5.9 5.8 1/ Defined as the last 15 years of the projection period. For the current DSA, the long term covers the period 2020-34, whereas for the previous DSA it covered 2018-32. II. UNDERLYING ASSUMPTIONS 7. Compared with the previous DSA, the current assessment is based on a somewhat slower pace of fiscal deficit reduction (text table). This reflects Tanzania’s need to increase growth- supporting infrastructure investments while maintaining a sustainable debt outlook. The deficit is projected to narrow gradually to 4 percent of GDP by 2015/16, and to further decline to 3 percent of GDP in 2020/21 and thereafter in line with the convergence criteria agreed under the East African Monetary Union (EAMU) protocol. Domestic revenues (excluding grants) are projected to grow from 18 percent of GDP in 2012/13 to over 23 percent of GDP by 2033/34, consistent with economic development and Tanzania’s tax potential. External grants are assumed to decline gradually, from 3.4 percent of GDP in 2013/14 to 2 percent of GDP in the long term. 8. The composition of external borrowing is Foreign Financing Assumptions assumed to gradually shift toward non-concessional debt, (percent of GDP) 7 consistent with a reduction in aid dependency as the economy 6 matures. External non-concessional borrowing (ENCB) is 5 4 expected to pick up in 2013/14, due in part to a US$558 3 2 million projected disbursement of the gas pipeline loan9, and 1 0 in part to debt contracted to finance new infrastructure 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2029/31 2031/32 2032/33 2033/34 projects.10 Beyond 2013/14, the assumption is that total gross foreign financing would consist of about half ENCB and half Non-concessional Concessional concessional (program and project) loans in the medium 9 This is part of a US$920 million loan from China EXIM Bank, contracted in 2012/13, to build a new gas pipeline that would bring low-cost natural gas from shallow water offshore reserves to the Dar es Salaam area. 10 Contracted ENCB is projected at US$700 million in 2013/14, consistent with the second review under the SCF arrangement. 5 term. Thereafter, ENCB would gradually become the more prominent financing source, reaching about 70 percent of total foreign financing requirements by 2033/34. 9. Other macroeconomic assumptions remain broadly similar to the previous DSA (see Box 1 for detail). Real GDP is assumed to keep growing by 7 percent annually over the projection period, with continued strong capital accumulation. The external current account (CA) is projected to gradually improve over the medium term as the availability of gas-based power generation reduces the need for oil imports, and to stabilize at a still-large deficit of 10 percent of GDP. Box 1. Key DSA Assumptions  Growth, inflation, exchange rate. Real GDP growth is projected to remain at 7 percent over the medium and long term. Inflation would converge to the Bank of Tanzania’s medium-term target of 5 percent, yielding a nominal growth rate of about 12 percent per annum. The Tanzanian shilling is projected to depreciate against the USD by 3 percent annually in the medium and long run, due to the inflation differential between Tanzania and the US.  Exports and imports. Export and import values are assumed to grow at 11 and 10 percent annually in the long term, respectively.  Fiscal deficit. The fiscal deficit is projected to decline to 4 percent of GDP by 2015/16, and further to 3 percent of GDP from 2020/21 onwards. Revenues excluding grants are assumed to grow from 18 percent of GDP to 23 percent of GDP by 2033/34.  Aid and FDI flows. External grants are assumed to gradually decline to 2 percent of GDP by 2033/34. Foreign concessional loans (program and project loans) would slowly decline to 1 percent of GDP in the long term. Concessional loans are assumed to continue to come primarily from multilateral creditors (IDA, AfDB, etc.) in the medium term, but would then be increasingly provided by bilateral – particularly non-Paris Club – creditors, whose financing terms are not as favorable. After a slight increase due to further offshore natural gas explorations, net FDI inflows would stabilize at an average of 6.1 percent of GDP in the long term.  Domestic borrowing. Net domestic financing is kept at a maximum of about 1 percent of GDP throughout the projection period. New domestic debt is assumed to carry a real interest rate of 10 percent with average maturity of seven years, consistent with recent experience.  