Beware of foreign loans with “toxic” clauses – archyde

From Louis Kalumbia

Dar es Salaam. Economists yesterday warned the government to be careful with foreign credit in order to avoid acquiring facilities and resources if it fails to meet contractual obligations.

But the Tanzanian government allayed fears, saying the government will not and will not use the facilities as a guarantor of access to foreign funding.

The observations by experts come at the time when Uganda is at risk of ceding Entebbe International Airport to China on the basis of a loan acquired on March 31, 2015 by the Export-Import (Exim) Bank of China.

Efforts by Entebbe to renegotiate the “toxic clauses” in the $ 200 million loan (Shs713b) taken out six years ago were recently rejected by Beijing authorities.

The “toxic clause” in the treaty provides that Uganda’s state assets will be suspended from seizures and takeovers following arbitration awards in Beijing.

China announced similar measures to the Zambian government in 2018 when it threatened to take over Kenneth Kaunda International Airport, Electricity Company, national broadcasting network, and major road projects as a $ 8.7 billion loan failed to repay could be.


But yesterday the executive director of Repoa, Dr. Donald Mmari that the government should conduct extensive feasibility studies to unequivocally confirm that a particular project can be implemented in a timely manner and that financial feasibility is returned.

“Projects with no economic benefit should not be scheduled for implementation. Contracts with clauses requiring sovereignty or resources such as minerals and gas as collateral should be avoided entirely, ”he said.

The decline in the value of resources on the world market reduces the country’s ability to service the credit and thus endangers the acquisition.

Dr. Mmari was seconded by a senior economist, Prof. Samuel Wangwe, who said the country’s negotiators should only write contracts with workable terms and reject those with dubious clauses.

“The government should better rely on local experts on such issues. Also, domestic banks should work with foreign financial institutions to mobilize on friendly terms, ”he said.

Prof. Wangwe said that while the Tanzanian government is not concerned about contracts for development projects being carried out in the country, according to reports elsewhere on the continent, it should be careful and do some analysis to identify things that the country lacks and secure low-interest loans.

However, Deputy Minister of Finance and Planning, Mr Hamad Yussuf Masauni, said Tanzanians had nothing to worry about as President Samia Suluhu Hassan’s leadership was careful about financial issues.

“There is nowhere where the government has used the country’s resources as collateral to secure loans, and there is no plan to do the same for ongoing development projects,” he said.

He said the country insured loans in accordance with the law, preferably those that boost the country’s economy and make a significant contribution to the country’s gross domestic product (GDP).

“President Hassan has directed us to look for discounted loans to benefit from a long grace period, 35 percent grants and low interest rates,” he said.

He said the International Monetary Fund (IMF) loan of Sh1.3 trillion fell into that category, but said there were some franchised loans with difficult terms that required strong negotiations in the nation’s best interests.

“Only when we have no alternatives do we switch to commercial loans. It always happens when we are looking for funds to implement the most profitable projects like the standard gauge railway (SGR), ”he said.

Mr Masauni, who also serves as the Kikwajuni MP in Zanzibar, said President Hassan was working hard to improve the country’s diplomatic relations with the international community in order to reduce the preferential loan processes and maintain national debt sustainability.

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