London, 23 August 2019 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of Tanzania's B1 local- and foreign-currency long-term
issuer ratings and maintained the negative outlook.
The affirmation of the B1 rating balances Tanzania's weak institutional
framework, low fiscal strength, particularly weak revenue
mobilisation capacity, with credit supports such as a low cost of
debt and the economy's diversification which helps mitigate the impact
of shocks and supports robust growth.
The decision to maintain the negative outlook reflects Moody's assessment
that the risks remain that unpredictable policy negatively affects Tanzania's
growth, investment environment and/or access to financing durably.
The foreign-currency and the local-currency bond and deposit
ceilings remain unchanged, at Ba2 for local-currency bonds
and deposits, Ba3 for foreign-currency bonds and B2 for foreign-currency
deposits.
RATINGS RATIONALE
RATIONALE FOR AFFIRMING THE B1 RATING
WEAK INSTITUTIONS, LOW FISCAL STRENGTH DESPITE LARGELY CONCESSIONAL
DEBT
Tanzania's weak governance and policy effectiveness are a constraint
on the rating.
The Worldwide Governance Indicators (WGI) rank Tanzania in the bottom
18th percentile of sovereigns rated by Moody's for government effectiveness
and in the 34th percentile for control of corruption and in the 28th percentile
for rule of law. Notwithstanding the government's efforts
in fighting corruption, Tanzania's institutional framework
has been weakening relative to other sovereigns in recent years.
Weak governance and government effectiveness are shown in the persistent
significant underperformance of government revenue and expenditure compared
to budgets, previous accumulation of domestic arrears that is not
reversed (estimated at 5.7% of GDP as of June 2018),
and weak policy implementation, as highlighted by the weak budget
execution.
The sovereign's institutional weaknesses undermine fiscal strength.
The authorities have been relatively successful at containing low-priority
spending in recent years, as seen in a decline in spending on goods
and services as a share of GDP. Steps taken by the administration
have included reducing staff numbers in the public sector and increasing
efficiency of spending, especially on goods and services.
However, the government has been less successful in raising revenue.
Tax receipts have stagnated as a proportion of GDP over the past three
years, and overall government revenue is around 15% of GDP.
Debt affordability is supported by the largely concessional nature of
government debt, which accounted for 51% of total government
debt in fiscal year 2018.
While deficits have been modest in recent years and Moody's expects
them to remain around 2.5-3% of GDP even as public
investment ramps up, very weak revenue mobilization prevents a decline
in the debt burden despite robust growth. Moody's projects
that government debt will hover around 40% of GDP and 270-280%
of revenue in the next few years. Moreover, off-budget
expenditure, including on repayment of some past arrears have in
the past contributed to a higher debt burden, and may continue to
do so.
MEDIUM-TERM GROWTH PROSPECTS, DIVERSIFICATION SUPPORT ECONOMIC
SHOCK ABSORPTION CAPACITY DESPITE LOW INCOMES
The economy's strong growth potential and its relative diversification
support shock absorption capacity, that is otherwise undermined
by low incomes.
Since 2010, real GDP growth has averaged 6.6%,
very high in global comparison and the eighth fastest rate of growth among
B-rated sovereigns. Moody's expects somewhat slower growth
over the medium term, around 6%, reflecting softening
growth in services and construction after several years of very rapid
expansion. Nonetheless, assuming no major policy setback
to the business environment compared with the current environment,
continued investment in a number of large infrastructure projects and
robust output growth in mining, with large still untapped resources,
will likely support GDP growth at relatively high rates.
The Tanzanian economy is relatively diversified, with growth driven
by a mix of agriculture, manufacturing, construction and services.
Robust growth that is not particularly exposed to sector-specific
vulnerabilities lends some capacity to the economy to absorb shocks,
despite very low-income levels. Tanzania's average income,
with GDP per capita of $3,444 at Purchasing Power Parity
at end-2018, is very low on a global scale and lower than
the median for B-rated sovereigns, representing a key credit
constraint.
RATIONALE FOR MAINTAINING THE NEGATIVE OUTLOOK
POLICY UNPREDICTABILITY REMAINS, POSING RISKS TO THE GROWTH,
FINANCING ENVIRONMENT
The main source of downside risks informing the negative outlook continues
to relate to policy unpredictability, notwithstanding some actions
by the government that have helped instill a degree of transparency to
policy decisions recently.
Ongoing uncertainty over the regulatory environment and policy stance
of the government, particularly as it relates to the mining sector,
could have a long-term negative impact on the country's growth
potential and ability to attract foreign investment. Even though
mining represents only a small share of GDP, the mining sector is
an important source of government revenue and export earnings (41%
of exports in 2018).
Should unpredictable policy decisions significantly and durably hamper
Foreign Direct Investment (FDI), given the country's persistent
current account deficits which Moody's expects to widen to 4.8%
of GDP this year, foreign exchange reserves and Tanzania's
external stability would be undermined. So far, net direct
investment inflows have remained relatively stable, at just under
2% of GDP in the last three years.
Moreover, policy actions that lead to the suspension or withdrawal
of international funding would raise government liquidity risks.
Tensions with international donors have simmered over the past 18 months,
as highlighted by the suspension of some funding programmes including
by the World Bank, although engagement has resumed now. For
fiscal year 2019, lower external non-concessional borrowing
was compensated by higher-than-budgeted domestic borrowing,
both from bank and non-bank sources. However, the
small size of Tanzania's domestic banking system and the sovereign's
limited track-record in accessing international capital markets
indicate that a prolonged period of lower international concessional funding
would likely put pressure on Tanzania's access to and cost of finance.
WHAT COULD CHANGE THE RATING UP
The negative outlook indicates that an upgrade is unlikely in the near
term.
Moody's would likely change the outlook to stable should it become increasingly
probable that the policy environment will not lead to a deterioration
in Tanzania's credit metrics or undermine the institutional and
business environment.
WHAT COULD CHANGE THE RATING DOWN
Moody's would likely downgrade Tanzania's rating should unpredictable
policymaking become increasingly likely to affect GDP growth and investment
negatively. Moreover, an increasing likelihood that the debt
burden would rise markedly and for a prolonged period of time would also
probably lead to a downgrade of the rating. This could result from
persistently high or rising budget arrears and/or a build-up in
external pressure leading to a marked depreciation of the currency.
GDP per capita (PPP basis, US$): 3,444 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 7.0% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.3%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -1.3%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.3% (2018 Actual)
(also known as External Balance)
External debt/GDP: 33.0% (2018 Estimate)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 20 August 2019, a rating committee was called to discuss the
rating of the Government of Tanzania. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
institutional strength/ framework has not materially changed. The
issuer's governance and/or management have not materially changed.
The issuer's fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to event
risks has not materially changed.
The principal methodology used in this rating was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kelvin Dalrymple
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