External non-concessional borrowing. ENCB is assumed to finance about half of the gross foreign financing requirement up to 2019/20 before gradually gaining importance over concessional sources, reaching 2.5 percent of GDP by 2033/34. The grant element of new borrowing is projected to decline considerably over the long run. New external commercial borrowing is assumed to be provided by a combination of export credit agencies (ECA) and commercial banks (syndicated loans), with the latter source becoming more prominent in the long run. Consistent with prevailing market conditions, ECA loans have an average interest rate of 4 percent with a 15-year maturity, whereas syndicated loans carry a higher average interest rate (7 percent) and shorter maturity (7 years). 6 10. The current DSA includes a government pension liability in the 2013/14 domestic public debt stock. The government currently has Tsh1.16 trillion (about 2.1 percent of GDP) of past-due payment liabilities it owes to PSPF for pension benefits related to the pre-1999 noncontributory scheme.11 Although the authorities have acknowledged the outstanding liability and budget for partial repayment each year, the liability has not been formally recorded in the fiscal accounts and thus was not part of the domestic debt stock. This DSA assumes that recognition of this liability (and several other actual liabilities) occurs in 2013/14, resulting in a one-off increase in the 2013/14 public debt stock.12 Moreover, in interpreting the fiscal deficit assumptions that underlie this DSA (and the related policy effort to meet such assumptions), it is important to keep in mind the flow of future expenditure obligations (estimated at 0.5 percent of GDP per year in the medium term, gradually slowing down thereafter) to cover the pension benefits of pensioners in the pre-1999 system as a part of the deficit. 11. The current DSA incorporates better-refined projections of debt service on existing external debts. The assessment uses individual loan information provided by the authorities, reflecting their process of upgrading the debt database and debt monitoring capacity. Future debt service obligations are projected for each loan, then aggregated into several representative instruments (e.g., by creditor type and lending terms). 12. The discount rate is currently set at 5 percent, compared to 4 percent used in the previous DSA. III. EXTERNAL DSA 13. All PPG external debt burden indicators remain comfortably below indicative thresholds in the baseline scenario (Figure 1 and Table 1). Under the baseline assumptions, the present value (PV) of public external debt expressed as a share of GDP increases slightly from 20 percent in 2014 to a peak of 23 percent in 2019, before gradually declining to about 19 percent by the end of the projection period. Debt service indicators are projected to rise gradually over time, reflecting the long-maturity nature of concessional loans which make up the majority of the existing external debt stock, as well as the increasing weight placed on new commercial borrowing. 14. The outlook for the external debt ratios remains favorable under standard stress tests (Figure 1 and Tables 3a-b). All debt burden indicators remain safely below their respective risk thresholds. However, stress tests show that external debt dynamics would be adversely affected in the event of a one-time 30 percent depreciation in the nominal exchange rate. The PV of external debt 11 The figure is based on the government’s estimation. Until June 30, 1999, the PSPF was a noncontributory pension scheme, with all benefits paid from the budget. The PSPF was transformed into a contributory defined benefit scheme on July 1, 1999, but benefits continued to be paid from the budget during a 5-year transition period (until June 30, 2004). From July 1, 2004 onwards, the PSPF has been paying pension benefits related to the pre- 1999 scheme on behalf of the government, for which it has not been reimbursed. 12 Correspondingly, for the purpose of this DSA, the fiscal accounts show an increase in domestic financing (below the line). As a result of this one-off stock adjustment, domestic debt reported in the DSA is higher than in staff projections. 7 expressed as a share of exports is sensitive to a shock to financing terms, in which the interest rate on new public sector borrowing increases by 200bps. In addition, the external debt outlook would become less favorable in the event of a permanent growth shock, whereby real GDP growth is lower at 5 percent (2 percentage points below the baseline). 15. Compared to the previous DSA, the favorable impact of the higher discount rate prevails over the adverse effects of changes to the projected fiscal deficit and financing assumptions. Slower fiscal consolidation leads to more debt accumulation, assumed to be financed with increasingly non-concessional external debt. (The assumed concessionality of new external borrowing continues to decline over the projection period, as can be seen by the declining grant element—Figure 1, top left panel). However, the increase in the discount rate to 5 percent reduces the present value of external PPG debt by about 2 percent of GDP on average. IV. PUBLIC DSA 16. Indicators of overall public debt (external plus domestic) and debt service do not point to significant vulnerabilities related to the level of domestic debt (Figure 2 and Table 2). In the baseline scenario, the PV of total public debt expressed as a share of GDP and revenues is expected to decline gradually over time. The PV of public debt peaks at about 36.3 percent of GDP in 2014, when various outstanding government liabilities are recognized, but remains well below the benchmark level of about 75 percent associated with heightened public debt vulnerabilities for strong performers.13 The path of public debt is also consistent with the authorities’ objective under the EAMU protocol of keeping the public debt-to-GDP ratio (in PV terms) below 50 percent. 17. Stress tests indicate that the sustainable public debt path hinges on continued fiscal consolidation. In a scenario assuming that the primary deficit (as a percent of GDP) remains at the projected 2014 level over the entire projection period, the PV of public debt would keep growing to 51.5 percent of GDP by 2034. This scenario highlights the critical importance of reducing fiscal deficits to prevent excessive debt buildup. Fiscal consolidation in the medium term may present challenges for the authorities in light of infrastructure needs and expenditure pressures to facilitate growth in key sectors (e.g., energy, transportation, and agriculture), as well as growing pension obligations and the upcoming general election in 2015. The most extreme shock corresponds to a 10 percent of GDP increase in debt-creating flows in 2015, which would capture some of the government implicit contingent liabilities and/or non-central government borrowing that is not included in the DSA. The amount of known contingent liabilities arising from pension obligations and government guarantees (about 9 percent of GDP) is broadly in line with the magnitude of shock assumed by the standardized stress test. 13 See Revisiting the Debt Sustainability Framework for Low-Income Countries for a discussion of public debt benchmarks. Tanzania is still considered a strong performer as their CPIA score of 3.73 breaches the 3.75 threshold slightly for the first time. The public debt benchmark for medium performers is 56 percent of GDP. 8 18. Growing pension obligations present a challenge to be met in order to preserve public debt sustainability. The DSA shows that recognizing the outstanding liability to PSPF has a noticeable impact on the public debt ratio. In the absence of a reimbursement for past benefit payments, PSPF is now in a fragile financial position. Moreover, pension obligations related to the pre- 1999 scheme will continue to accrue and are ultimately a spending obligation of the government. More broadly, the actuarial deficit across the pension sector (consisting of several pension funds) gives rise to further liabilities. This highlights the need for the government to address its outstanding pension liabilities, budget for future payments related to the pre-1999 scheme, and undertake parametric pension reforms to improve the funds’ financial positions. V. POTENTIAL IMPACT OF NATURAL GAS RESOURCES 19. The baseline macroeconomic framework underlying the current DSA does not yet factor in the potential impact of possible future natural gas production from emerging offshore large- scale projects. Recent deep water exploration by major petroleum companies has confirmed large natural gas deposits. Public information released by the companies exploring for natural gas indicates that there are recoverable gas resources of at least 23-26 trillion cubic feet (TCF), although there remains significant uncertainty about exact reserve estimates. There is potential for the reserve estimates to increase further given the substantial exploration activities underway (although gas reserves are likely to remain significantly smaller than those of neighboring Mozambique). While exploration and appraisal are well underway, the final investment decisions to construct liquefied natural gas (LNG) terminals have not yet been made. (Such decisions are currently expected to be made in 2016.) Thereafter, the development phase would start, and it would take several years before commercial production and exports of LNG could begin. Similarly, significant fiscal revenues would not materialize for at least a decade from today. 20. If natural gas prospects were to materialize, the impact on debt sustainability would depend on a variety of factors. The development phase (until about 2020/21) would see a significant deterioration of the external current account, given the import-intensive nature of LNG projects. The extent of the deterioration depends on the scale of the projects, e.g., whether it would be a two-train or four-train LNG plant. The larger CA deficit would be financed by a combination of FDI inflows and public sector external borrowing depending on the government’s decision on how to manage natural gas resources, i.e., whether gas-related investments would be led by the private or public sector.14 A temporary increase in the fiscal deficit and public debt buildup is therefore possible in the medium term. Once LNG commercial production comes online (possibly in the early 2020s), natural gas exports would pick up significantly, alleviating pressures on the current account (by how much depends on the commercially viable amount, the portion earmarked for domestic consumption, and 14 The government’s natural gas policy, which was adopted in October 2013, envisaged a more central role for the national oil and gas company, TPDC (Tanzania Petroleum Development Corporation), across the upstream, midstream, and downstream sectors. Tanzania is working to finalize gas-related policies and regulations, which will be encompassed in a new Gas Master Plan, the downstream-focused Natural Gas Act, and a new petroleum policy which will cover the upstream sector. 9 prevailing global natural gas prices – which are particularly volatile). The fiscal impact would build up gradually, with tax yields initially mitigated by deductions on investments. The overall long-term impact would likely be highly beneficial, with potentially large fiscal receipts from gas revenues (Box 2), thereby reducing public sector borrowing needs and enhancing debt sustainability. A more precise DSA scenario incorporating LNG developments will be developed when commercially viable natural gas resources are known with greater confidence and when there is reasonable certainty that the development of a large scale gas project will go ahead. Box 2. Offshore Natural Gas: Resources, Investment, and Fiscal Impact Tanzania has made significant offshore gas discoveries during the last two years. The resource discoveries have been made by two groups of international petroleum companies that are still conducting exploration and appraisal; neither has yet declared the gas discoveries to be commercial. A final investment decision is expected at the earliest in late 2016, with production potentially commencing after 2020. The latest estimates indicate that there are total recoverable gas resources amounting to 23-26 trillion cubic feet (tcf). A rule of thumb is that 10-12 tcf of gas reserves is the minimum required for a two-train liquefied natural gas (LNG) plant. This box presents estimates of the possible investment and fiscal impact of an LNG project applying a model developed for Tanzania by the IMF’s Fiscal Affairs Department (FAD). With uncertainty about gas reserves, project cost and gas prices, the fiscal regime, and potential government equity participation, these are illustrative estimates, not forecasts. Investment impact The investment impact of an LNG project will be significant, ranging from US$20-40 billion depending on the scale of the project.15 Two-thirds of the development cost relate to pipelines and liquefaction facilities. During the development phase (possibly from 2018 to 2021), the sizeable investment will widen the current account deficit and temporarily boost growth. The fiscal impact during the development phase will depend on policy decisions regarding state participation in a project. As an illustration, if the government were to take a 15 percent equity share in the downstream of a large LNG project, the government’s contribution to total development cost could be close to US$4.5 billion. Fiscal revenue impact Given the project uncertainty, and that the fiscal regime likely will evolve further, through either contractual negotiations or general reforms, it is only possible to simulate the fiscal impact under specific assumptions rather than make firm projections. The fiscal revenue impact would be highly beneficial. At full production, annual revenue collections by the government reach between US$3 billion and US$6 billion in the two different project simulations. These would have a transformational impact on the debt outlook, as by way of comparison today’s public debt stock amounts to $12.4 15 Simulations have been done for two project sizes: a two-train liquefaction plant with capacity for annual production of 10 million metric tons of LNG and a four-train plant producing 20 million metric tons per year. 10 billion. Most of the fiscal revenues would originate from the upstream, reflecting the higher effective tax rate and the assumption that the downstream will be regulated as a public utility. The fiscal regime is a hybrid combining royalty and income tax with production sharing. The largest revenue stream comes from production sharing, highlighting the importance of treating production sharing as any other source of fiscal revenue which should be paid to the Treasury and not retained by the national oil company. 11 Figure Box 1. Tanzania: LNG Gas Fiscal Simulations 1/ (In US$ millions real; 20 mmtpa LNG plant) (i) Total   Project Exploration and Development Cost  18,000 16,000 14,000 LNG capex Pipeline  capex Upstream drilling Upstream capital  12,000 Exploration costs 10,000 8,000 6,000 4,000 2,000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (ii) Upstream Government Revenues  7,000 Income  tax Dividend WHT 6,000 Interest WHT 5,000 Equity Participation Profit  petroleum 4,000 Royalty 3,000 2,000 1,000 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 4,000 (iii) Downstream Government Revenues   3,000 Income  tax Divident WHT Interest WHT Equity   Participation 2,000 1,000 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 ‐1,000 ‐2,000 ‐3,000 Source: IMF staff estimates 1/ Simulations of a four-train LNG plant with annual capacity of 20 mmt using total gas resources of 24 tcf over the life of the project. 12 VI. CONCLUSION 21. Tanzania continues to face a low risk of external debt distress and low risks from domestic public debt, but continued prudent policies are needed to preserve debt sustainability. Compared with the June 2012 DSA, the higher discount rate has a positive impact on the debt outlook, although this is partially offset by the assumption of a slower pace of fiscal deficit reduction and the assumed gradual reduction in the concessionality of external borrowing. While the public sector debt outlook remains favorable in the baseline, the public DSA, which only covers central government debt, shows that Tanzania’s public debt would not stabilize in the absence of continued fiscal consolidation. The rising share of non-concessional borrowing would increase the average interest rate as well as potential exposure to interest rate fluctuations (if it took the form of variable rate loans) and rollover risks (if it took the form of Eurobond issuance with a lumpy repayment profile). Another challenge stems from government obligations related to the civil service pension sector, as well as yet- to-be-captured borrowing by local governments and public enterprises. Moreover, adverse shocks to economic growth, financing terms, or the exchange rate would significantly worsen the debt dynamics. A major upside risk relates to potentially large revenues from natural gas finds, which however would materialize only a decade from now. These results highlight the need for Tanzania to sustain fiscal consolidation efforts, to adopt a prudent approach to non-concessional borrowing, to initiate pension reforms, and to take concrete steps in improving its debt and public investment management capacity. 13 Figure 1. Tanzania: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2014-2034 1/ a. Debt Accumulation b.PV of debt-to GDP ratio 6 35 60 5 30 50 25 4 40 20 3 15 30 2 10 20 1 5 10 0 0 2014 2019 2024 2029 2034 0 Rate of Debt Accumulation 2014 2019 2024 2029 2034 Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 250 350 300 200 250 150 200 150 100 100 50 50 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports ratio f.Debt service-to-revenue ratio 30 25 25 20 20 15 15 10 10 5 5 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Low growth Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a One-time depreciation shock; in c. to a Terms shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock 14 Figure 2.Tanzania: Indicators of Public Debt Under Alternative Scenarios, 2014-2034 1/ Baseline Fix Primary Balance Most extreme shock 1/ Historical scenario Public debt benchmark 80 70 PV of Debt-to-GDP Ratio 60 EAC benchmark 50 40 30 20 10 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 250 PV of Debt-to-Revenue Ratio 2/ 200 150 100 50 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 30 Debt Service-to-Revenue Ratio 2/ 3/ 25 20 15 10 5 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. 2/ Revenues are defined inclusive of grants. 3/ The volatile profile of debt service is due to the projected armotization for public domestic debt. 15 Table 1. Tanzania: External Debt Sustainability Framework, Baseline Scenario, 2011-2034 1/ (In percent of GDP, unless otherwise indicated) 6/ 6/ Actual Historical Standard Projections Average Deviation 2014-2019 2020-2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average External debt (nominal) 1/ 35.1 34.0 34.3 36.8 37.8 38.0 38.3 38.5 38.7 35.7 31.0 of which: public and publicly guaranteed (PPG) 29.8 28.8 29.2 32.0 33.0 33.3 33.6 33.7 33.9 30.7 25.6 Change in external debt 5.6 -1.1 0.2 2.6 0.9 0.2 0.3 0.2 0.2 -0.7 -0.2 Identified net debt-creating flows 4.1 9.4 2.7 6.3 4.4 3.3 2.4 2.2 1.8 2.2 1.1 Non-interest current account deficit 9.1 18.1 13.7 9.5 4.4 13.9 12.8 11.7 11.1 10.6 10.1 9.8 8.2 9.3 Deficit in balance of goods and services 12.4 19.2 14.8 15.1 14.0 12.9 11.9 11.4 10.8 10.0 8.0 Exports 29.8 31.0 27.2 25.6 25.5 25.1 25.4 25.7 25.4 27.7 32.8 Imports 42.2 50.2 42.1 40.8 39.5 38.0 37.3 37.1 36.2 37.7 40.8 Net current transfers (negative = inflow) -4.2 -3.6 -2.6 -3.9 0.6 -2.2 -2.0 -1.9 -1.7 -1.6 -1.5 -1.1 -0.5 -0.9 of which: official -3.1 -2.4 -1.7 -1.2 -1.0 -0.9 -0.9 -0.8 -0.8 -0.5 -0.2 Other current account flows (negative = net inflow) 0.9 2.5 1.4 1.0 0.8 0.6 0.8 0.8 0.8 0.8 0.7 Net FDI (negative = inflow) -4.3 -6.1 -6.0 -4.7 1.0 -6.0 -6.7 -6.7 -7.0 -6.8 -6.7 -6.0 -6.0 -6.1 Endogenous debt dynamics 2/ -0.8 -2.6 -5.0 -1.6 -1.7 -1.7 -1.7 -1.7 -1.6 -1.5 -1.2 Contribution from nominal interest rate 0.2 0.3 0.4 0.5 0.6 0.7 0.7 0.8 0.8 0.8 0.8 Contribution from real GDP growth -1.9 -2.2 -2.0 -2.1 -2.3 -2.4 -2.4 -2.4 -2.4 -2.3 -2.0 Contribution from price and exchange rate changes 0.9 -0.7 -3.3 … … … … … … … … Residual (3-4) 3/ 1.5 -10.5 -2.5 -3.7 -3.5 -3.0 -2.1 -2.0 -1.5 -2.9 -1.2 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... 22.2 24.7 25.9 26.4 26.8 27.1 27.4 25.8 24.2 In percent of exports ... ... 81.7 96.2 101.5 105.2 105.7 105.3 108.1 93.3 73.8 PV of PPG external debt ... ... 17.2 19.9 21.2 21.7 22.1 22.4 22.6 20.9 18.8 In percent of exports ... ... 63.2 77.5 83.0 86.5 87.2 86.9 89.3 75.4 57.4 In percent of government revenues ... ... 98.5 107.1 109.7 111.1 113.2 114.4 115.9 102.8 81.8 Debt service-to-exports ratio (in percent) 4.0 2.4 3.0 4.6 6.3 7.2 8.6 9.2 9.6 8.6 8.6 PPG debt service-to-exports ratio (in percent) 1.0 1.3 1.9 3.0 4.7 5.6 7.0 7.6 7.9 7.1 7.2 PPG debt service-to-revenue ratio (in percent) 1.9 2.3 3.0 4.1 6.2 7.2 9.0 10.0 10.3 9.6 10.2 Total gross financing need (Billions of U.S. dollars) 1.4 3.3 2.6 3.2 3.0 2.9 2.9 3.2 3.3 5.3 10.4 Non-interest current account deficit that stabilizes debt ratio 3.5 19.2 13.4 11.4 11.9 11.4 10.8 10.4 9.9 10.5 8.4 Key macroeconomic assumptions Real GDP growth (in percent) 6.7 6.7 6.9 7.0 0.3 7.1 7.1 7.1 7.0 6.9 6.9 7.0 6.9 7.0 6.9 GDP deflator in US dollar terms (change in percent) -3.0 2.2 10.8 3.4 6.2 5.8 4.2 3.9 2.5 2.1 2.1 3.4 2.1 2.0 2.1 Effective interest rate (percent) 5/ 0.9 0.9 1.3 0.9 0.2 1.7 1.9 2.0 2.1 2.2 2.2 2.0 2.3 3.0 2.5 Growth of exports of G&S (US dollar terms, in percent) 22.8 13.3 4.3 15.4 7.8 6.7 11.0 9.3 10.9 10.7 7.5 9.4 11.0 11.0 11.0 Growth of imports of G&S (US dollar terms, in percent) 19.5 29.5 -0.6 19.5 12.1 9.8 8.1 7.0 7.5 8.7 6.3 7.9 10.0 10.0 10.0 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 29.9 26.6 28.4 28.0 28.4 27.1 28.1 23.9 14.8 21.0 Government revenues (excluding grants, in percent of GDP) 16.4 17.6 17.5 18.6 19.3 19.5 19.5 19.5 19.5 20.3 23.0 21.0 Aid flows (in Billions of US dollars) 7/ 1.1 1.2 1.0 1.9 1.8 2.2 2.2 2.4 2.6 3.5 7.6 of which: Grants 1.1 1.2 1.0 1.2 1.2 1.5 1.4 1.5 1.7 2.6 6.2 of which: Concessional loans 0.0 0.0 0.0 0.7 0.6 0.7 0.7 0.8 0.9 0.9 1.4 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 5.4 4.5 4.7 4.2 4.2 4.2 3.7 3.5 3.7 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 54.1 54.5 60.8 58.0 58.1 57.1 60.9 53.8 58.6 Memorandum items: Nominal GDP (Billions of US dollars) 23.7 25.8 30.6 34.7 38.7 43.0 47.2 51.5 56.2 86.7 207.8 Nominal dollar GDP growth 3.6 9.0 18.6 13.3 11.6 11.2 9.7 9.1 9.1 10.7 9.1 9.1 9.1 PV of PPG external debt (in Billions of US dollars) 5.2 6.8 8.1 9.2 10.3 11.3 12.5 17.8 38.5 (PVt-PVt-1)/GDPt-1 (in percent) 5.3 3.8 2.9 2.5 2.3 2.3 3.2 1.5 1.6 1.6 Gross workers' remittances (Billions of US dollars) 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 PV of PPG external debt (in percent of GDP + remittances) ... ... 17.2 19.9 21.1 21.7 22.1 22.3 22.6 20.8 18.8 PV of PPG external debt (in percent of exports + remittances) ... ... 62.9 77.2 82.7 86.2 86.9 86.6 89.0 75.2 57.3 Debt service of PPG external debt (in percent of exports + remittances) ... ... 1.9 3.0 4.7 5.6 6.9 7.6 7.9 7.0 7.1 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 16 Table 2. Tanzania: Public Sector Debt Sustainability Framework, Baseline Scenario, 2011-2034 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ Standard 5/ 2014-19 2020-34 Average 2011 2012 2013 Deviation 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average Public sector debt 1/ 40.4 39.8 41.3 48.7 47.9 47.0 46.5 46.0 45.8 41.2 35.3 of which: foreign-currency denominated 29.8 28.8 29.2 32.0 33.0 33.3 33.6 33.7 33.9 30.7 25.6 Change in public sector debt 6.6 -0.6 1.4 7.4 -0.8 -1.0 -0.5 -0.5 -0.1 -0.9 -0.1 Identified debt-creating flows 5.1 -1.1 1.9 7.3 -0.1 -1.0 -0.4 -0.2 -0.1 -0.8 -0.2 Primary deficit 5.6 4.0 5.2 3.7 1.6 3.6 3.2 2.4 2.5 2.6 2.6 2.8 1.7 1.6 1.7 Revenue and grants 21.1 22.1 20.8 22.0 22.4 23.0 22.5 22.5 22.5 23.3 26.0 of which: grants 4.7 4.5 3.4 3.4 3.1 3.5 3.0 3.0 3.0 3.0 3.0 Primary (noninterest) expenditure 26.7 26.0 26.0 25.6 25.6 25.5 25.0 25.1 25.1 25.0 27.5 Automatic debt dynamics -0.5 -5.1 -3.8 -3.4 -3.8 -3.4 -2.9 -2.8 -2.7 -2.5 -1.8 Contribution from interest rate/growth differential -2.2 -2.9 -2.3 -2.3 -3.0 -3.0 -2.8 -2.8 -2.7 -2.5 -1.8 of which: contribution from average real interest rate -0.1 -0.4 0.3 0.5 0.2 0.2 0.2 0.2 0.2 0.3 0.5 of which: contribution from real GDP growth -2.1 -2.5 -2.6 -2.7 -3.2 -3.2 -3.1 -3.0 -3.0 -2.7 -2.3 Contribution from real exchange rate depreciation 1.7 -2.2 -1.5 -1.1 -0.8 -0.4 0.0 0.0 0.0 ... ... Other identified debt-creating flows 0.0 0.0 0.6 7.1 0.5 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 5.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.6 1.6 0.5 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 1.5 0.6 -0.5 0.2 -0.7 0.0 -0.1 -0.2 0.0 -0.1 0.1 Other Sustainability Indicators PV of public sector debt ... ... 29.2 36.5 36.1 35.4 35.0 34.6 34.6 31.4 28.6 of which: foreign-currency denominated ... ... 17.2 19.9 21.2 21.7 22.1 22.4 22.6 20.9 18.8 of which: external ... ... 17.2 19.9 21.2 21.7 22.1 22.4 22.6 20.9 18.8 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 7.1 6.5 7.5 6.4 6.8 5.7 6.4 6.4 6.3 4.9 5.3 PV of public sector debt-to-revenue and grants ratio (in percent) … … 140.3 166.0 161.0 153.6 155.3 153.6 153.3 134.7 110.0 PV of public sector debt-to-revenue ratio (in percent) … … 167.5 196.8 186.9 181.1 179.1 177.1 176.9 154.5 124.2 of which: external 3/ … … 98.5 107.1 109.7 111.1 113.2 114.4 115.9 102.8 81.8 Debt service-to-revenue and grants ratio (in percent) 4/ 6.9 11.3 10.9 13.0 16.1 14.2 17.1 17.0 16.4 13.8 14.3 Debt service-to-revenue ratio (in percent) 4/ 8.9 14.2 13.0 15.4 18.7 16.7 19.7 19.6 18.9 15.8 16.2 Primary deficit that stabilizes the debt-to-GDP ratio -1.0 4.5 3.8 -3.9 4.0 3.4 3.0 3.0 2.7 2.6 1.6 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 6.7 6.7 6.9 7.0 0.3 7.1 7.1 7.1 7.0 6.9 6.9 7.0 6.9 7.0 6.9 Average nominal interest rate on forex debt (in percent) 0.9 0.9 1.5 0.8 0.3 1.7 1.9 2.1 2.2 2.2 2.3 2.0 2.3 3.2 2.6 Average real interest rate on domestic debt (in percent) 2.1 -1.0 2.8 2.6 2.2 4.0 1.4 1.4 1.7 1.6 1.5 1.9 1.8 3.0 2.2 Real exchange rate depreciation (in percent, + indicates depreciation) 7.7 -8.0 -5.7 -1.2 6.7 -4.1 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 8.1 10.4 9.9 8.1 1.5 7.3 6.3 5.9 5.3 5.1 5.1 5.8 5.1 5.0 5.1 Growth of real primary spending (deflated by GDP deflator, in percent) 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Grant element of new external borrowing (in percent) ... ... ... … … 29.9 26.6 28.4 28.0 28.4 27.1 28.1 23.9 14.8 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.] 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 17 Table 3a. Tanzania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-2034 (In percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt-to GDP ratio Baseline 20 21 22 22 22 23 21 19 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 20 20 21 22 23 24 25 31 A2. New public sector loans on less favorable terms in 2014-2034 2 20 22 24 25 27 28 30 32 A3. Alternative Scenario : Low growth 20 22 24 25 26 27 28 26 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 20 21 22 22 22 22 21 19 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 20 22 23 23 24 24 21 19 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 20 22 25 25 25 26 23 21 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 20 23 24 24 25 25 22 19 B5. Combination of B1-B4 using one-half standard deviation shocks 20 23 25 25 25 26 23 20 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 20 29 30 31 31 31 29 26 PV of debt-to-exports ratio Baseline 78 83 87 87 87 89 75 57 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 78 79 83 85 88 94 89 93 A2. New public sector loans on less favorable terms in 2014-2034 2 78 87 95 100 103 110 107 97 A3. Alternative Scenario : Low growth 77 87 95 99 102 108 101 79 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 78 82 86 86 86 88 74 56 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 78 88 97 97 96 98 81 60 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 78 82 86 86 86 88 74 56 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 78 88 97 97 96 98 80 57 B5. Combination of B1-B4 using one-half standard deviation shocks 78 86 90 90 89 91 75 56 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 78 82 86 86 86 88 74 56 PV of debt-to-revenue ratio Baseline 107 110 111 113 114 116 103 82 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 107 104 106 111 115 121 122 133 A2. New public sector loans on less favorable terms in 2014-2034 2 107 115 122 129 136 143 146 139 A3. Alternative Scenario : Low growth 106 115 122 129 135 140 138 113 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 107 109 111 112 114 115 102 81 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 107 112 118 120 120 122 105 81 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 107 117 126 128 129 131 116 92 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 107 117 124 125 126 127 109 82 B5. Combination of B1-B4 using one-half standard deviation shocks 107 119 128 129 130 131 114 88 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 107 153 154 157 158 160 142 113 18 Table 3b.Tanzania: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014-2034 (continued) (In percent) Debt service-to-exports ratio Baseline 3 5 6 7 8 8 7 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 3 5 5 7 7 8 7 8 A2. New public sector loans on less favorable terms in 2014-2034 2 3 5 5 6 6 6 7 9 A3. Alternative Scenario : Low growth 3 5 6 8 9 9 9 11 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 3 5 6 7 8 8 7 7 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 3 5 6 8 8 9 8 8 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 3 5 6 7 8 8 7 7 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 3 5 6 7 8 8 8 7 B5. Combination of B1-B4 using one-half standard deviation shocks 3 5 6 7 8 8 7 7 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 3 5 6 7 8 8 7 7 Debt service-to-revenue ratio Baseline 4 6 7 9 10 10 10 10 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 4 6 7 9 10 10 10 12 A2. New public sector loans on less favorable terms in 2014-2034 2 4 6 6 8 8 8 9 13 A3. Alternative Scenario : Low growth 4 6 8 10 11 12 13 15 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 4 6 7 9 10 10 10 10 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 4 6 7 9 10 11 10 10 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 4 7 8 10 11 12 11 12 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 4 6 7 10 11 11 10 10 B5. Combination of B1-B4 using one-half standard deviation shocks 4 6 8 10 11 11 11 11 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 4 9 10 13 14 14 13 14 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 13 13 13 13 13 13 13 13 Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly a an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. 19 Table 4.Tanzania: Sensitivity Analysis for Key Indicators of Public Debt 2014-2034 Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of Debt-to-GDP Ratio Baseline 37 36 35 35 35 35 31 29 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 37 37 37 38 38 39 44 53 A2. Primary balance is unchanged from 2014 37 36 37 37 38 38 42 51 A3. Permanently lower GDP growth 1/ 37 36 35 35 35 35 32 31 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 37 36 36 36 35 35 33 31 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 37 38 40 39 39 39 35 31 B3. Combination of B1-B2 using one half standard deviation shocks 37 37 39 38 38 38 34 31 B4. One-time 30 percent real depreciation in 2015 37 44 42 41 40 40 37 36 B5. 10 percent of GDP increase in other debt-creating flows in 2015 37 45 44 43 43 43 38 33 PV of Debt-to-Revenue Ratio 2/ Baseline 166 161 154 155 154 153 135 110 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 166 163 161 167 170 174 187 206 A2. Primary balance is unchanged from 2014 166 162 159 165 167 170 182 197 A3. Permanently lower GDP growth 1/ 166 161 154 156 154 155 138 120 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 166 162 156 158 157 157 141 119 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 166 170 173 175 172 171 149 119 B3. Combination of B1-B2 using one half standard deviation shocks 166 167 167 169 168 167 148 121 B4. One-time 30 percent real depreciation in 2015 166 195 183 183 179 177 157 139 B5. 10 percent of GDP increase in other debt-creating flows in 2015 166 201 191 193 190 189 163 127 Debt Service-to-Revenue Ratio 2/ Baseline 13 16 14 17 17 16 14 14 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 13 16 14 18 18 18 19 25 A2. Primary balance is unchanged from 2014 13 16 14 18 18 18 18 24 A3. Permanently lower GDP growth 1/ 13 16 14 17 17 16 14 15 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 13 16 14 17 17 17 14 15 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 13 16 15 19 19 18 15 15 B3. Combination of B1-B2 using one half standard deviation shocks 13 16 15 18 19 18 15 16 B4. One-time 30 percent real depreciation in 2015 13 17 17 21 21 21 20 23 B5. 10 percent of GDP increase in other debt-creating flows in 2015 13 16 17 22 21 20 17 17 Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants.