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Financed by the
European Union
Contingent Liabilities Study
EUROPEAID/132633/C/SER/MULTI Framework contract Beneficiaries – Lot n°11 – Macro Economy, Statistics and Public Finance Management
Draft final report
Client: Delegation of the European Union to Tanzania
ECORYS PFM Consortium
Implemented by:
Sanga Sangarabalan
Leonard Chacha Kitoka
Rotterdam, 8 December 2014
Financed by the
European Union
Initials Date
Author(s)
SS _ LCK 28-11-2014
Counter-reading
FPh FPo
Lay-out / editing DvW/ EV 8-12-2014
ECORYS Nederland BV
P.O. Box 4175
3006 AD Rotterdam
Watermanweg 44
3067 GG Rotterdam
The Netherlands
T +31 10 453 88 00
F +31 10 453 07 68
W www.ecorys.nl
Registration no. 24316726
Dept. of Marketing & Communication
T +31 (0)10 453 88 31
F +31 (0)10 453 07 68
Tanzania - Contingent Liabilities Study Nov. 2014
Page 3
Abbreviations 5
Executive Summary 7
1 Introduction and Scope of the Contingent Liabilities Study 15
1.1 Overview 15
1.2 ToR for the Contingent liabilities study 16
1.3 Distinction between Liabilities and Contingent Liabilities 18
1.4 Comparison with the Contingent Liability items selected under National Contingent
Liabilities study 21
1.5 Scope and Coverage 22
2 One-off Loan Guarantees 25
2.1 Definition and Coverage: 25
2.2 Aggregate Trends and Stocks: 26
2.3 Case studies: 26
2.4 Energy Sector 27
2.5 Loans Offered by Pension Funds under Guarantee 28
2.6 Other Sectors Related Public Corporations and Agencies 32
2.7 TA’s Overall estimate 33
2.8 Summary of Recommendations: 33
3 Standardised Guarantees 35
3.1 Introduction: 35
3.2 Export Credit Guarantee Scheme: 35
3.3 Small and Medium Enterprise Credit Guarantee Scheme: 36
3.4 Higher Education Student Loan Scheme 37
3.5 Time trends for Total Value of the Guarantees for Export Credits scheme and Higher
Education loan scheme 38
3.6 Default rates for the Schemes at end 2013 38
3.7 Summary of Recommendations 39
4 Guarantees under Pensions and Social Security Schemes 41
4.1 Introduction: 41
4.2 Assessment of the Social Security Sector Deficits 42
4.3 Asset Diversification 47
4.4 Summary of Recommendations 48
5 Guarantees Issued Under PPP Arrangement 51
5.1 Introduction: 51
5.2 Procedural steps for a PPP arrangement 52
5.3 Institutional Arrangements under the Special Bill Supplement (Nov 2014) and Capacity: 53
5.4 Related PPP Finance and Risk Management 53
5.5 Summary of Recommendations 56
6 Other Contingent liabilities and Credit Risk related debt 57
6.1 Introduction: 57
6.2 Legal Claims: 57
6.3 On-Lent Loans 58
6.4 Other contingent liabilities 59
Tanzania - Contingent Liabilities Study Nov. 2014
Page 4
6.5 Summary of Recommendations 59
7 Sustainable Level of Total Liabilities 61
7.1 Introduction: 61
7.2 Main indicators and dynamics of Sustainability 61
7.3 Theoretical Background - Debt Dynamics and Debt Stabilizing surplus 62
7.4 Debt Sustainability Analysis- Approach and Comparisons 64
7.5 National Debt Sustainability Analysis 2013 64
7.6 Debt Sustainability Analysis carried out by IMF (Article IV) 2014 65
7.7 Debt Sustainability Analysis carried by the TA 67
7.8 Summary of Recommendations 69
8 Legislative Framework 71
8.1 Introduction 71
8.2 Review and recommended revisions 71
8.3 Guidelines and procedures for loan guarantees and on-lent loans 73
8.4 Other related legislation 74
8.5 Legislative framework for Pensions and Health Insurance Sectors 75
8.6 Legislative framework for Public Private Partnerships 76
8.7 Summary of Recommendations 77
8.8 References of the Main Acts and Regulations reviewed: 79
9 Disclosure and Reporting of Contingent liabilities 81
9.1 Statistical Presentation 81
9.2 Fiscal Risk Reporting of Contingent Liabilities 82
9.3 Accounting Disclosure of Contingent Liabilities 83
9.4 Contingent liabilities of Public Authorities and other Bodies (PAOBs) and LGAs 84
9.5 Accounting treatment of contingent liabilities 84
9.6 Disclosure of Contingent Liabilities in Central Government 85
9.7 Disclosure of contingent liabilities in PAOBs 86
9.8 Summary of Recommendations 88
10 Institutional Arrangements for Managing Contingent Liabilities 91
10.1 Introduction: 91
10.2 Recommended Institutional Structure and Responsibilities: 91
10.3 Terms of Reference and Responsibilities 92
10.4 Contingent Liability Committees 93
10.5 Information Flow arrangements 93
10.6 Summary of Recommendations 95
Annex 1: People contacted and their organisations 97
Annex 2: Questionnaires 99
Tanzania - Contingent Liabilities Study Nov. 2014
Page 5
Abbreviations
AG’s Office Attorney General’s Office
ATCL Air Tanzania Company Ltd
BoT Bank of Tanzania
CFS Consolidated Financial Statements
CHC Consolidated Holdings Company
CPAD Commissioner Policy Analysis Division
CRDB Credit Rural Development Bank
CVC Consolidated Holding Corporation
DAWASCO Dar es Salaam Water and Sewerage Corporation
DAWASA Dar es Salaam Water and Sewerage Authority
DBFOT Design Build Finance Operate Transfer
DSA Debt Sustainability Analysis
DSF Debt Sustainability Framework
ECGS Export Credit Guarantee Scheme
EWURA Energy and Water Utilities Regulatory Authorities
GLGG Government Loans, Guarantees and Grants Act
HESLB Higher Education Students' Loans Board
IPSAS International Public Sector Accounting Standards
LAPF Local Authorities Pension Fund
LGA Local Government Authority
MDAs Ministries Departments and Agencies
MoF Ministry of Finance
NBAA National Board of Accountants and Auditors
NHIF National Health Insurance Fund
NHC National Housing Corporation
NMB National Micro-Finance Bank
NSSF National Social Security Fund
PAOBs Public Authorities and Other Bodies
PER Public Expenditure Review
PFI Private Financial Institutions
PPF Parastatals Pensions Fund
PPP Public Private Partnerships
PSPF Public Sector Pensions Fund
RAHCO Reli Assets Holding Company
SME Small and Medium Enterprises
SME-CGS SME – Credit Guarantee Scheme
SSRA Social Security Regulatory Authority
TA Technical Assistance
TAA Tanzania Airports Authority
TANESCO Tanzania Electric Supply Company Ltd
TAZARA Tanzania Zambia Railway
ToR Terms of Reference
TPA Tanzania Port Authority
TRL Tanzania Railways Limited
TTCL Tanzania Telecommunications Company Limited
TR Treasury Registrar
TSh Tanzania Shillings
TZS Tanzania Shillings
Tanzania - Contingent Liabilities Study Nov. 2014
Page 7
Executive Summary
1. Contingent liabilities of the Government are liabilities that result in most cases from various types
of guarantees offered by the Government and in some cases by abnormal events such as
borrowing to resolve financial crises or natural disasters. Loan Guarantees are the easiest to
identify as explicit contingent liabilities and the Government is legally obliged to repay the lender
when the borrower defaults or cannot repay the whole amount. In Tanzania, over time, the amount
of guarantees requested and issued have been increasing, creating a potential risk to the
Government budget and threatening fiscal sustainability. The Ministry of Finance conducted an in-
house study in 2012 on contingent liabilities with the overall objective of evaluating the impact of
contingent liabilities to the government’s budget, public debt portfolio and fiscal risks associated
with contingent liabilities. The total contingent liabilities was estimated to be Tsh 7.008 bn (as end
June 2012), in which the main contributor was Claims by Social Security Funds (Tsh 4.13 bn). To
study this subject in more detail, the Government embarked on a Technical Assistance project with
financial support from the European Union.
2. The first and most important issue was the proper classification of direct liabilities and contingent
liabilities. This should be followed by the identification of the various categories that are measurable
within contingent liabilities. Contingent liabilities are also divided between explicit and implicit
liabilities, the former is characterised by a legal commitment by the Government whereas implicit
liabilities are identified in terms of moral commitment. For the purpose of this study the TA identified
and estimated; one-off guarantees, standardised guarantees, pension guarantees, PPP
guarantees, litigations and on-lending that includes credit risks (the final borrower is responsible for
repaying the loan). The total contingent liabilities (explicit) with on-lending (credit risk) was
estimated to be Tsh 9333 bn, comprising Pension arrears to PSPF (Tsh 4800 bn), One-off and
standardised guarantees (Tsh 2116 bn), Litigations (Tsh 1855 bn) and On-lending with credit risk
(Tsh 562 bn). This total figure was the basis on which (after adjusting for default probabilities) the
Debt Sustainability Analysis was carried out. However, with regard to pensions, the total amount of
direct and contingent liabilities after applying harmonisation rules is estimated to be Tsh 12.3
Trillion. TA recommends that proper and timely record keeping and reconciliation must be
established and maintained for all the categories of measurable contingent liabilities.
3. The TA’s estimation of contingent liabilities was carried out by examining various consolidated
financial statements, databases and interviews held with selected public corporations (both
operational and asset holding), pension funds, commercial banks, regulatory bodies and relevant
government departments and agencies. Relevant questionnaires were prepared and sent in
advance to these agencies so as to minimise the interview period.
4. After estimating the value of contingent liabilities, a DSA was carried out using the IMF DSF
template to examine whether the total liabilities (debt and contingent liabilities) is sustainable. The
TA used the same macroeconomic and debt assumptions of the National DSA that was carried out
in September 2013. The contingent liabilities used in this study was the value estimated by the TA.
To use this value as an input, it has to be converted in to a debt equivalent which means that
different default rates (first estimated) had to be applied to each category of contingent liabilities.
The final input to the DSA was equivalent to Tsh 7971 bn paid equally over 3 years starting from
2014. The results obtained under this study, were compared with the National DSA and IMF (2014)
DSA results. In all three cases the debt indicators mainly the Debt burden indicator represented by
Present Value of Debt to GDP, was deemed sustainable under globally accepted threshold and
East African Monetary Union Threshold. The indicators were lower than the stipulated limits under
Tanzania - Contingent Liabilities Study Nov. 2014
Page 8
these thresholds, though the TA study gave a higher ratio compared to the other two studies,
largely due to a higher contingent liability figure.
5. The TA examined the legislative framework that governed the various guarantees. It reviewed
the Loans, Grants and Guarantees Act (1974, revised 2003) and the accompanying regulations. TA
has provided several suggestions to improve the current legislation which stipulates guarantee of
loans, export credits and SME credits. It pointed out the need to set a properly defined debt limit
and prepare guidelines and procedures based on a credit rating methodology for the issuance of
guarantees. In addition to this, the TA also reviewed the Public Corporations Act (1992), PPP
policies (2009), Act (2010) and Regulation (2011) and the latest Special PPP Supplement Bill
(2014). The TA also examined the various Pension regulations and Principles including the current
investment guidelines and opportunities. A detailed list of recommendations is given in the
summary of recommendations later in this section.
6. Under disclosure and reporting, TA has recommended that more needs to be done before next
year’s budget preparation. The first step is the identification and listing of all guaranteed loans and
credits including on-lending loans with credit risk. Preparation of a complete list will be good start
for assessing fiscal risk due to contingent liabilities. To this end, a narrative memorandum attached
to the budget would be also a progressive step. At a later stage, categories of contingent liabilities
can be identified and probable default estimated. TA acknowledges that there must be a fine
balance maintained with revealing too much in terms of probable defaults that may cause excessive
public concern and maintaining transparency and accountability for contingent liabilities. It will be
also a progressive step if future DSA exercises are carried out that includes explicit and
measurable contingent liabilities. The government may wish to consider setting a debt limit that
takes in to account both debt liabilities and contingent liabilities. This will help to monitor and
manage not only contingent liabilities but also the overall liability ratios.
7. The second part of the disclosure and reporting will be to meet the accounting standards set
under IPSAS 19 and IFRS 37. Although most government entities including the central government
disclose contingent liabilities in their financial statements, the information that is provided is not
always appropriate enough to help in decision making. The disclosed information in financial
statements is expected to be meaningful enough to provide information for assessing potential
fiscal impact of contingent liabilities, information should be presented to explain the government’s
policy and rationale in support of contingent liabilities, and information should disclose stock of
contingent liabilities in comparable years - this is what the TA recommends the government to
improve upon.
8. There are several recommendations to implement and without a proper organisational structure
and functional responsibilities it will be difficult to make any improvements in monitoring and
managing of contingent liabilities. TA has recommended an organisational structure based on a
Front- Middle-Back Office arrangement that will enable strengthening proper monitoring and
managing of contingent liabilities, similar to a Debt Management Office. It has also mentioned
potential staff requirements and defined the functions to be carried out. However, the TA has learnt
that given the budget constraints this may take some time to implement and therefore has
presented an interim arrangement where a minimum of two half time staff- one from CPAD and one
from the Accountant General’s Office- can be recruited to carry out these functions.
9. Finally, the report contains 45 recommendations in total; some can and must be implemented in
the short term and others in the medium term. The following table highlights these
recommendations under various categories, responsible organisation/agency and time frame.
Tanzania - Contingent Liabilities Study Nov. 2014
Page 9
Summary of Recommendations:
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
One-off guarantees
Recommendation 1-
Data quality
verification, updating
and information
sharing
Data on one-off loan guarantees outstanding
should be verified that is accurate and
shared on Quarterly basis among the
borrower, Treasury Registrar, Debt Unit and
Accountant General’s Department.
CPAD, AcGen, TR
and Borrower
Short term
Recommendation 2-
Guarantee process
A more stringent guidelines of guarantee
approval process (credit rating methodology)
should be introduced.
CPAD, AcGen,
AG’s Office
Medium term
Recommendation 3 –
Compliance to IPSAS
and IFRS accounting
standards
Disclosure and reporting of guarantees
should adhere to relevant IPSAS and IFRS
standards. Fiscal risk assessment due to
one-off guarantees must be prepared as part
of the budget statement.
AccGen Medium Term-
preferably for
budget 2015
Recommendation 4-
cases of default to be
resolved
These should be resolved by planned arrears
clearance strategy, securitisation and
restructuring methods.
CPAD, ACGen,
AG’s Office and
Borrower
Medium term
Standardised Guarantees
Recommendation 1:
continue with the
schemes with Export
and re-start SME
guarantee schemes
This will enable small scale cash crop
production for exports and SME
manufacturing to increase. However sound
credit rating methodologies and proper
assessment of production potential must be
employed to re commence the SME scheme.
BoT, Commercial
Bank and
Enterprise
Medium term
Recommendation 2:
Continue Higher
education loan
scheme
Though the intention of the scheme is good
recovery rates must improve, especially to
service all 3 initial loans provided by PSPF.
HELSB Short term
Recommendation 3:
data improvement and
reporting
Data is reasonably good but need to be
regularly provided to MoF for calculating
exposure and the difficulties faced in
repayments. Also helps to prepare fiscal risk
reports.
BoT, Banks Medium term
Pensions Guarantees
Recommendations 1:
The Actuarial Report
Ensure that staff of Contingent Liabilities Unit
receives a copy of the Actuarial report from
each Pension Fund and NHIF and
understand and review the position.
In future a
Contingent
liabilities Unit in the
MoF. In the interim,
staff responsible
for contingent
liabilities in CPAD,
MoF.
Short term
Tanzania - Contingent Liabilities Study Nov. 2014
Page 10
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
Recommendation 2:
Loans offered by
Pension Funds
Ensure that guarantees offered on pension
funds are assessed properly in terms of
credit risk.
Government/ pension funds should agree a
revised repayment schedule for loans
defaulted.
In the future an
established Middle
and Back offices of
a Contingent
Liability Unit. In the
interim, CPAD and
Acc Gen’s office.
CPAD and
Accountant
Generals’ Office.
Medium term
Short term
Recommendation 3:
Develop the
Government
Securities market
Develop the Market for longer term maturity
and index linked bonds so that opportunities
for investment for pension funds are
increased.
CPAD, Accountant
General’s Office
and Bank of
Tanzania
(Domestic Market
Development
office).
Medium term
Recommendation 4:
Reform the investment
guidelines
Government should consider removing
restriction to invest abroad so that pension
funds can invest in more secure long term
securities.
Ministry of Finance
and Bank of
Tanzania.
Medium term
Recommendation 5:
Resolving PSPF
arrears
An action plan to be developed to resolve the
arrears owed to PSPF
Ministry of
Finance, SSRA
and PSPF
Short/Medium
term
PPP Guarantees
Recommendation 1:
functions to be clearly
defined for PPP
related public finance
and risk
Estimation/calculation of Public finance
needs and fiscal risk sharing arrangements.
Prime Minister’s
Office- PPP Centre
and MoF.
Short term
Recommendation 2:
Clear Terms of
Reference of PPP
finance in terms of
institutional
responsibilities
The role of Finance staff in assessing and
evaluating PPP finance related matters.
Prime Minister’s
Office- PPP Centre
and MoF.
Short term
Recommendation 3:
Strengthen
Institutional capacity
for PPP finance
Both theoretical and practical on-the-job
training will be required to strengthen
capacity in overall functions-identification,
assessment, monitoring, managing and
reporting – of PPP.
Contracting
authorities, Parent
ministries, PPP
Centre, Ministry of
Finance.
Short to
Medium term
Litigation and Other Credit Risks
Recommendation 1:
improvement in
access to data and
default calculation
Especially in the area of litigation cases and
probability of winning/losing
CPAD, AccGen
and AG’s Office
Medium term
Tanzania - Contingent Liabilities Study Nov. 2014
Page 11
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
Recommendation 2:
Strengthening data
collection and credit
risk analysis
Strengthening data management on both
sides – Lender/Government and
Government/final borrower
CPAD, AccGen,
TR and borrowing
agencies
Short to
Medium term
Recommendation 3:
improvement in on-
lending agreements
TA found that on-lending agreements were
not prepared or signed. This needs to be
strengthening with clear terms and conditions
CPAD, AccGen,
Final borrower
Medium term
Recommendation 4:
Collection of data and
analysis of other
explicit and implicit
liabilities
Further expansion in terms of comprehensive
coverage
CPAD Medium term
Recommendation 5:
Reporting and
disclosure of these
contingent liabilities
Reporting and disclosure on Fiscal risk
implications and meeting accounting
standards
CPAD,AccGen Medium term,
preferably for
2015 budget
Debt Sustainability with Contingent Liabilities
Recommendation 1:
Preparation of a
Comprehensive DSA
Ensure that the DSA is carried out taking in
to consideration the value of contingent
liabilities measured as accurately and
comprehensively as possible.
CPAD, other
departments of
MoF, BoT,
Statistics etc
Medium term
Recommendation 2:
improvement of data
base on contingent
liabilities
Data collection, coordination of information
flow and identification should be improved
CPAD, AccGen
and other related
information
providers
Medium term
Legislative Framework for Guarantees
Loans Grants and Guarantees Act (1994, revised 2003)
Recommendation 1 Section 13 only covers loan guarantees
whereas it should cover all guarantees.
MoF and Attorney
General’s Office
Short term
Recommendation 2 Section 13 A, under (b), guarantee limit is
stipulated as 70 per cent, while when all
other guarantees are included the maximum
is 85 per cent. Also though there is a need to
mention the limit, it is not important to
mention a figure such as 70 per cent. The
figure for the limit can be mentioned in the
regulations and respective policy guidelines.
MoF and Attorney
General’s Office
Short term
Recommendation 3 In general the regulations contain some
sections on the guarantee process which
clearly should be in policy guidelines or
procedures. It is recommended that these
sections are reviewed and clear distinction is
made between what should be in the
regulations and what should be in policy
guidelines.
MoF Short/medium
term
Recommendation 4 A guarantee application must be
accompanied by a minimum set of financial
MoF Medium term
Tanzania - Contingent Liabilities Study Nov. 2014
Page 12
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
performance in the recent past and the
organisational structure of the applying
enterprise. It is advised that a proper credit
scoring model is developed (i.e. South Africa)
and applied based on various financial
performance indicators. This will enable to
assess the repayment capacity of the
applicant. This method can also be used to
assess `on-lent’ borrowers.
Recommendation 5 Though Part II, under foreign loans, cover
some aspects of how foreign loans should be
raised and lent to public corporations and
other agencies, it does not clearly define the
whole procedure for `on-lent’ loans. The Act
should include a section that clearly covers `
On-lending’ to public corporations and local
authorities. The two categories namely on-
lent loans that are repaid via the budget and
repaid by the agency via its own funding
sources must be clearly expressed.
MoF Short term
Recommendation 6 It is important that in all cases the subsidiary
agreement (between the Government and
the final borrower) is prepared.
MoF Short term
Recommendation 7 The Government may wish to consider
issues relating to guarantee fee, recourse
action for defaults, etc. The best practices
demands that these are stipulated to improve
credibility of the borrower and encounter
defaults.
MoF and Attorney
General’s Office
Short term
Recommendation 8 A section called `Reporting to Parliament’ be
included in the revised Loans, Guarantees
and Grants Act.
MoF and Attorney
General’s Office
Recommendation 9 The sustainable debt limit (i.e. gross or net
debt of GDP) should be ideally included in
this Act. If not it should be included in GLGG
Act. It should clearly define whether
guarantees are included in the total debt limit
or not.
MoF Short term
Recommendation 10 More detailed coverage of contingent
liabilities should be included. It is also
recommended that when reporting a detailed
list of contingent liabilities the regulations
should clearly stipulate that liabilities other
than loans and credit guarantees should be
included since guarantees are already
covered under Loans, Guarantees and
Grants Act.
MoF Short/medium
term
Additions to the Public Finance Act (2001 and Revised 2004) and Regulations (2001)
Tanzania - Contingent Liabilities Study Nov. 2014
Page 13
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
Recommendation 11 Should include article highlighting pricing or
tariff setting and referring to EWURA.
EWURA Short/ medium
term
Additions to Pensions
Act (fragmented acts
at present)several at
the moment)
Recommendation 12 Reforms to unify and harmonise pension acts
for ensuring pensions benefit guarantees
SSRA Short term
Additions to PPP Act
(2010) and PPP
Regulations (2010)
and Special
Supplement Bill
(2014)
Recommendation 13 Clarification on institutional responsibilities
and functions in PPP public financing and
fiscal risk allocations.
MoF and Prime
Minister’s
Office(PPP Centre)
Short term
Recommendation 14 In the Act, what types of financing modalities
are permitted should be stipulated. A brief
description of the various risks to be shared
between private and public sectors should be
included.
MoF and Prime
Minister’s
Office(PPP Centre)
Short term
Recommendation 15 In the Regulation, details of risks should be
included.
MoF and Prime
Minister’s
Office(PPP Centre)
Short term
Disclosure and Reporting
Recommendation 1:
Individual loan
guarantee and on-lent
loan with credit risk
Details of each loan guarantee, credit
guarantee and on-lent loan (with credit risk).
Proposed table format 9.2.1 a.
MoF (Budget, Debt
and Acc Gen)
Short term
Recommendation 2:
Aggregate statement
of Current and
previous year on
contingent liabilities
Disclosure /reporting of aggregate amounts
of previous and current year of major
categories of contingent liabilities 9.2.1 b.
MoF (Budget, Debt
and AccGen)
Short term
Recommendation 3:
Aggregate fiscal risk
statement
Fiscal risk due to contingent liabilities for the
forthcoming year. Exposure and probable
outcome. an attachment to the national
budget.
MoF (Budget and
Debt)
Short term
Recommendation 4:
The Government
should fully adapt to
the requirements of
IPSAS 19 when
disclosing contingent
liabilities.
The disclosed information in financial
statements is expected to be meaningful
enough to provide information for assessing
potential fiscal impact of contingent liabilities,
information should be presented to explain
the government’s policy and rationale in
support of contingent liabilities, and
information should disclose stock of
MoF (AccGen) Medium term
Tanzania - Contingent Liabilities Study Nov. 2014
Page 14
Recommendations Comments Responsible
institutions/
agencies
Short
term/Medium
term
contingent liabilities in comparable years.
Recommendation 5:
Treasury Registrar
should ensure
comprehensive
disclosure of
Contingent liabilities
for PAOBs
TR should monitor disclosure of contingent
liabilities by PAOBs by requiring full
compliance of IPSAS 19 or ISA 37 as the
case may be for all organisations under its
mandate.
MoF (TR) Short term
Recommendation 6:
AGC should compile
annually all litigations
for disclosure
purposes and share it
with Accountant
Generals Office
The AGC develop a computer database to
keep all litigations that face the GoT and
which might crystallise into liabilities. There
should be a specific requirement that such
information is submitted to Accountant
General annually.
Attorney General’s
Office and MoF
(AccGen)
Short to
medium term
Institutional Arrangements for Managing Contingent Liabilities
Recommendation 1:
Interim structure with
responsibilities
A small functional unit with 2 staff, one from
CPAD and other from AccGen (50 % of the
work time).
CPAD and AccGen
of MoF
Short term
Recommendation 2:
set up a clear
institutional structure
To monitor and manage contingent liabilities.
Clear Terms of Reference, responsibilities
and functions.
Contingent
Liabilities Unit to
established in the
MoF
Medium term
Recommendation 3:
Strengthening
capacity and skills
Recruit the appropriate staff, provide relevant
training.
Contingent
Liabilities Unit to
established in the
MoF
Medium term
Tanzania - Contingent Liabilities Study Nov. 2014
Page 15
1 Introduction and Scope of the Contingent Liabilities Study
1.1 Overview
1.1.1 Contingent liabilities of the Government are liabilities that result in most cases from various
types of guarantees offered by the Government and in some cases by abnormal events such as
borrowing to resolve financial crises or natural disasters. Guarantees form the major part of
contingent liabilities and the Government is legally obliged to repay the lender when the borrower
defaults or cannot repay the whole amount. There are also cases where Government has a moral
obligation to address unexpected events such as financial crisis or helping disaster affected lives
and physical assets. Some of these events are also due to adverse external factors beyond the
control of the Government or due to poor economic and financial management.
1.1.2 Though it appears that Government faces high spending and borrowing when contingent
liabilities are realised, Governments can also benefit from guaranteeing borrowers. If guarantees
are properly formulated, monitored and risks well managed, Governments can play a role in
facilitating private sector participation in sectors that traditionally belonged to the public sector.
Private sector is encouraged when i) there is a shortage of public funds, ii) efficiency gains can be
made via application of new technology. On the other hand Government has to balance this with
potential market failures and externalities. In general, evidence suggests that the Government can
derive many benefits by offering guarantees, some of which are as follows:
Public enterprises can obtain a lower cost financing if guarantees are provided;
Promote private financing in infrastructure via public private partnership (PPP) arrangements by
offering minimum revenue guarantee;
Reduce government risk exposure by passing commercial risk to the private sector;
Encourage co-financing, risk sharing and cost reduction.
1.1.3 Managing the budget prudently, efficiently and effectively is a very important task for fiscal
authorities in a country. There are several risks that can cause marked differences between actual
and expected fiscal outcomes. In this regard, one of the main fiscal risks is in identifying and
managing contingent liabilities. If contingent liabilities are realised then Governments may have to
borrow significant amounts to fulfil the obligations due and this can subsequently lead to an
unsustainable debt position and damage future borrowing possibilities.
A typical representation of explicit and implicit contingent liabilities are given in table 1.1
Table 1.1 Contingent Liabilities
Contingent
Explicit (by
Contractual law)
One-off guarantee- loans to Public Enterprises, private sector and Sub national
governments;
Standardised guarantees-Credit guarantee schemes, student loans, mortgages
Exchange rate guarantees;
Minimum Revenue Guarantee;
Pension obligations and contributions.
Implicit (by Moral
Obligation)
Bank – bad loans;
Deposit protection;
Clean –up of liabilities Public enterprise divestiture including debt assumptions; and
Disaster recovery payments.
Source: Government at Risk, World Bank Publication, 2002.
Tanzania - Contingent Liabilities Study Nov. 2014
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1.1.4 In Tanzania, over time, the amount of guarantees requested and issued have been
increasing, creating a potential risk to the Government budget and threatening fiscal sustainability.
In some cases, Government guarantees issued amount to direct borrowing by the Government to
bridge financing gaps to public institutions in development budgets. In addition, the Government
has been borrowing funds and lending them to public institutions, and in some of these cases the
loans are not being serviced by the final borrower. In addition to typical loan guarantees by
Government, there are other forms of guarantees and unexpected take-over of liabilities by the
Government. Examples of these are; the Bank of Tanzania (under an agency agreement with
Government) issues guarantees for two schemes, namely, the Small and Medium Enterprises
Credit Guarantee Scheme Export Credit Guarantee Scheme1. The Government also has the
responsibility to guarantee employee benefits in Pensions and social security schemes, liability take
over under privatisation, proper risk sharing under PPP arrangements, settling litigations and
disputes.
1.1.5 The Ministry of Finance conducted an in-house study on contingent liabilities with the overall
objective of evaluating the impact of contingent liabilities to the government’s budget, public debt
portfolio and fiscal risks associated with contingent liabilities. It proposed strategies to address
government guarantees and on-lent loans in order to minimize risk exposure. It estimated the total
contingent liabilities (as end June 2012), to be TZS 7.008 bn, in which the main contributors were;
Claims by Social Security Funds (TZS 4.13 bn), Guarantees to MDAs (TZS 1.78 bn), on-Lent loans
(TZS 664 mln) and Government guarantees to Public Corporations and Government Institutions
(TZS 418 mln).
1.1.6 The key recommendations of the study included, among others, that i) the issuance of
government guarantees to MDAs be permanently suspended and ii) the quantified actual liabilities,
together with verified debt from transformation of provident funds to pension funds, which has
immediate implication to the government’s fiscal policy, to be restructured into long term maturities
and acknowledged through Consolidated Financial Statement (CFS).
1.2 ToR for the Contingent liabilities study
To study this subject in more detail, the Government has embarked on a Technical Assistance
project with financial support from the European Union. This study was proposed by the Policy
Analysis Division of the Ministry of Finance of Tanzania and the Bank of Tanzania to the PER
Group. The activities and outputs of the study are set in the Terms of Reference (ToR):
i. Analyse and quantify the consequences (both magnitude and impact on debt) of
contingent liabilities; to do this, the assessment of contingent liabilities related to pensions
(to be performed under the separate study carried by the World Bank) will have to be
aggregated in this analysis;
ii. Identify success stories within the region in managing contingent liabilities;
iii. Identify the type, institutions and magnitude of contingent liabilities as well as government
on-lent loans given to Local Government Authorities (LGAs) and Parastatal Organizations
over the last ten years;
iv. Identify expected sources of future contingent liabilities, including the risk from PPPs;
v. Assess the efficiency of record keeping of contingent liabilities by the government;
vi. Examine the impact of an implicit contingent liability to the fiscal risk and debt
sustainability;
1 The SME Scheme became non- operational in 2008.
Tanzania - Contingent Liabilities Study Nov. 2014
Page 17
vii. Analyse and advise on the best practice related to the disclosure of contingent liabilities in
the consolidated financial statement based on the International Public Sector Accounting
Standards (IPSAS);
viii. Assess and make recommendations on non-performing guarantees from SMEs Guarantee
Schemes, Export Credit Guarantee Scheme and guarantees to parastatal organizations,
individuals and private companies;
ix. Identify causes of defaults of Government guaranteed liabilities;
x. Assess the adequacy of existing legal and regulatory frameworks in management of
contingent liabilities;
xi. Assess the level of compliance to existing legal and regulatory frameworks in
management of contingent liabilities and enforcement mechanism;
xii. Take stock of government’s efforts in reducing contingent liabilities and advise the
government on; what worked, what didn’t work and why?
xiii. Come up with the sustainable2
level of contingent liabilities given the state of the economy
and devise a contingent liabilities assessment management framework; and
xiv. Make recommendations on how to manage contingent liabilities and reduce risk exposure
relating to defaulting. Recommendations should be specific to each type of contingent
liability and spell out possible needed changes to the legal and regulatory frameworks
and/or administrative practices to avoid risk exposure.
The ToR can be simplified to represent five broad areas as illustrated in the diagram below.
Figure 1.1 Terms of Reference diagram
Stock of Contingent Liabilities and analysis: This will address the ToR items; (i), (ii), (iii), (iv), (v),
(viii), (ix);
Sustainable Level of Contingent Liabilities: This will address the ToR item (vi);
Legislative Framework: This will address the ToR items (x) and (xi);
Disclosure and Reporting standards: This will address ToR item (vii);
Overall recommendations: This will address ToR items (xi), (xii), (xiii) and (xiv) taking all the
above.
2 During the inception report meeting (9
th July 2014), it was decided that optimal level should be replaced by sustainable
level.
Contingent liabilities
(ToR)
Stock of contingent
liabilities
Legislative
framework
Sustainable level of
contingent liabilities
(ToR)
Disclosure and
reporting standards
Recommendations
Tanzania - Contingent Liabilities Study Nov. 2014
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1.3 Distinction between Liabilities and Contingent Liabilities
1.3.1 For the sake of clarity, it is very important at this stage to distinguish between liabilities and
contingent liabilities. In our view, it is essential that a proper classification is adopted and conforms
to accepted standards. We propose that the classifications and definitions described in the recently
published Public Sector Debt Statistics by the IMF in 2011 be followed. In addition to the IMF, many
other recognised institutions such as the Bank for International Settlements, OECD, World Bank,
European Investment Bank, Eurostat, Commonwealth Secretariat, UN Conference on Trade and
Development have contributed to the preparation of this document and therefore being
acknowledged as a guide for proper compilation of public sector debt statistics. The diagram below
shows the various items that fall in to the categories of liabilities and contingent liabilities.
Tanzania - Contingent Liabilities Study Nov. 2014
Figure 1.2 Liabilities and Contingent Liabilities
Liabilities Contingent Liabilities
Explicit Contingent Liabilities
Implicit Contingent Liabilities
Net Obligations for future social security benefits
Other implicit contingent liabilities
GuaranteesOther Explicit
Contingent Liabilities
Guarantees in the form of financial
derivatives
One-Off Guarantees
Other One-Off Guarantees
Loan and other debt instrument
guarantees (publicly
guaranteed)
Other:• Special Drawing Rights (SDRs)• Currency and Deposits• Debt Securities• Loans • Nonlife insurance technical
reserves• Life Insurance and annuities
entitlements • Pension entitlements, claims, of
pension funs on sponsors, and entitlements to non pension funds
• Equity and investment fund shares• Other financial derivatives and
employee stock options
Provision for calls under standardized guarantee schemes
Tanzania - Contingent Liabilities Study Nov. 2014
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1.3.2 Liabilities can be classified as either `direct’ or `contingent. It is easy to identify a repayment of a direct
liability with certainty. In the case of contingent liabilities, the default can take place with a probability range
between 0 per cent and 100 per cent. Therefore, guarantors are only called to repay if the final borrower defaults
and therefore can be regarded to have as uncertain repayment schedule. However, if a reliable probability of
default can be estimated, then that item of contingent liability can be considered as a debt liability.
1.3.3 The TA has looked at the items that have been categorised within contingent liabilities in the Evaluation
report (page 13, Table 1). A number of queries remain that needs to be clarified. The table below shows the
various items identified as contingent liabilities in the Evaluation report and the queries.
Table 1.2 Contingent Liabilities – Items and Level of importance
Contingent Liabilities-
Category of important
items in Tanzania
Definitions Remarks
Items covered
1 One–Off guarantees
Government guarantees
issued to Ministries,
Ministerial Departments
and Agencies (MDAs);
Commitments of the Government to repay the
lender when final borrower defaults or there are
shortfalls in repayment.
It is only a contingent liability if the final
borrower has to repay from its own
income.
If guarantees are offered to the
Lender/Creditor but finally paid off from
the budget, then this is a debt liability
and not a contingent liability.
There are also cases where,
contractors carrying out services for
PAOBs who may require assurances
for payments. These can be classified
as letters of comfort and not strictly
legal obligations.
Government guarantees
issued to Local
Government Authorities
(LGAs);
As Above As above
Government guarantees
issued to Public
Corporations and
Government Agencies.
As above As above
2 Standardised guarantees:
1. Export Credit
Guarantee guarantees;
2. Small and Medium
Enterprises guarantee
Offered to private sector
start-ups.
Guarantees issued to private Companies through
export Credit Guarantee Schemes. Credit offered
by commercial banks with guarantee offered by the
Bank of Tanzania on behalf of the Government.
Loans offered by the commercial bank, guarantee
offered by the BoT on behalf of the Government.
Tanzania - Contingent Liabilities Study Nov. 2014
Page 21
Contingent Liabilities-
Category of important
items in Tanzania
Definitions Remarks
3. Higher Education Loan
guarantee scheme.
The scheme operated by Higher Education Loans
Board offering loans to students to be repaid when
borrowers are employed. The initial lump sum
loans to operate the scheme comes from Pension
Funds and other financial institutions.
3 Litigations These are court cases pending to be adjudicated
for compensation payments by the Government or
Public corporations.
These could be land ownership/resettlement
disputes, labour disputes, un paid supplier arrears,
liability valuation disputes etc.
These will fall under cases where there
is a probability between either parties
winning a case.
4 Pension guarantees Unfunded part of Pension guarantees under the
defined benefit schemes.
A distinction has to be made between
actuarial valuation deficit, cash flow
deficit and arrears.
5 Public Private Partnership
guarantees
Typically, private sector brings in finance with
Government providing certain guarantees such as
Minimum Revenue guarantee.
In Tanzania proper PPP arrangements
have not commenced though some of
PPP have been introduced. Also in
PPP financing, Government may have
to invest some funds as public
financing.
6 On lent loans by
Government to its
institutions;
This does not come under contingent liabilities.
However, some cases (where the final borrower
has to repay the Government out of its own
revenues/income then there is a credit risk.
Not contingent liability but a credit risk.
Items not Covered
1 Uncalled share capital External example is contribution to international
financial institutions. Domestic example share
ownership but unpaid amount of public
corporations.
2 Indemnities Commitment to identify and value.
3 Financial derivative-
Credit Default Swap
Especially applicable when issuing international
sovereign bonds.
May be applicable in the future.
4 Liability assumptions Takeover/debt assumption under
divestiture/privatisation. May include arrears.
1.4 Comparison with the Contingent Liability items selected under National Contingent
Liabilities study
Table 1.3 Comparison with the Contingent Liability items selected under National Contingent Liabilities study
Source of Contingent Liabilities Comments /Remarks
1 Government guarantees issued to Ministries,
Ministerial Departments and Agencies (MDAs)*;
Some are comfort letters to contractors, others are
guarantee letters and therefore contingent liabilities.
2 Government guarantees issued to Local Government
Authorities (LGAs);
As Above
Tanzania - Contingent Liabilities Study Nov. 2014
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Source of Contingent Liabilities Comments /Remarks
3 Government guarantees issued to Public Corporations
and Government Institutions;
Many are one-off guarantees and can be classified as
contingent liabilities.
4 Government guarantees issued to private Companies
through Credit Guarantee Schemes managed by the
Bank of Tanzania;
These are standardised guarantees that can be classified
under contingent liabilities.
5 On lent loans by Government to its institutions; These are not strictly contingent liabilities. However, the on
–lent loans to institutions that has to make repayments out
of their own revenue do pose credit risks.
6 Government Issuance of Letters of Consent and No
objection to borrow; and
Not strictly explicit contingent liabilities, but may turn out to
be implicit and if there is default, Government may have to
bail out.
7 Claims by Social Security funds. Those that are unfunded and have financing needs to pay
pensions contributions, arrears and other social security
payments
*Note; Loans to MDA’s are usually paid via the budget and not considered as guarantees, though some letters of comfort would have been given
to contractors. TA was unable to clarify this.
1.5 Scope and Coverage
1.5.1 This TA will focus on the following:
1. One off Loan guarantees:
a. typical loan guarantees to public enterprises and other government entities.
2. Standardised guarantees:
a. Export credit guarantees;
b. SME guarantees;
c. Student loan guarantees.
3. Guarantees Issued Under PPP Arrangement:
a. Minimum Revenue guarantee;
b. Bulk Concession guarantees.
4. Guarantees under Pensions and Social Security Schemes:
a. Typical minimum pension income guarantees and potential shortfalls under defined benefit schemes.
5. Other Contingent liabilities and Credit Risk related liabilities:
a. Litigation cases arising from some form of guarantees;
b. On-lent loans (credit risk);
c. Liabilities take over under impending privatisation/divestiture.
1.5.2 The report addresses the above mentioned topics in the following sections and these form the major part of
the TA study. This is followed by the impact of identifiable and quantifiable contingent liabilities on public sector
debt sustainability. The last two sections deals with i) legislative framework and ii) disclosure and reporting
standards for contingent liabilities.
1.5.3 The Report contains ten sections. At the end of each of the sections from 2 to 10, a summary of
recommendations is presented. Following this introductory section, the next covers one-off guarantees. Section 3
covers standardised guarantees followed by pensions on section 4. As PPP arrangements are gaining
importance, especially physical infrastructure and utilities development, an introduction to PPP and its financing
and risk sharing issues are covered in section 5. Section 6 covers litigations, on-lending and mentions all the
other potential contingent liabilities. The importance of debt sustainability taking in account the contingent
liabilities and the legal framework are discussed in sections 7 and 8. This is followed by disclosure and reporting
Tanzania - Contingent Liabilities Study Nov. 2014
Page 23
which mainly covers fiscal risk due to contingent liabilities and accounting treatment of contingent liabilities.
Finally, section 10 proposes an institutional structure and responsibilities to carry out monitoring and managing
contingent liabilities in Tanzania.
Tanzania - Contingent Liabilities Study Nov. 2014
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2 One-off Loan Guarantees
2.1 Definition and Coverage:
2.1.1 One-off guarantees can be defined as `Commitments of the Government to repay the lender when final
borrower defaults or there are shortfalls in repayment’. Since such guarantees are offered regularly to a Public
Corporation or any other entity by the Government it is difficult to estimate the likelihood of default.
2.1.2 The main receivers of guarantees are the major public corporations. The lenders and creditors request the
borrowers to obtain the guarantee from the Government so that credit risk as a result of default is minimised. At
present the maximum guarantee according to the Loans Guarantees and Grants Act (1974, revised 2004) is 70
per cent.
Figure 2.1: Application Process for Loan Guarantees
Tanzania - Contingent Liabilities Study Nov. 2014
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2.2 Aggregate Trends and Stocks:
2.2.1 The Treasury Registrar is responsible in maintaining records and the statuses of government guarantees
offered to all PAOBs and also disclose this information to the public at large.
Table 2.1 Outstanding one-off guarantees to public corporations
Public Corporations June 2010 June 2011 June 2012 June 2013
Outstanding Guarantees
(TSH bn)
383.77 367.24 377.1 274.5
Source: Treasury Registrar Statements.
The TA felt that the data provided by the Treasury Registrar on guarantees has to be verified for accurate
reporting and consistency. The TA has used this data as well as several other sources to estimate an
overall figure for one-off guarantees given in section 2.6. The estimated figure by the TA is far above the
figure quoted in the Treasury Registrar’s database.
2.3 Case studies:
2.3.1 Visits were made to a number of selected enterprises and institutions to gather information on loan
guarantees, the status of repayment, new expansion plans and financing modalities. The selections of these
entities were based on:
All stakeholder discussions;
The value of existing guarantees and on lending; and
Significant role played (supervisory or regulatory) in guarantees or loans given.
The following entities were therefore visited:
Tanesco - Tanzania Electric Supply Company Ltd;
TPA - Tanzania Port Authority;
Tazara - Tanzania Zambia Railway;
TRL - Tanzania Railways Limited;
RAHCO –Reli Assets Holding Company;
Dawasco - Dar es Salaam Water and Sewerage Corporation;
Dawasa - Dar es Salaam Water and Sewerage Authority;
NHC - National Housing Corporation;
TTCL - Tanzania Telecommunications Company Limited;
ATCL - Air Tanzania Company Ltd; and
TAA - Tanzania Airports Authority;
EWURA – Energy and Water Utilities Regulatory Authorities.
2.3.2 Methodology
These corporations were selected after reviewing the data given by Treasury Registrar. These entities have
taken loans under a guarantee provided by the Government. The purpose of this specified area of study is to
understand what factors enable some corporations to easily pay off the loan and while others find it difficult to
repay and default on their obligations.
Two sets of questionnaires were sent in advance before interviews are held. Table below shows the variables
and indicators under each factor.
Tanzania - Contingent Liabilities Study Nov. 2014
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Table 2.2 Types of factors and financial performance
Factors Past 5-10 years data
Financial Capital structure, Balance sheet, profit and loss account, liquidity, financial
performance ratios
Economic Demand and price variables
Technological Application of modern technology, quality, capital output ratios,
Organisational Management structure, Political interference, skill to non-skilled ratio, unbundling
Legal/regulatory Price determination, minimum quantity
The second set of questionnaire will be on the specific loan features, terms and conditions and status (prompt
payments, guarantees under negotiation, guarantees defaulted, under litigation etc.). Questions will be also
asked about any identified plans for the future such as debt restructuring, arrears clearance,
divestiture/privatisation and liability take-over by Government. These have been prepared and sent to the
selected public corporations and other agencies.
Table 2.3 Specific features of existing guaranteed and on-lending loans
Sector
Project and purpose
Creditor
Borrower/Beneficiary
Guarantee or On- lending
Guarantee Agency/On-lending Agency
Type of Guarantee
Contracted date
Original Amount
Original & Remaining Maturity
Loan –currency of repayments
Interest rate
Balance outstanding
Probability of default Assessment
The other questionnaires to the Banks and funding agencies are given in Appendix 2.
2.4 Energy Sector
2.4.1 TANESCO
Tanzania National Electricity Supply Cooperation is totally owned by the Government. It is responsible for
generation, transmission and distribution of electricity throughout the country. It’s borrowing to finance these
activities is obtained from several sources. At end June 2013, its borrowing portfolio that was guaranteed by the
Government stood as follows.
Tanzania - Contingent Liabilities Study Nov. 2014
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Table 2.4
Source Amount (TSh bn)
Outstanding
Type/ Guaranteed Status
Banks and Pension Funds 206.55 Syndicated Loan serviced
Banks and Pension Funds 135.55 Syndicated Loan serviced
Banks and Pension Funds 54.09 Syndicated loan serviced
CRDB 36.3 Short term credit/guarantee serviced
Source: Tanesco, 2013 report.
Tanesco is repaying its syndicated (a mix of creditors mainly pension funds and banks) loans and short term loan
from CRDB promptly, but defaulting on all its other loans including loans borrowed directly from a single lender
such as a pension fund. However, the Government is repaying all the on-lent loans, many of them are from
external creditors. Therefore there are no defaults to the external creditor. Tanesco claimed that the existing tariff
structure was not adequate to maintain the company in a healthy situation. More tariff increases were required to
reflect the improvements made in the generation and supply of electricity.
2.4.2 However, EWURA, the regulatory authority that is responsible for all regulatory related matters including
tariff setting for electricity and water sectors has informed the TA that large increases were made in recent times
and any financial loss made by Tanesco can be attributed to operational inefficiencies. EWURA also mentioned
that current tariff for Dar es Salaam water services were justified and if non-revenue water losses (55%) can be
reduced to the maximum recommended of 20% then DAWASCO can improve its performance.
2.5 Loans Offered by Pension Funds under Guarantee
2.5.1 The pension funds in Tanzania also face a specific challenge through their high exposure to loans financing
government projects. As stated in the investment guidelines (2012), Pension funds are allowed to invest (limit of
10 per cent) in corporations. However, in the past loans offered to public corporations has had a government
guarantee. Many of the direct loans offered by the pension funds have not been repaid on time. A revised
repayment plan is currently being negotiated with the government, and the Bank of Tanzania has instructed the
funds not to take on any new loans until the 10% limit in the investment guidelines has been met.
The table below shows the guaranteed loan details of the respective pension funds.
Table 2.5 Guaranteed loan details of the respective pension funds
Creditor Borrower Loan Type Terms and Maturity Stock outstanding
(000’ TSh)
Status
PPF 31 December 2013
PPF1 Kagera Sugar
Company
GoT
guaranteed
loan
Interest rate 3.5% +
182TBs, maturity
2020
6,879,316.5 The loan is being
serviced
PPF2 Pension Properties GoT
guaranteed
loan
Interest 15%,
maturity 2017
5,331,814.4 Not serviced
PPF3 21st Century Textile
Company
GoT
guaranteed
loan
Interest 12%,
maturity 2017
3,333,333.4 The loan is being
serviced
PPF4 University of
Dodoma (MoF)
GoT
guaranteed
Interest 15%,
maturity date not
94,285,394.1 Not serviced
Tanzania - Contingent Liabilities Study Nov. 2014
Page 29
Creditor Borrower Loan Type Terms and Maturity Stock outstanding
(000’ TSh)
Status
loan stated
PPF5 Tanesco GoT
guaranteed
loan
Interest not stated,
maturity date 2020
15,000,000.0 Not serviced
PPF6 Nelson Mandela
University
GoT
guaranteed
loan
Interest rate 15%,
maturity 2022
8,540,684.2 Not serviced
PPF7 GOT Syndicated
loan,
guaranteed
Interest rate 4.7% +
3months LIBOR,
maturity 2018
8,487,247.2 The loan is being
serviced
PPF8 NIDA GoT
guaranteed
loan
Interest rate 13.8,
maturity 2019
5,000,000.0 Not serviced
LAPF 30 June 2014
LAPF1 Homboro Project
(PMO RALG),
Local Governement
Training Insitute –
PMO-RALG
GoT loans Interest rate 15%,
Maturity 2022
51,491,280.5 Not serviced
LAPF2 GoT Budget Support
Project
GoT loans Interest 4.5%+
3Months LIBOR,
maturity 2018
13,676,871.1 Loan being
serviced
LAPF3 Pension Properties
– Bunge Project
GoT
guaranteed
loans
Interest 12.95%,
maturity 2017
3,301,291.3 Not serviced
LAPF4 Pension Properties
– Nelson Mandela
University
GoT
guaranteed
loans
Interest 15%,
maturity 2022
5,507,65.2 Not serviced
LAPF5 University of
Dodoma (MoF)
GoT
guaranteed
loans
Interest 15%,
maturity 2021
30,983,033.8 Not serviced
LAPF6 MoF Back purchase Interest rate 11.08%,
maturity 2021
75,966,971.0 Not serviced
LAPF 7 National Housing
Corporation
Mortgage Interest rate 15.8%,
maturity 2014
15,871,859.9 Loan is being
serviced
LAPF 8 TANESCO GoT
guaranteed
loans
Interest 4.5% +
T/Bills, maturity 2019
6,987,568.9 Loan is being
serviced
PSPF 30 June 2014
PSPF1 Higher Education
Students Loans
Board
GoT
guaranteed
loan
Interest 15%,
maturity 2008
165,891,720.5 Not serviced
PSPF2 Police Force GoT
guaranteed
loan
Interest 15%,
maturity 2020
21,708,940.7 Not serviced
PSPF3 TISS GoT Interest 15%, 23,872,387.4 Not serviced
Tanzania - Contingent Liabilities Study Nov. 2014
Page 30
Creditor Borrower Loan Type Terms and Maturity Stock outstanding
(000’ TSh)
Status
guaranteed
loan
maturity 2014
PSPF4 University of
Dodoma (MoF)
GoT
guaranteed
loan
Interest 15%,
maturity 2018
215,500,035.5 Not serviced
PSPF5 PCCB GoT
guaranteed
loan
Interest rate 11%,
maturity 2017
10,095,188.0 Not serviced
PSPF6 Pension Properties
– Bunge Project
GoT
guaranteed
loan
Interest rate 12.94%,
maturity N/A
8,982,047.7 Not serviced
PSPF7 Pension Properties
Ltd- Nelson
Mandela University
GoT
guaranteed
loan
Interest rate 15%,
maturity 2020
14,944,848.9 Not serviced
PSPF8 Kagera Sugar
Company Ltd
GoT
guaranteed
loan
Interest rate 10%,
maturity 2011
9,150,711.6 The loan is being
serviced
PSPF9 21st Century Textile
Company
GoT
guaranteed
loan
Interest rate 11%,
maturity 2016
6,000,000.0 The loan is being
serviced
PSPF10 Tanesco GoT
guaranteed
loan
Interest rate 0.5%
to2% + 182 T/bills,
maturity 2016
4,000,000.0 The loan is being
serviced
NSSF 30 June 2013
NSSF1 University of
Dodoma
GoT
guaranteed
loan
N/A3 441,332,202.0 Not serviced
NSSF2 Tanzania Peoples
Defence Force –
factory
GoT
guaranteed
loan
Interest 15% 54,697,142.9 Not serviced
NSSF3 Tanzania Peoples
Defence Force –
house loan
GoT
guaranteed
loan
N/A 23,805,920,5 The loan is being
serviced
NSSF4 Police Force –
M/Vehicles /Cycles
GoT
guaranteed
loan
N/A 7,842,252.4 Not serviced
NSSF5 Tanzania Police
Force – staff houses
GoT
guaranteed
loan
N/A 36,506,625.9 Not serviced
NSSF6 Government Loan –
house loan
GoT
guaranteed
loan
N/A 461,288.3
The loan is being
serviced
NSSF7 Tanesco GoT
guaranteed
loan
N/A 14,000,000.0 The loan is being
serviced
3 Not Availed. Specific information on the issue was not made available within the timeframe of the assignment.
Tanzania - Contingent Liabilities Study Nov. 2014
Page 31
Creditor Borrower Loan Type Terms and Maturity Stock outstanding
(000’ TSh)
Status
NSSF8 Pension Properties
Ltd- Nelson
Mandela University
GoT
guaranteed
loan
Interest rate 15%,
maturity 2020
18,888,481.4 Not serviced
NSSF9 Pension Properties
– Bunge Project
GoT
guaranteed
loan
Interest rate 12.94%,
maturity N/A
7,051,038.8 Not serviced
NSSF10 PCCB GoT
guaranteed
loan
Interest rate 11%,
maturity 2017
7,612,453.7 Not serviced
NSSF11 GoT infrastructure
loan
GoT loan
($15million)
N/A 23,700,000.0 Not serviced
NSSF12 General Tyre GoT
guaranteed
loan
($16,638,179)
N/A 26,288,323.0 Not serviced
NSSF13 Continental Venture
Tanzania
GoT
guaranteed
loan
($6,395,810)
N/A 10,105,379.8 Not serviced
NSSF14 Dar City Council –
Machinga Complex
GoT
guaranteed
loan
N/A 27,318,780.9 Not serviced
NSSF15 Kagera Sugar
Company Ltd
GoT
guaranteed
loan
N/A 9,919,882.4 The loan is being
serviced
NSSF16 21st Century Textile
Ltd
GoT
guaranteed
loan
N/A 8,666,666.7 The loan is being
serviced
NSSF17 NBAA GoT
guaranteed
loan
N/A 15,000,000.0 The loan is being
serviced
GEPF 30th
June 2013
GEPF1 Tanesco Loan GoT
guaranteed
loan
Interest rate 0.5%
to2% + 182 T/bills,
maturity 2016
1,667,094.0 The loan is being
serviced
GEPF2 Ministry of Finance Direct Loan to
Government
N/A 10,233,409.0 Not serviced
Source: NSSF, PSPF, LAPF, PPF, GEPF.
The following table shows the total loans outstanding for each pension fund and the default rate.
Table 2.6 Loans outstanding for each pension fund and the default rate
Accounting date Number of
loans
Value
(‘000 Tsh)
Repayment
default value
(‘000 TSh)
Default
percentage of
total
PPF 31-12-2013 8 146,857,789.8 128,157,892.7 87.3
LAPF 30-6-2014 8 198,829,641.7 162,293,341.8 81.6
Tanzania - Contingent Liabilities Study Nov. 2014
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Accounting date Number of
loans
Value
(‘000 Tsh)
Repayment
default value
(‘000 TSh)
Default
percentage of
total
PSPF 30-6-2014 10 480,145,880.3 460,995,168.7 96.0
NSSF 30-6-2013 17 733,196,438.7 661,342,680.8 90.2
GEPF 30-6-2013 2 11,900,503 10,233,409 86
2.5.2 As the data above are available for different financial years and therefore difficult to aggregate them, it can
be seen that majority of the loans offered by the pension funds under government guarantee have not been
repaid by the borrowers. On average 90 per cent of the loan amounts have not been repaid thus weakening the
investment base of the pension funds. In general, syndicated (offered as a mix of creditors such as banks and
pension funds) loans are being repaid while pension fund loans, though smaller, as a single lender source has
not been serviced. With reference to aggregation for DSA, the TA has fixed a starting point for the DSA to be end
June 2014, therefore an aggregated amount at end June 2014 is needed for the analysis to be conducted. For
this purpose all data available only up to end June 2013 has been carried over to end June 2014. Interest
accrued on loans from end June 2013 has not been capitalised in to the end June 2014 figure, as the TA was
unable to gather interest rate information on each loan.
2.6 Other Sectors Related Public Corporations and Agencies
As at end 2013 there were some other guarantees offered to the other sectors/corporations as highlighted in
Table 2.7
Table 2.7 other guarantees offered to the other sectors/corporations
Corporation/Agency Type of Liability Status as June 2013
ATCL Government guarantee loan for
Wallis Trading Company from
Liberia
TZS 47,126,819,631. The company has failed to service the
loan and it has now been taken over by the GoT.
Government guarantee loan to Celtic
Capital Corporation of Miami (USA)
TZS 1,696,681,481 outstanding. The GoT is considering
assuming the loan since ATCL has failed to service the loan.
Friendship Textile
Mills Ltd
Government guarantee loan TZS 25,781,394,289 outstanding. The loan has been
restructured by Exim Bank of China to maturity in year 2019
and repayment by 2029.
Tanzania Sisal
Authority
Government guarantee loan TZS 1,648,936,493 outstanding. The company has failed to
service the loan to CHC (NBC) and is now under liquidation.
State Motor
Corporation
Government guarantee loan TZS 3,065,026,923 outstanding. The amount has been
written off after liquidation realised only TZS 194,156,393.
General Tyre East
Africa
Government guarantee loan TZS 18, 276,168,539 outstanding. The company stopped
production and the discussions are ongoing on how to revive
the company.
NBAA Government guarantee loan TZS 15,000,000,000. This loan to NSSF is being serviced
directly by GoT.
Tanzania Fertiliser
Company
Government guarantee loan TZS 29,100,000,000. The GoT has started to service the loan
after the guaranteed company failed to service the loan to
CRDB Bank and ABC Bank.
University of Dar es
Salaam
Government guarantee loan TZS 829,284,580, the loan is being serviced to CRDB.
Mara Cooperative Government guarantee loan TZS 8,502,977,181 is outstanding and has been taken over
Tanzania - Contingent Liabilities Study Nov. 2014
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Union by GoT after failure by Mara Coop Union to service it.
SUKITA Government guarantee loan TZS 10,139,494,513 is outstanding. The company has
collapsed and CHC expects to recover the money through
receivership proceeds.
Source: TA from interviews, financial statements or Treasury Registrar databases.
2.7 TA’s Overall estimate
Taking into consideration three data sources- TR, Pension Funds and individual financial statements of
corporations - and removing any double accounting, the TA has estimated the total one-off guarantee to be Tsh
1699 bn of which Pension fund guarantees amount to Tsh 1571 bn and others Tsh 128 bn.
2.8 Summary of Recommendations:
Table 2.8 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short term/Medium
term
Recommendation 1- Data quality
verification, updating and
information sharing
Data on one-off loan guarantees
outstanding should be verified
that is accurate and shared on
Quarterly basis among the
borrower, Treasury Registrar,
Debt Unit and Accountant
General’s Department.
CPAD, AccGen,TR and
Borrower
Short term
Recommendation 2- Guarantee
process
A more stringent guidelines of
guarantee approval process
(credit rating methodology)
should be introduced.
CPAD, AccGen, AG’s
Office
Medium term
Recommendation 3 – Compliance
to IPSAS and IFRS accounting
standards
Disclosure and reporting of
guarantees should adhere to
relevant IPSAS and IFRS
standards. Fiscal risk
assessment due to one-off
guarantees must be prepared as
part of the budget statement.
AccGen Medium Term-
preferably for budget
2015
Recommendation 4- cases of
default to be resolved
These should be resolved by
planned arrears clearance
strategy, securitisation and
restructuring methods.
CPAD, AccGen, AG’s
Office and Borrower
Medium term
Recommendation 5 – Government
should pensions for defaulted
guarantees
GoT should agree with the
pensions on payment schedule
for all the defaulted loans.
AccGen, MoF, SSRA Short – Medium Term
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3 Standardised Guarantees
3.1 Introduction:
The loan and credit schemes that covered here are; Export Credit, Small and Medium Enterprises and Higher
education student loans. Unlike one-off loan guarantees these are umbrella schemes that run continuously. With
regards to these schemes the following Policies and procedures were examined:
Export Credit Guarantee Scheme (ECGS, 2003/2004);
Small and Medium Enterprises Credit Guarantee Scheme (SME-CGS, 2005);
Higher Education Student Loan scheme.
3.2 Export Credit Guarantee Scheme:
3.2.1 Introduction:
The Scheme seeks to promote economic development in general by encouraging high value exports such as
horticulture and floriculture and value added exports that will generate high level of employment and foreign
exchange earnings.
Export Diversification- This would be done by improving product mix by increasing the share of high value
exports of horticulture and floriculture products, increasing the share of manufactured products and reducing
market concentration by firms seeking alternative markets.
Employment Creation- This would be done through providing labour intensive employment and productivity.
Financial Deepening- This would be achieved by increasing the share of financial assets to GDP, that ensures
broad export financing and credit facilities e.g. structured finance/loan syndication, risk diversification/sharing, this
would result into rapid increase in exports.
In terms of the institutional arrangements, the Government placed the responsibility to the Bank of Tanzania for
the development and implementation of the scheme under an Agency Agreement until a fully-fledged Export
Credit Guarantee institution is formally established.
The Credit Scheme permits a maximum of eighty five percent (85%) for export production finance, eighty per cent
(80%) for pre-shipment finance and seventy-five percent (75%) for post-shipment finance.
Tanzania - Contingent Liabilities Study Nov. 2014
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3.2.2 Process for Application
Figure 3.1 Export Credit Guarantee Scheme – ECGS
3.3 Small and Medium Enterprise Credit Guarantee Scheme:
3.3.1 The purpose of the scheme is to provide credit guarantees to financial institutions lending to SMEs.
Financial institutions are expected cover shortfalls in the collateral and provide credits to SMEs. Eligible projects
are Start-up and existing productive SME projects but not available for trading and retail businesses. An SME
Borrower must be a formally registered business and majority share had to be owned by Tanzanian citizens. The
Scheme is operated by mainly banks and the guarantee is offered by the Bank of Tanzania on behalf of the
Government.
3.3.2 When applying for a Loan, the SME should provide business plan and other requirements. When the Public
Financial Institution (PFI) has been satisfied with credit worthiness of the SME, it will approve the loan. The
lending decision will remain with the PFI. The SME credit scheme allows for a maximum guarantee of 50 per
cent. However, disappointingly the scheme was terminated in 2008 and no new guarantees were offered.
Tanzania - Contingent Liabilities Study Nov. 2014
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Figure 3.2 SME Credit Guarantee Scheme – SMECGS
3.4 Higher Education Student Loan Scheme
The Higher Education Students Loan Board is responsible in operating this scheme where students can obtain
loans for meeting higher education costs – fees and living expenses- runs the scheme. After completion of their
studies the students are expected to pay back the loan over time. All three loans were obtained from PSPF under
guarantee from the Government. The Board is unable to repay the loans on time due to low recovery rates from
former students.
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Figure 3.3 Student Loans application process
3.5 Time trends for Total Value of the Guarantees for Export Credits scheme and Higher
Education loan scheme
Table 3.1 Time trends for Total Value of the Guarantees for Export Credits scheme and Higher Education loan scheme
2009/10 2010/11 2011/12 2012/13
Export Credit Guarantees
(TSh bn)
39.807 197.84 233.0 295.4
SME Guarantees (TSh bn) 1.303 1.262 0.574 0.574
Higher Education Loan
Guarantees *(TSh bn)
68.13 94.36 121.5 121.6
Source: Bank of Tanzania, HESLB.
* note that the 3 loans outstanding from PSPF has been accounted under the one-off guaranteed loan to a total value of Tsh 165.9 bn at end
June 2014.
3.6 Default rates for the Schemes at end 2013
3.6.1 TA discussed the default rates of the 3 schemes with CRDB, NMB and HESLB. CRDB and NMB are two
main banks offering export credits and SME credits to private sector with the permitted government limit on
guarantees. The two banks carry out their own credit assessment of those who wish to borrow. HESLB operates
the higher education scheme, from the data provided by these institutions the TA was able to estimate the default
rates of the schemes.
Table 3.2 Default rates for the Schemes at end 2013
Scheme Default rate
Export Credit Scheme Average of 7 per cent based on cash crops exports
SME Credit Scheme 100 per cent in 2008, scheme suspended
Higher Education Scheme 90 per cent
Source: CRDB, NMB and HESLB.
Tanzania - Contingent Liabilities Study Nov. 2014
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3.7 Summary of Recommendations
Table 3.3 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short term/Medium
term
Recommendation 1: continue with
the schemes with Export and re-
start SME guarantee schemes
This will enable small scale cash
crop production for exports and
SME manufacturing to increase.
However sound credit rating
methodologies and proper
assessment of production
potential must be employed to re
commence the SME scheme.
BoT, Commercial Bank
and Enterprise
Medium term
Recommendation 2: Continue
Higher education loan scheme
Though the intention of the
scheme is good recovery rates
must improve, especially to
service all 3 initial loans provided
by PSPF.
HELSB Short term
Recommendation 3: data
improvement and reporting
Data is reasonably good but
need to be regularly provided to
MoF for calculating exposure
and the difficulties faced in
repayments. Also helps to
prepare fiscal risk reports.
BoT, Banks Medium term
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4 Guarantees under Pensions and Social Security Schemes
4.1 Introduction:
4.1.1 Providing retirement income and other health benefits to the population is a key responsibility of the
Government. The two main types of pension schemes are, i) Defined Benefit (DB) and ii) Defined Contribution
(DC) schemes. The funding of these benefits range from `Fully Funded’ scheme where each employee’s
contribution is invested to provide the retirement benefits to `Pay As You Go’ (PAYG) where the current
employees contribute to retired employees. In practice, most countries have a combination of both Funded and
PAYG schemes that provide pension income. In Tanzania, pension schemes are largely based on DB scheme
though there are a few DC schemes available to employers which are now also being offered directly to workers
from the informal sector on an individual and a collective basis.
4.1.2 There are five pension funds and one health insurance fund that provide pension and health benefits to
employers and to their dependents. These funds are as follows:
1. NSSF – National Social Security Fund;
2. PSPF – Public Sector Pensions Fund;
3. LAPF – Local Authorities Pensions Fund;
4. PPF – Parastatal Pensions Fund;
5. GEPF – Government Employees Pensions Fund;
6. NHIF – National Health Insurance Fund.
The Authority that regulates these funds is the Social Security Regulatory Authority4 (SSRA).
4.1.3 The overarching legislation that governs the social security sector is the Social Security Act (2008) and
Amended Act (2012)5. This is supported by a number of guidelines on code of conduct, investment, data and
information disclosure and actuarial valuation. Though several individual Pension Fund Acts are in current use
the SSRA is implementing reforms to unify these Acts and bring them under a single Act in the future. It has
already harmonised the fragmented benefit structure through the Social Security Scheme (Pension Benefits
Harmonisation Scheme) Rules 2014.
4.1.4 This section covers two areas. The first, is related to understanding whether Tanzania is likely to encounter
an actuarial deficit situation under various assumptions regarding GDP growth rate, population growth,
employment level and participation rate in the pension contributions, investment income etc. If deficits persist
then Government may have to borrow to pay pension and health benefits. This may lead to debt levels rising and
in some cases breaching the debt sustainability thresholds. The second, since pension funds may be called upon
to contribute to the country’s development in terms of offering loans under guarantees, these investments may
fail to provide the required rates of return due to shortfalls in repayments or in the worst case default by
borrowers.
4.1.5 The TA, in accordance with the Terms of Reference, has used the World Bank Consultants actuarial study
to assess the deficit situation. However, since the WB consultants have only addressed the pensions, the TA had
initially thought of including the NHIF. After careful consideration the TA reached a conclusion to remove the NHIF
4 Social security sector includes pension benefits and health insurance benefits.
5 See section 8- Legislative Framework for more details.
Tanzania - Contingent Liabilities Study Nov. 2014
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from this study due to 2 reasons. First, the last actuarial/analysis was carried out in 2010 and therefore the TA felt that
the study was not recent enough to include NHIF to the TA study, whereas the numbers for the Pension funds are
current (2014). Second, two actuarial studies were carried out in 2010 (one commissioned by SSRA and the other by
NHIF) each employing a different approach (as opposed to a unified approach and results) in assessing the
performance and looking at the future prospects.
4.2 Assessment of the Social Security Sector Deficits
4.2.1 The tables below show the current position of the pension funds in Tanzania represents contributing
employee size and the composition of the percentage contribution by employee and employer.
Table 4.1 Base Year (FY2013) data on Pension System Members
All
funds
NSSF PSPF PPF-
DB*
PPF-
DAS**
LAPF GEPF
Contributors
Number of persons(000’s) 997.3 421.8 315.3 110.9 21.5 95.0 32.7
Average age 38.3 38.2 39.9 36.5 35.3 37.6 34.6
Average annual wage (TSh 000’s) 7,096 6,427 7,047 11,097 9,330 6,006 4,336
Old age pensioners with regular pensions
Number of persons (000’s) 69.0 5.9 33.2 25.2 - 4.7 -
Average age 62.6 65.2 61.6 63.2 - 62.5 -
Average annual pensions(TSh 000’s) 1,970 1,929 2,343 1,593 - 1,401 -
Average annual pensions as % of average
wage in respective fund
28 30 33 14 - 23 -
System dependency rate (number of old
age pensioners as % of the number of
contributors)
8.1 1.9 13.2 23.3 - 5.6 -
*Average number during year.
** Number of active contributors for PPF was derived from data on contributions due in 2013, compliance rate and wages of contributors.
Source: Individual pension funds.
Table 4.2 Base Year (2013) data on Pension System Finances, millions TSH
All funds NSSF PSPF PPF LAPF* GEPF
Contributions 1,347,721 476,410 444,853 275,015 114,143 37,300
Benefit payments – Total (Tsh 000’s) 957,645 228,049 543,712 131,971 44,751 9,162
Pension benefits** (TSh 000’s) 943,501 220,454 543,344 127,094 43,447 9,162
Non-pension benefits (TSh 000’s) 14,143 7,595 368 4,877 1,303 0
Non-pension benefits as % of total benefits 1.5 3.3 0.1 3.7 2.9 0
Administrative expenses 180,897 86,253 26,097 39,994 21,687 6,866
Administrative expenses as % of
contributions
13 18 6 15 19 18
Assets beginning of year (TSh 000’s) 4,709,170 1,970,636 953,021 1,091,500 539,601 154,411
*LAPF 2013 estimated by WB team as 2012/2013 annual report was not available.
**GEPF excluding voluntary benefits.
Source: individual pension funds.
Tanzania - Contingent Liabilities Study Nov. 2014
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NSSF and PSPF are the two major funds in terms of number of contributors – 422,000 and 315,000 respectively.
These numbers are based on full – time employee equivalent contributions. Total percentage contribution are 20
per cent of salary; NSSF and GEPF operates on equal split between employer (10%) and employee (10%) while
the other funds receive more contribution from the employer (15%). It is worth noting that LAPF and PPF operate
a scheme for private sector employees based on an equal (10% each) contribution from employer and employee.
Figure 4.1 Employee andEmployer contributions to pension funds
In terms of the financial position of the funds, the NSSF, PPF, LAPF and GEPF are in a stable position and do
not pose a contingent liability threat to the government until at least 2060. At that point their benefit payments will
be larger than the contributions they receive, and they will have no investment income having had to sell their
assets to cover the gap. This is when the government would have to step in to pay the benefits promised by the
funds.
The PSPF is a particular case. In addition to the long-term contingent liability which the fund represents, the
government also faces a direct obligation to reimburse the PSPF for the payments made on its behalf for pension
benefits accrued before 1999 when the fund was established. This amounts to TZS 1.5 trillion to date (and is
currently rising by around TZS 300 billion a year) and the non-payment by the government is causing an
immediate fiscal problem for the fund. The PSPF has been paying out more in benefits than it receives in
contributions since 2013. Investment income is not expected to be able to fill the gap this fiscal year, so that the
fund will not be able to pay full benefits without either selling assets or receiving further cash transfer from the
government.
Table 4.3 Summary indicators under base case and reform scenarios
NSSF
PSPF PPF LAPF GEPF
Excluding
pre99
Including
pre99
Pensions at retirement full / reduced*
(%)
Base case (no reform) 47 / 40 75 / 37 75 / 37 42 / 31 66 / 33 67 / 50
Harmonisation rules 44 / 33 75 / 37 75 / 37 47 / 35 66 / 33 67 / 50
Harmonisation rule- partial 62 / 31 62 / 31 55 / 28
Harmonisation rule - full 58 / 43 58 / 43 52 / 39
0 100000 200000 300000 400000
NSSF
PPF
PSPF
LAPF
GEPF
number of employees
Employees Contribution to Pension Funds
0
2
4
6
8
10
12
14
16
NSSF PPF PSPF LAPF GEPF
Percentage Contribution for Public Sector Employees
Empoyer cont.
Employee Cont.
Tanzania - Contingent Liabilities Study Nov. 2014
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NSSF
PSPF PPF LAPF GEPF
Excluding
pre99
Including
pre99
Break-even point**
Base case (no reform) 2052 2024 2015 after 2080 2063 2072
Harmonisation rules 2068 2022 2015 2086 2076 2072
Harmonisation rule- partial 2028 2015 2077
Harmonisation rule - full 2068 2065 2077
Assets depletion point***
Base case (no reform) 2061 2031 2019 after 2080 2072 after 2080
Harmonisation rules 2077 2028 2019 2045 after 2080 after 2080
Harmonisation rule- partial 2036 2021 after 2080
Harmonisation rule - full 2075 2067 after 2080
*Percentage of individual’s last wage for an average retiree (man).
**Year when the annual current balance becomes negative assuming interest rate and inflation are equal.
***Year when own assets are depleted and government needs to finance the deficits assuming interest rate and inflation are equal.
Harmonization Rules = parameters apply to all members NSSF/ PPF/ GEPF but only to new members of PSPF/ LAPF.
Harmonization Rules (partial) = new reference salary applied to all members of PSPF/ LAPF.
Harmonization Rules (all) = all new parameters applied to all members of PSPF/ LAPF.
The total pension liabilities of the government, both the obligation to the PSPF and the contingent liability of all
funds represents TZS 23.5 trillion or 46% of GDP. The Harmonization Rules issued by the pension regulatory
authority in July 2014 introduce parametric reform to the funds which will reduce the liability of the government
over the long-term (to 23% of GDP). If some of the funds were merged (creating one fund covering the public
sector and another covering the private sector), this contingent liability could be further reduced (to 5-6% of
GDP), as the surplus of the funds would be combined.
Table 4.4 Government contingent liabilities under base case and reform scenarios (net present value as % of 2013
GDP)*
All funds NSSF PPF PSPF LAPF GEPF
Base case(no reform) 48.5 5.7 0 41.8 1.0 0
Harmonisation rules 25.1 0.6 7.5 17.1 0 0
Harmonisation rules- partial 19.7 0.6 7.5 11.6 0 0
Harmonisation rules - full 18.6 0.6 7.5 10.5 0 0
Merger 15.9 5.2 10.7
Merger cost saving 12.4 2.6 9.8
*Real discount rate used for present value calculation is 5 percent. Also assumed that interest rate equals inflation.
** Assuming PSPF does not finance pre99 pensions.
4.2.2 Pension Fund Investment Income
In the past five years, on average investment income has contributed to 66 per cent of pension payments, its
contribution to the total funding i.e. for pension payments and assets growth, has been only 33 per cent per
annum.
As the pension funds in Tanzania face favourable demographics, they operate mostly on a PAYG / partially
funded basis. Hence the fiscal position of the funds is not very sensitive to investment income and / or asset write
downs. For example, increase investment returns by 1% would improve the breakeven of the funds by around 2
years, with the impact mostly being felt in the long-term.
Tanzania - Contingent Liabilities Study Nov. 2014
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However, given the pension funds collectively are a large source of domestic capital (assets under management
representing around 10% of GDP), how their portfolios are invested is important for the economy as a whole.
Historical review of the assessment: TA has looked at the investment performance of the 5 Funds over the past 6
years. A number of tables are presented below with comments and remarks.
Tanzania - Contingent Liabilities Study Nov. 2014
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Table 4.5 Asset value, total contributions, investment income and net benefits
Fund 2007/08
(Tsh bn)
2008/09
(Tsh bn)
2009/10
(Tsh bn)
2010/11
(Tsh bn)
2011/12
(Tsh bn)
2012/13
(Tsh bn)
NSSF
1. Asset Value 746.45 921.19 1129.18 1448.49 1970.64 2239.87
2. Total contribution 205.39 255.27 300.09 356.51 420.25 476.11
3. Investment income 75.98 62.33 92.01 190.15 398.67 231.06
4. Expenditure 114.96 122.12 151.56 193.80 249.50 314.30
Net balance (2+3-4) 166.4 195.48 240.54 352.86 569.4 392.87
PPF
1. Asset Value 499.33 624.85 722.5 894.52 1091.5 1487.394
2. Total contribution 109.78 136.6 147 187.5 235.8 278.5
3. Investment income 62.24 67.08 43.45 91.3 111.2 318.01
4. Expenditure 36.88 47.19 63.82 71.88 99.4 132.0
Net balance (2+3-4) 135.14 156.49 126.63 206.92 247.6 464.51
PSPF
1. Asset Value 572.50 716.09 732.38 924.50 1086.28 1251.17
2. Total contribution 151.62 232.03 239.25 392.90 444.10 516.54
3. Investment income 70.69 58.26 60.72 92.37 89.42 204.69
4. Expenditure 138.49 150.37 286.21 296.34 374.79 569.81
Net balance (2+3-4) 83.82 139.32 13.76 188.93 158.73 151.39
LAPF
1. Asset Value 216.93 271.48 361.33 450.19 539.60 645.0
2. Total contribution 32.21 47.05 54.24 80.51 89.06 119.2
3. Investment income 0.00 0.00 31.54 32.06 56.32 52.2
4. Expenditure 9.29 14.89 22.51 26.51 38.09 57.5
Net balance (2+3-4) 22.92 32.16 63.54 86.06 107.29 113.9
GEPF
1. Asset Value 55.86 72.55 91.28 119.40 154.41
2. Total contribution 10.40 13.79 16.32 25.71 30.15
3. Investment income 6.22 6.65 8.08 9.57 15.02
4. Expenditure 2.74 3.37 5.72 7.17 10.20
Net balance (2+3-4) 13.88 17.07 18.68 28.11 34.97
Total (Pension Funds only)
1. Asset Value 2091.07 2624.16 3036.67 3837.1 4842.43
2. Total contribution 509.4 684.74 756.9 1043.13 1219.36
3. Investment income 215.13 194.32 235.8 415.45 670.63
4. Expenditure 302.36 338.02 529.82 595.7 771.98
Net balance (2+3-4) 422.7 541.04 463.88 862.88 1118.01
Source: Annual reports of the 6 funds and World Bank Pensions Consultants.
4.2.2 From the table above, the total assets available for investment of the five pension funds have increased at
25 per cent per annum between 2007 and 2012.
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Figure 4.2 Pension funds’ performance over 5 years
Source: TA and World Bank consultants.
During the same period, contributions increased by an annual average of 25 per cent, invest income by 37 per
cent, pension expenditure by 28 per cent and net balance by 32 per cent.
4.2.3 The overall rate of return on investment has been low from 2007 to 2010. However from 2010, the rate of
return has increased. The overall asset position and rate of return on investment is shown in the diagrams below.
Figure 4.3 Pension Funds Assets and Investment Returns
Source TA and World Bank consultants.
4.3 Asset Diversification
Aside from generating poor investment income, another issue relating to the pension funds’ portfolio is their lack
of diversification. Like many social security funds in developing economies, the assets remain highly
concentrated in government bonds and bank deposits (46% on average). This compares with the leading funds in
both developed and developing economies which have more diversified portfolios. Moreover, the funds currently
do not comply with the Investment Guidelines which were issued by the Bank of Tanzania in 2012. The table
0
1000
2000
3000
4000
5000
6000
2007/08 2008/09 2009/2010 2010/2011 2011/12
Tsh
s b
n
Asset Value
Total contribution
investment income
Expenditure
Net balance
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
T
s
h
s
b
n
Assets -Pension Funds
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
%
Return on Investment
Tanzania - Contingent Liabilities Study Nov. 2014
Page 48
below shows the current regulations/guidelines on investment categories and limits as stated in The Social
Security Schemes Investment Guidelines (2012), part III.
Table 4.6 Pension Fund Asset Portfolio Allocations at end 2013
Pension Fund Allocation (% of
Portfolio)
Investment
guidelines
Funds
Average
NSSF PSPF PPF LAPF GEPF
Government Securities 20-70 29 22 13 27 38 47
Fixed Deposits 16 18 13 5 26 16 30
Loans and other special lending 20 (10 + 10) 24 37 46 14 18 6
Corporate Bonds 40 2 1 1 3 3 4
Equity (+ collective investments) 45 (15+30) 12 6 16 20 11 5
Real Estate 30 14 21 19 10 14 8
Infrastructure 25
Source: Pension Funds’ Annual Reports.
Figure 4.4 Pension Funds’ Portfolios
Source: Pension Funds’ Annual Reports.
4.4 Summary of Recommendations
Table 4.7 Summary of Recommendations
Recommendations Comments Responsible institutions/agencies Short term /
Medium term
Recommendations 1:
The Actuarial Report
Ensure that staff of Contingent
Liabilities Unit receives a copy of the
Actuarial report from each Pension
Fund and NHIF and understand and
review the position.
In future a Contingent liabilities Unit in
the MoF. In the interim, staff
responsible for contingent liabilities in
CPAD, MoF.
Short term
Recommendation 2:
Loans offered by Pension
Funds
Ensure that Guarantees offered on
Pension Fund loans are assessed
properly in terms of credit risk.
Government/ pension funds should
In the future an established Middle
and Back offices of a Contingent
Liability Unit. In the interim, CPAD
and Acc Gen’s office.
CPAD and Accountant Generals’
Medium term
Short term
0
10
20
30
40
50
60
Domesticbonds(gov +corp)
Foreignbonds
Cashdeposits
Loans Domesticequity
Foreignequity
Realestate
Tanzania Pension Funds
CPPIB Canada
GEPF SA
Tanzania - Contingent Liabilities Study Nov. 2014
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Recommendations Comments Responsible institutions/agencies Short term /
Medium term
agree a revised repayment schedule
for loans defaulted.
Office.
Recommendation 3:
Develop the Government
Securities
market
Develop the Market for longer term
maturity and index linked bonds so
that opportunities for investment for
pension funds are increased.
CPAD, Accountant General’s Office
and Bank of Tanzania (Domestic
Market Development office).
Medium term
Recommendation 4:
Reform the investment
guidelines
Government should consider
removing restriction to invest abroad
so that pension funds can invest in
more secure long term securities.
Ministry of Finance and Bank of
Tanzania.
Medium term
Recommendation 5:
Resolving PSPF arrears
An action plan to be developed to
resolve the arrears owed to PSPF
Ministry of Finance, SSRA and PSPF Short/Medium
term
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5 Guarantees Issued Under PPP Arrangement
5.1 Introduction:
5.1.1. Public Private Partnership arrangements provide several advantages to the Government. First, since the
funding comes mainly from the private sector, the burden on government’s funding sources is reduced. Second,
the participation by the private sector brings in modern skills and technology so that the infrastructure created has
the latest `state of the art’ technology. Third, when constructed and run by the private sector the service delivery
will be efficient and reliable. However, in return for these benefits, the private sector expects some form of
revenue guarantees in order to meet a required rate of return on capital and permissions to utilise land for
transport sectors such as roads and railways. What guarantees to be granted and how to identify and share the
risks when offering such guarantees will be an important assessment that needs to be carried out by the
Government.
5.1.2 In the case of Tanzania, three main documents – legislation and policy guidelines- in the form of an Act
(2010), Regulations (2011), and Policy (2009) were prepared for promoting and managing PPPs. The Policy
document states that all sectors- productive, infrastructure and social services- are included and can be
developed under a PPP arrangement. The TA team has reviewed these documents. However, recently (May
2014) a Special Bill Supplement has been prepared that emphasises changes in the institutional responsibilities
of the approval process and management of PPP, this bill has been passed in parliament in November 2014 and
is now awaiting Presidential assent. The main change has been the merging of the `Coordination Unit’ with the
PPP Finance Unit into one office called the PPP Centre which will be placed in the Prime Minister’s Office, the
centre will be a legal person and body corporate with right to sue and to be sued. The most applied option in
many countries that the TA has reviewed is for the PPP Centre to be placed under a ministry responsible for
finance.
5.1.3 In the past, Tanzania had entered into some form of Public Private Partnership arrangements. So PPP is
not new to Tanzania, but now it is subject to enacted legislation and policy guidelines. In the past some of the
PPPs have been in the form of management contract/leases and joint venture projects. Until now however, there
has not been any PPP that was implemented in accordance to the PPP Act and guidelines.
5.1.4 At the outset, it is important to emphasise that this TA study is not intended to cover the entire scope of
PPP which is larger than what this TA’s scope. It is worth mentioning that this study is only focusing to the public
financing of PPP projects and the extent of fiscal risk caused by financial risk allocation/sharing.
Tanzania - Contingent Liabilities Study Nov. 2014
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5.2 Procedural steps for a PPP arrangement6
Figure 5.1 Procedural steps for a PPP arrangement
Source: TA construction from PPP Bill ©2014.
Main Steps- Project identification to approval
1. A Government agency makes its own development plans, including feasibility studies and then assess
whether the project should be done under a PPP arrangement;
2. A government agency may seek PPP Facilitation Fund from the PPP Centre;
3. Two months before the year end, the PMO invites Government Agencies to submit their PPP projects to PPP
Centre;
4. A feasibility study before decision taken for promoting PPP arrangement is prepared by the Government
Agency (Contracting Authority - CA);
5. The Contracting Authority analyses projects submitted within 30 days and forwards to the Ministry responsible
for Finance;
6. The Ministry of Finance analyses for fiscal risks and affordability and reverts to PPP Centre within 15 working
days;
6 based on the passed Special Bill Supplement (2014) – The Public Private Partnership (amendment) Act (Cap 103).
1
Contracting Authority (CA)
(Submit a list of potential PPP
project)
PPP Center (Provide assistance
and advice in selection,
prioritisation, development and
implementation of PPP projects
and PPPFF)
PPP Technical Committee
(analysis and recommendation
of projects. Approval of PPPFF
and feasibility studies)
4
National Investment Steering
Committee (consider and
approve PPP projects)
5
Minister – PMO (publish
approved PPP projects)6
Cabinet (reviews annual PPP
report)7
Minister for Finance ( analysis
for financial viability of the
proposed PPP projects)
2
3
CA( enters into contract with
the private sector after
approval of the PPP project)8
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7. The PPP Centre then and within 7 days and after consulting other relevant ministries, submits the projects to
the PPP Technical Committee;
8. The PPP Technical Committee submits recommended projects to National Investment Steering Committee
for scrutiny within 15 days;
9. The National Investment Steering Committee processes the projects within 15 days and submits them back to
PPP Technical Committee and to the PPP Center;
10. In case the project requires public financing, the National Steering Committee directs the Minister of Finance
to initiate funding process;
11. PMO shall inform the public of all approved PPP projects;
12. PMO shall submit to Cabinet annual implementation report of all PPP projects.
5.3 Institutional Arrangements under the Special Bill Supplement (Nov 2014) and
Capacity:
5.3.1 As mentioned earlier the most important change has been the merging of the `Coordination Unit’ which was
in the Tanzania Investment centre and the `PPP Finance Unit’ in the Ministry of Finance into one office called the
`PPP Centre’. The PPP Centre has been placed within the Prime Minister’s Office; the centre shall be a body
corporate with perpetual succession and common seal. In the decision making process, there will be two
committees involved in approval of projects requested by contracting authorities. The PPP Technical Committee
(in which the Permanent Secretary of Ministry of Finance is a member) plays an advisory role and makes
recommendations to the National Investment Steering Committee that will finally approve the projects.
5.3.2 For the projects to be successfully launched (under new legislation and Policy guidelines) it is important that
a capable team is built up with well-defined responsibilities and functions, so that the team can assess the
benefits, costs and risks prior to any engagement in promoting, negotiating or contracting for PPPs. The
TA learnt that several positive negotiations have taken place and in-progress in a number of infrastructure
projects and each of them is at a different stage of progress. The strong potential for PPPs is in the power
generation, sea port and airport development and road network expansion programmes and projects.
5.3.3 On the disclosure side, it is important that assets built under PPP should be identified in terms of ownership
and potential transfer from Private to Government. These must be properly recorded in the balance sheet and
disclosed.
5.4 Related PPP Finance and Risk Management
5.4.1 Financial sources of finance: In a typical PPP financing arrangement, all the financial resources comes from
the private sector which will raise its resources from debt and equity. The private sector will operate a Design-
Finance- Build- Operate and Transfer (DFBOT), but in the case of most developing countries, PPP arrangements
will remain as explained except that financial resources may be obtained from private and public sector sources.
The Typical types of project finance and operational modalities are given below in Table 5.1
Table 5.1 Project Finance and Operational Modalities
Schemes Modalities
Build Own Operate (BOO)
Build Develop Operate (BDO)
Design Construct manage Finance (DCMF)
The private sector designs, builds, owns, develops, operates and
manages an asset with no obligation of transfer.
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Schemes Modalities
Buy Build Operate (BBO)
Lease Develop Operate (LDO)
The private sector buys or leases an existing asset from the
government; renovates, expands and operates with no obligation
to transfer to government.
Build Operate Transfer (BOT)
Build Own Operate Transfer (BOOT)
Build Rent Own Transfer (BROT)
Build Lease Operate Transfer (BLOT)
Build Transfer Operate (BTO)
The private sector designs and builds the asset, operates it and
transfers it to government. The private sector may subsequently
rent or lease it
Source: IMF Public Private Partnership 2005.
5.4.2 Typical risk faced in PPP arrangements;
There are mainly five types of risks; construction risk, demand risk, financing risk, availability/supply risk and
transfer risk:
Construction risk: These are related to legal contract agreement risks, design problems, building cost
overruns and project delays. The delays can be also due to site being available and compensations made;
Demand risk: The amount of output and services required;
Financing risk: Initial financing risks followed by changes in market conditions affecting factors such as
interest rates and exchange rates that affect costs;
Availability risk: Continuity and quality of provision of services;
Transfer risk: related to final value and state of the product when transferring to Government.
In addition to these risks, there are other risks related to changes in political and legislative environment and
Force Majeure.
5.4.3 Risk sharing responsibilities
Figure 5.2 Risk sharing responsibilities
Risks Sharing Calculations and responsibilities
Line Ministry
Responsible for Construction Demand and
transfer
Ministry Of Finance
Responsible for Demand and Financial risks
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Example 1: Road Project: Financing arrangements and Product Supply
Source: TA
Road Project- Essential steps for preparation of PPP and service provision
The main functions are;
i. Prepare legal framework on shared responsibility
ii. Competitive bidding
iii. Road specifications and quality checks
iv. Estimate traffic volume and pricing structure
v. Financing options
vi. Offer guarantees to supplier
vii. Completion of lease period and transfer
Project Company
Maintenance Company Toll-road Operator D&B Contractor
Public
Authority
Lenders Investors
Distributions Equity
Concession Agreement
Maintenance
Contract
Operating Contract Design & Build
Contract
Finance
Debt Service Project-Finance Debt
Subcontracts
Road Users
Toll Payments
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Example 2: Electricity Generation and Supply Project: Financing arrangements and Product Supply
Electricity Generation and Supply Project - Essential steps for preparation of PPP and service provision
The main functions are:
i. Prepare legal framework on shared responsibility;
ii. Identifying and unbundling (Generation, Transmission and Distribution);
iii. Competitive bidding Process;
iv. Estimate demand and pricing structure;
v. Specification and quality checks;
vi. Financing options;
vii. Offer guarantees to supplier.
5.5 Summary of Recommendations
Table 5.2 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
term
Recommendation 1: functions to
be clearly defined for PPP
related public finance and risk.
Estimation/calculation of Public finance needs and
fiscal risk sharing arrangements.
Prime Minister’s Office-
PPP Centre and MoF
Short term
Recommendation 2: Clear
Terms of Reference of PPP
finance in terms of institutional
responsibilities.
The role of Finance staff in assessing and
evaluating PPP finance related matters.
Prime Minister’s Office-
PPP Centre and MoF
Short term
Recommendation 3: Strengthen
Institutional capacity for PPP
finance.
Both theoretical and practical on-the-job training
will be required to strengthen capacity in overall
functions-identification, assessment, monitoring,
managing and reporting – of PPP
Contracting authorities,
Parent ministries, PPP
Centre, Ministry of Finance
Short to
Medium
term
Project Company
O&M Contractor Fuel Supplier EPC Contractor
Electricity
Distribution
Company
Lenders Investors
Distributions Equity
Power Purchase
Agreement
Operation and Maintenance
Contract
Fuel Supply
Contract
Engineering, Procurement and
Construction Contract
Finance
Debt Service Project-Finance Debt
Subcontracts
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6 Other Contingent liabilities and Credit Risk related debt
6.1 Introduction:
This section discusses the following:
1. Legal claims;
2. On-lent loans;
3. Others – Indemnities, uncalled share capital, financial derivatives (Credit Default Swaps).
6.2 Legal Claims:
6.2.1 These cover claims that are being made by outside entities and individuals on the Government and could
result in additional unexpected losses for the Government. In order to estimate the total value of these litigation
cases and the probability of losing them, the TA visited Attorney General’s (AG) Chambers (AGC). It is
important to note that only cases where there is a genuine dispute or grievance will fall in to the category of
contingent liabilities. For example, default on loan repayments (under a signed loan contract) would not fall under
this category because they are actual liabilities and recognisable in financial statements.
6.2.2 There are mainly three sources from which information on pending cases were obtained. The largest
amount is from the AGC which deals with all the pending cases of the Government. Second, are the individual
public corporations where there are pending cases of disputes related to employment/redundancy benefit
payments, supplier arrears, unpaid tax and pension contributions etc. These problems are exaggerated when
public corporations undergo restructuring and privatisation. The third source is Consolidated Holding Corporation
which dealt with litigations arising out of divesture process.
Table 6.1 Litigations pending in courts against government and its institutions
Institution Amount (TZS) Remarks
Tanzania Airports
Authority
8,012,808,000 Land related litigations
Institute of Social Work 2,040,695,233 Employees related litigations
Tanapa 285,000,000 Employees related litigations
Tanzania Ports
Authority
358,300,000,000 Contract of work litigation (TZS 337.7 billion) and other litigations
(TZS 20.6 billion).
Consolidated Holding
Company
373,300,000,000 Pending 337 litigations (former NBC (TZS 199,130,555,621), LART
(TZS6,987,423,069), SIMU 2000 ((TZS263,059,200), PSRC
(TZS165,730,810,024), ATHCO (TZS1,174,291,735.20)). The
cases are on contract matters, divestiture, defamation, employment,
land, insurance, liquidation, etc.)
TTCL 33,584,000,000 Various litigations
MSD 144,000,000 Various litigations
NBAA 380,000,000 Various litigations
NHC 16,809,000,000 Various litigations
Tanesco – IPTL 426,855,000,000 Contract related litigations
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Institution Amount (TZS) Remarks
Tanesco - Dowans7 108,591,000,000 Contract related litigations
Ministry of Finance 526,244,483,984 Various litigations in central government
Total 1,854,545,987,217
Source: MoF, PAOBs Audited Financial Statements 2013.
6.3 On-Lent Loans
6.3.1 On-lent loans are loans that are received by the Government from external or domestic lenders and
creditors and offered as loans to corporations and government agencies. Though on-lent loans are not
considered as contingent liabilities they pose credit risk to government if they are unable to repay as stipulated
and therefore default. It is worth noting that only the borrowers who are offered these loans and expected to
repay back through their own generated income rather through the national budget fall into this category of credit
risk borrowers.
Table 6.2 Aggregate On-lending data
Years End 2010 End 2011 End 2012 End 2013
TShs Bn 497.1 576.19 501.91 562.4
Source Treasury Registrar reports 2010, 2011, 2012, 2013.
Table 6.3 Main borrowers of on-lent facilities
Public Corporation Value at end 2013(TSh bn)
SONGAS 238.2
Tanesco 1- ING Bank 66.98
Tanesco 2-IDA 20.69
Tanesco 3-EDCF, EIB, JICA, ADF 67.84
Total 393.71
Source: TANESCO, Treasury Registrar databases.
Table 6.4 Other on lent loans
DAWASA-IDA On-lent loan from IDA TZS 43 billion balance as of 30 June 2014 and
DAWASA has been struggling to service the loan
with frequent application for extensions to GoT
TTCL On lent loans since 2005 US$28 million still outstanding at 4.75% + LIBOR;
repayment schedule is yet to be agreed with CHC
DAWASCO On lent loan through Dawasa TZS 16,707,041,000 still outstanding and can’t be paid by
the company
TRL N/A All liabilities were taken over by RAHCO
RAHCO On lent loan at 11% interest TZS 30,649,646,488. The loan is not being serviced but
the GoT has assumed the liabilities
TAA On lent loan at 0% interest TZS 2,586,320,000. The loan is not being serviced but
the GoT has assumed the liabilities
7 Does not include interest at 15% and penalties from 15.11.2010.
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6.4 Other contingent liabilities
6.4.1 Indemnities
Indemnities are commitments to accept the risk of loss or damage another party might suffer. The TA was not
able to obtain any value for this. However, it is important that they be identified in the future and disclosed in
government consolidated financial statements.
6.4.2 Uncalled `share capital’
This is an obligation to an entity such as public corporations or international and regional financial organisations
to provide the balance of the capital that was pledged and paid. In the case of the domestic share capital, TA
found it difficult to assess these since there is less clarity between injected capital for losses made by
corporations and intended financial investment as equity. In the case of contributions to external financial
institutions the TA was not able to track the source of the information. In any case, uncalled share capital being
called by the financial institutions is relatively low. Nevertheless, to complete the list of contingent liabilities an
attempt has to be made in the future to collect such information and have them disclosed in government
consolidated financial statements.
6.4.3 Credit Default Swaps
The first is the Credit Default Swaps (CDS) that may arise out of Sovereign debt instruments such as
international bonds. TA learnt that Tanzania is considering issuing Euro Bonds in the near future. The CDS
instrument is a financial derivative bought for protection by investors and hence an explicit contingent liability.
6.5 Summary of Recommendations
Table 6.5 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short term/Medium
term
Recommendation 1: improvement
in access to data and default
calculation
Especially in the area of litigation
cases and probability of
winning/losing.
CPAD, AccGen and
AG’s Office.
Medium term
Recommendation 2: Strengthening
data collection and credit risk
analysis
Strengthening data management
on both sides –
Lender/Government and
Government/final borrower.
CPAD, AccGen, TR
and borrowing
agencies.
Short to Medium term
Recommendation 3: improvement
in on-lending agreements
TA found that on-lending
agreements were not prepared or
signed. This needs to be
strengthening with clear terms and
conditions.
CPAD, AccGen, Final
borrower.
Medium term
Recommendation 4: Collection of
data and analysis of other explicit
and implicit contingent liabilities
Further expansion in terms of
comprehensive coverage.
CPAD Medium term
Recommendation 5: Reporting and
disclosure of these contingent
liabilities
Reporting and disclosure on Fiscal
risk implications and meeting
accounting standards.
CPAD, AccGen Medium term,
preferably for 2015
budget
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7 Sustainable Level of Total Liabilities
7.1 Introduction:
7.1.1 Though an exact definition is yet to be found, an acceptable definition is that `Debt is
sustainable in a country, both on the external side and in the public sector, when that country does
not have to make major economic policy modifications to service the debt. This means that for
example, in the public sector, debt is sustainable when no major drastic fiscal policy changes have
to be made to service the public sector debt burden while in the external sector, no major monetary
and external policy changes are required to pay off the total external debt.
7.1.2 Sustainability takes in to account, solvency and liquidity issues and it is essentially a forward
looking exercise. Sustainability is assessed in terms of the future usually in the medium to long-
term. Two types of sustainability are examined; first and the more important one to Governments
when assessing their sustainability position is the public sector debt sustainability usually derived
from the total public sector accounts and in some cases the narrower base of central government
accounts. The second, external sustainability is derived from the Balance of Payments accounts.
External debt sustainability can include total external debt (private and public debt) or public
external debt only.
7.2 Main indicators and dynamics of Sustainability
7.2.1 Various debt indicators (after a DSA exercise) are examined and judged whether they exceed
a defined threshold. If they exceed, then clearly the debt is not sustainable. Different indicators will
be looked at for external public debt sustainability and for total public sector debt sustainability. The
typical indicators for the two types of sustainability analyses are given in the table below.
Table 7.1 Main indicators and dynamics of Sustainability
Indicator Representation Threshold for moderately
performing country assessed by
CPIA
Public and Publicly Guaranteed External Debt
Present value of Debt to GDP Burden indicator 40%
Present value of Debt to exports
and Present value of debt to
budget revenue
Solvency indicator 150%/ 250%
Total debt service to exports and
Total debt service to budget
revenue
Liquidity indicator 20%/30%
Total Public Sector Debt
Present value of debt to GDP Burden indicator 74 % internationally accepted but
can be country specific
Present value of debt to budget
revenue
Solvency indicator No established threshold- can be
country specific
Total debt service to budget
revenue
Liquidity indicator No established threshold- can be
country specific
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7.2.2 The DSA is carried out for Baseline, Alternative and Bound test scenarios. If all the indicators
show that they are below the specified thresholds under all scenarios then the country has a low
level of debt distress. To assess situation more comprehensively, it is also important to combine
quantitative targets with qualitative assessment. In some cases thresholds are only marginally
breached but remain for a long time while in other cases the thresholds may be substantially
breached but remain only for a short period. These situations have to be examined properly to
reach decisions.
7.2.3 In addition to the indicators there are two other factors that need to be examined that will help
to make decisions regarding debt sustainability. The first is the issue of `debt dynamics’ that shows
which variables or factors are contributing more significantly for the debt indicators to rise?
Assessment of such factors will help to formulate policies to address those variables or factors so
that the debt indicators can be brought down to a sustainable level. The second, is the `debt
stabilising surplus’ required to reach steady state conditions that ensures that debt is sustainable in
the medium term.
7.3 Theoretical Background - Debt Dynamics and Debt Stabilizing surplus
7.3.1 Debt Dynamics and Debt Stabilizing Surplus- External
Starting from the basic Balance of payments equation and rearranging and dividing by GDP we can
get the following;
edt= ct-(fdit+eqt)+(1+rt)edt-1
edt = external debt to GDP at time t
ct = current account balance(excluding interest) to GDP
fdit= non-debt creating foreign direct investment to GDP
eqt =equity inflows to GDP
rt = external average interest rate
After a few more manipulations the change in debt can be expressed in domestic currency terms
edt - edt-1 = ct-(fdit+eqt) + rt*edt-1 + g* edt-1 + ρ(1+g)*edt-1
(1+g+ρ+gρ) (1+g+ρ+gρ) (1+g+ρ+gρ)
(1) (2) (3)
Debt Dynamic factors- projections;
(1) = change in nominal interest rate
(2) = change in real GDP growth
(3) = change in price and exchange rate
ct = current account (excluding interest) to GDP
fdit+eqt = foreign direct investment(non-debt creating) and equity flows
g = real GDP growth rate at time t and ρ is the growth rate of GDP deflator in foreign currency
terms.
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For debt stabilizing surplus that may be needed in the future
i.e. edt – edt-1 = 0,
This gives, the current account balance (excluding interest payments) minus the capital account
flows equal to
rt* edt-1 + g* edt-1 + ρ(1+g)*edt-1
(1+g+ρ+gρ) (1+g+ρ+gρ) (1+g+ρ+gρ)
7.3.2 Debt Dynamics and Debt Stabilizing Surplus- Fiscal
Starting from the basic government budget equation, the total debt in time t is linked by the
following equation;
pdt = pdt-1 +(r-g)* pdt-1 + prdt – st – pat
pdt = total public debt to GDP at time t
r= average real interest rate on public debt
g= real GDP growth rate
prdt = primary deficit to GDP at time t
st = seignorage to GDP at time t
pat= public assets sales to GDP
Debt Dynamics;
However it is worth mentioning that almost all Low and Middle income countries borrow from
external sources (multilateral and bilateral loans), public debt comprise external debt and domestic
debt. In this regard, consideration should be given to exchange rate and external payments.
Assuming that there are no seignorage income and public assets sales the changes in debt can be
shown to be;
pdt = [r-i (1+g)-g +αe(1+r)] * pdt-1 - prdt
[(1+g)*(1+i)]
i= inflation measured by GDP deflator
α= share of forex debt
e= nominal exchange rate depreciation
Contribution of real interest rate = [r-i (1+g)-g +αe(1+r)] * pdt-1
Contribution of real growth = -g * pdt-1
(1+g)*(1+i)]
Contribution by real exchange rate depreciation = αe(1+r)] * pdt-1
[(1+g)*(1+i)]
Contribution of primary balance = - prdt
Debt Stabilising Primary Balance;
No change in public debt stock to GDP requires, pdt - pdt-1 =0,
Therefore primary balance = [r-i (1+g)-g +αe(1+r)] * pdt-1
[(1+g)*(1+i)]
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7.4 Debt Sustainability Analysis- Approach and Comparisons
7.4.1 The DSA will be carried out using the IMF/WB debt sustainability framework template. Since
contingent liabilities affect mostly the public sector debt sustainability, this DSA will be restricted to
assessing public sector debt sustainability. Given the constraints on time, this analysis will use
many of the macroeconomic and fiscal assumptions used in the most recent DSA exercises in
Tanzania.
7.4.2 The two recently completed DSA exercises are i) carried out in September 2013 by the
national authorities and ii) carried out by IMF during an Article iv mission in April 2014. In both of
these DSAs in addition to conventional external and domestic debt, some of the contingent
liabilities and arrears were taken in to consideration when the scenarios were formulated. The DSA
carried out by this TA – which will also include some of the contingent liabilities - will compare the
results with the two completed DSAs, one by the National authorities and the other by the IMF. The
comparisons will be made on the DSA of the public sector debt.
7.5 National Debt Sustainability Analysis 2013
7.5.1 Introduction.
The national authorities- mainly from the Ministry of Finance and the Central Bank- have embarked
on carrying out their own debt sustainability analysis, with support from AFRITAC and MEFMI. This
exercise which is conducted on a yearly basis is envisaged to further strengthen analytical skills
and the capacity of public debt management functions.
7.5.2 Assumptions
i) real GDP to grow by 7percent per annum, largely due to better world economic outlook, increase
in infrastructure, agriculture mineral development including gas;
ii) Inflation is assumed to be contained within 6 per cent per annum;
ii) Increasing efficiency in revenue administration and further widening of the tax base have been
assumed, which gradually improves revenue collection from 17.4 percent in 2012/13 to an average
of 20.0 percent in the medium term and at an average of 21.0 percent for the rest of the projection
period;
iii) Expenditure as a percentage of GDP decreases from 26.1 percent in 2012/13 to an average of
25.8 percent in the medium term thereafter increases slightly to an average of 27.0 percent;
iv) The ratio of fiscal deficit-to-GDP ratio is projected to drop from an average of 5.0 percent in the
medium term to an average of 3.0 percent beyond 2014/15;
v) Maintain domestic borrowing (NDF) at 1% of GDP in the medium term and slow it down in the
long run to be in line with the projected fiscal deficit and strategies for developing domestic market;
vi) External borrowing will finance the remainder of the financing gap. It is assumed that
concessional loans will decrease over the medium term and non-concessional and commercial
borrowing is expected to increase;
vii) In addition to conventional domestic debt (Government securities). Actualised contingent
liabilities, outstanding pension arrears, defaults on parastatal guarantees, credit guarantees and
outstanding litigation claims. The Total amounted to Tsh 4.21Trillions mainly spread over the three
years – 2.4 % of GDP, 2.1% of GDP, 1.9% of GDP over 2014 to 2016.
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7.5.3 Results
Table 7.2 Results
Indicators Threshold8
(%)
2013 2014 2015 2016 2017 2022 2032
PV debt to GDP 74 50 30.3 31.2 31.7 31.2 29.6 22.9 16.6
PV debt to budget
revenue
132.5 142.8 140 133 125.2 96.7 69
Debt service to budget
revenue
10.4 13.8 15 14.7 16 12 7.4
Unlike external debt, only one threshold (PV debt to GDP) indicator is compared in public sector
debt sustainability. The results from 2013 to 2032, PV debt to GDP is well below both thresholds;
international (74%) and EAMU protocol (50%). Debt service to budget revenue peaks to 16 per cent
in 2017 and gradually declines to around 7.4 per cent in 2032.Though this scenario which includes
contingent liabilities show a low debt distress position, the Government should maintain high
sustained growth level, low inflation and fiscal deficits, access to low cost financing and managing
its contingent liabilities well to remain within a low debt distress position..
7.6 Debt Sustainability Analysis carried out by IMF (Article IV) 2014
7.6.1 Introduction:
This DSA was carried out during the last IMF Article IV mission that was concluded in April 2014. In
this DSA, the arrears to Public Sector Pension Fund (pre 1999 non-contributory amount) and
certain other liabilities were included.
7.6.2 Main Assumptions
Growth, inflation, exchange rate: Real GDP growth is projected to remain at slightly
below 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 to long run, due to the inflation differential between
Tanzania and the US.
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 favourable. 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
8 Internationally accepted threshold( IMF Guideline) for PV debt to GDP is 74 per cent, while East African Monetary Union
(EAMU) Protocol is 50 per cent which is followed by Tanzanian authorities
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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).
Contingent Liabilities and Arrears: 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 non-contributory scheme9. 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 and together with other liabilities Government
guarantees of public enterprises (Tsh 912 bn), other outstanding domestic claims (Tsh 892
bn), court orders and other claims total up to Tsh 3479 bn or 5.5 per cent of GDP..
7.6.3 Results
Table 7.3 Results
Indicator 2014 2015 2016 2017 2018 2024 2034
PV debt to
GDP
36.5 36.1 35.4 34.6 34.6 31.4 28.6
PV debt to
budget
revenue
166 161 153.6 155.3 153.6 134.7 110
Debt
service to
budget
revenue
13
16.1 14.2 17.1 17 13.8 14.3
The IMF study results show that PV of debt to GDP is higher than the national DSA study starting at
36.5 per cent in 2014 but gradually declines to 31.4 per cent in 2024. Overall the debt distress
position is favourable. However it is essential that continued efforts are made in fiscal consolidation,
accessing low cost financing and monitoring social security schemes. In addition adverse shocks to
economic growth, high inflation and exchange rate depreciation can impact negatively on debt
dynamics and would result in higher debt level.
9 The figure is based on the government’s estimation. Until June 30, 1999, the PSPF was a non- contributory 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.
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7.7 Debt Sustainability Analysis carried by the TA
7.7.1 The TA has used the same methodology and the DSF templates used by the National
authorities and by the IMF. TA has also used almost all the assumptions made by the National
authorise except in the treatment of contingent liabilities. The identification and the value for
contingent liabilities is given in table 7.7.3 later. The assumptions used in this study are as follows;
7.7.2 Main assumptions (almost the same as the assumptions used by the National authorities)
i) real GDP to grow by 7percent per annum, largely due to better world economic outlook, increase
in infrastructure, agriculture mineral development including gas;
ii) Inflation is assumed to be contained within 6 per cent per annum;
ii) Increasing efficiency in revenue administration and further widening of the tax base have been
assumed, which gradually improves revenue collection from 17.4 percent in 2012/13 to an average
of 20.0 percent in the medium term and at an average of 21.0 percent for the rest of the projection
period;
iii) Expenditure as a percentage of GDP decreases from 26.1 percent in 2012/13 to an average of
25.8 percent in the medium term thereafter increases slightly to an average of 27.0 percent;
iv) The ratio of fiscal deficit-to-GDP ratio is projected to drop from an average of 5.0 percent in the
medium term to an average of 3.0 percent beyond 2014/15;
v) Maintain domestic borrowing (NDF) at 1% of GDP in the medium term and slow it down in the
long run to be in line with the projected fiscal deficit and strategies for developing domestic market;
vi) External borrowing will finance the remainder of the financing gap. It is assumed that
concessional loans will decrease over the medium term and non-concessional and commercial
borrowing is expected to increase;
vii) In addition to conventional domestic debt (Government securities) contingent liabilities due to
supplier arrears, pension arrears to PSPF (pre- 1999 payments due), litigations and guarantees to
public corporations and on-lending (with credit risk) are included in this DSA.
7.7.3 The Table below shows the type and value of contingent liabilities and how it’s used (stocks
and flows) in the DSA.
Table 7.4 Type and value of contingent liabilities and how it’s used (stocks and flows) in the DSA
Type Contingent Liability
Stock value (TSh bn) end
June 2014
Default probability
(%)
Used in DSA (stock or
flows) (TSh bn)
One – off guarantee
Pension Fund Loans
Others
1,570.9
127.9
90.6
100
1423.0
127.9
Standardised guarantees 417.57 Export credit -7
(SME credit – 100)
130.7
Pension arrears (PSPF)
And Actuarial deficit
4,800 100 4,800
Litigations 1,854.55 50 927.3
Total of Contingent
Liabilities
8,770.92 7,408.9
On-lending (credit risk)
Already recorded in debt
database)
562.4 100 562.4
Total – Contingent
Liabilities and on-lending
(Credit Risk)
9,333.32 7,971.3
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Source: TA calculations, note that Suppliers arrears and actual liabilities (accounts payables) have not been taken into
consideration as they are assumed to be not contingent but rather actual liabilities and already in the debt database.
7.7.4 Using a stock figure for estimated for contingent liabilities of Tsh 7408.9 bn (not including on-
lending as this is already in the debt database), and assuming that it is paid over the 3 years,
starting from 2014, the Debt Sustainability Analysis gives the following results.
Table 7.5 Results Debt Sustainability Analysis
Indicator Threshold
Global
Threshold
based on
EAMU10
2014 2015 2016 2017 2018 2022 2032
PV debt to
GDP
74 50 44 44 44 43 41 35 37
PV of Debt to
Revenue
207 179.7 201.4 188.9 173.8 147.6 151.4
Debt Service
to revenue
13.9 13.6 17.1 17.4 18.5 13.4 13.9
Source TA calculations.
The result on the PV debt to GDP which is the only indicator that has an accepted threshold is
below both the internationally accepted target and the EAMU target. In general all the ratios are
above the indicators obtained under the national DSA study and the IMF study, since the estimated
value of the contingent liabilities are much higher in the TA study. The comparisons of the 3 studies
and their assumptions on contingent liabilities are shown below in section 7.7.5
7.7.5 Comparative results; Three studies are compared- Baseline scenario
Table 7.6 DSA Assumptions
National DSA assumptions
IMF DSA assumptions
TA DSA assumptions
GDP growth rate 7 per cent per
annum
Inflation 6 per cent initially and falls
to 5 per cent per annum.
Contingent liabilities:
Suppliers arrears;
Pension arrears;
Litigations (actual);
Total = Tsh 4212 (mainly over 3
years from 2013) (2.4%, 2.1%,
1.9% of GDP).
GDP growth rate about 7 per cent
per annum
Inflation around 6 until 2017 and
then around 5 per cent per annum.
Contingent liabilities:
PSPF arrears (pre ‘99);
Guarantees to Public Enterprises;
Domestic claims;
Litigations (expected loss);
Total = Tsh 3479 bn, 5.5 % of GDP
(2014/15), applied as one off.
GDP growth rate 7 per cent per
annum
Inflation 6 per cent initially and falls
to 5 per cent per annum.
Contingent Liabilities:
PSPF arrears (pre 1999)-Tsh
1500bn;
Actuarial deficit- Tsh 3300bn Y;
All Guarantees defaulted - Tsh
1681.6bn;
Litigations – Tsh 927.3bn;
Total = Tsh 7408.9bn over three
years from 2014(3.9%, 3.43%,
3.01% of GDP).
10
EAMU is East African Monetary Union.
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Table 7.7 DSA Results for the main threshold (PV Debt to GDP)
PV Debt to GDP
(%) Thresholds
(International,
EAMU)
2014 2015 2016 2017 2018 2022 2032
National DSA 74 50 32 32 31 30 28 21 17
IMF DSA 74 50 37 36 35 35 35 32 30
TA DSA 74 50 44 44 44 43 41 35 37
7.8 Summary of Recommendations
Table 7.8 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short
term/Medium term
Recommendation
1:Preparation of a
Comprehensive DSA.
Ensure that the DSA is
carried out taking in to
consideration the value of
contingent liabilities
measured as accurately and
comprehensively as possible.
CPAD, other
departments of MoF,
BoT, Statistics etc.
Medium term
Recommendation 2:
improvement of data base on
contingent liabilities.
Data collection, coordination
of information flow and
identification should be
improved.
CPAD, AccGen and
other related
information providers.
Medium term
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8 Legislative Framework
8.1 Introduction
8.1.1The main primary legislation that was reviewed is the Act titled ` Government Loans,
Guarantees and Grants Act 1974 (GLGG), revised edition 2004, and associated Regulations. In
addition to this the TA has also examined other types of `guarantees’ related legislations namely i)
Public Private Partnership Act (2010) and Regulations (2011), ii) Social Security Act (2008) (2007)
and iii)Public Corporations Act (1992) and iv)Public Finance Act 2001(revised 2004).
8.1.2 In order to implement the Act and Regulations smoothly, it is important that proper guidelines
and procedures are put in place. Otherwise, good legislative framework will become difficult to
enforce. In view of this and to help the Government to implement laws smoothly and effectively, the
TA has prepared draft guidelines for issuing loan guarantees and on-lending to institutions where
the final borrower has undertaken the responsibility to repay the loan.
8.1.3 In general, the TA strongly advises that the Government must focus on a comprehensive
legislative framework that includes primary legislation and regulations. The government should
ensure that the entire framework is comprehensive in terms of coverage and scope and should
avoid duplications of laws and overlapping mandates. This should be supported with proper and
appropriate policies, guidelines and operational procedures. There are many examples of
developing countries which have good primary legislation but weak and ineffective regulations and
guidelines. It is further observed that many countries also have parallel and duplicating legislations
that can cause confusion when enacting primary legislation.
8.2 Review and recommended revisions
8.2.1 The Primary legislation titled basic Act Government Loans, Guarantees and Grants Act 1974
(revised edition 2004) covers the basics in legal clauses covering guarantees in Part IV. The TA
has examined this Act and would like to make the following recommendations:
Recommendation 1: section 13 only covers loan guarantees whereas it should cover all
guarantees.
Recommendation 2: Section 13 A, under (b), guarantee limit is stipulated as 70 per cent, while
when all other guarantees are included the maximum is 85 per cent. Also, though there is a need to
mention the limit, it is not important to mention a figure such as 70 per cent. The figure for the limit
can be mentioned in the regulations and respective policy guidelines.
Recommendation 3: In general the regulations contain some sections on the guarantee process
which clearly should be in policy guidelines or procedures. It is recommended that these sections
are reviewed and clear distinction is made between what should be in the regulations and what
should be in policy guidelines. This TA can provide some advice.
Recommendation 4: A guarantee application must be accompanied by a minimum set of financial
performance in the recent past and the organisational structure of the applying enterprise. It is
advised that a proper credit scoring model is developed (i.e. South Africa has one) and applied
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based on various financial performance indicators to see whether the entity applying for guarantee
is potentially capable of repaying the guaranteed loan.
Recommendation 5: Though Part II, under foreign loans, covers some aspects of how foreign
loans should be raised and lent to public corporations and other agencies, it does not clearly define
the whole procedure for `on-lent’ loans. The Act should include a section that clearly covers ` On-
lending’ to public corporations and local authorities. The two categories namely on-lent loans that
are repaid via the budget and repaid by the agency via its own funding sources must be clearly
expressed.
Recommendation 6: TA learnt that in some cases the on-lent loan agreement (subsidiary
agreement) is not prepared. It is important that in all cases the subsidiary agreement (between the
Government and the final borrower) is prepared.
Recommendation7: The Government may wish to consider issues relating to guarantee fee,
recourse action for defaults, etc. The best practices demands that these are stipulated to improve
credibility of the borrower and encounter defaults.
By adopting these recommendations the Government will create a well organised procedure for
offering and managing guarantees. If it finds that some of these procedures are too restrictive for a
particular loan application, then it can waiver or by-pass some of the steps. What is important is to
have a sound procedure that can be followed.
8.2.2 Reporting to Parliament:
The GLGG Act does not include a section on `reporting to parliament’ which in our view is a serious
omission, though it is mentioned in the accompanying Regulations (Part IV, sections 17 and 19).
It is recommended that a section called `Reporting to Parliament’ be included in the revised
Loans, Guarantees and Grants Act.
8.2.3 The reporting can be made via an annual debt report, to be submitted not later than 3 months
after the end of the financial year. The annual report shall include:
List of outstanding loan guarantees and other credit schemes;
List of outstanding on-lent loans where the final borrower is obliged to repay the loans via its
generated income;
A fiscal risk statement that includes any defaults.
8.2.4 Public Debt Limit: At present the law does not stipulate a limit on the gross debt of the
country. This limit usually covers public and publicly guaranteed debt. When the limit on debt is
exceeded, the debt becomes unsustainable which may consequently result in an increase in debt
service and an adjustment to the fiscal balances. Best practice today advises that the public debt
limit should be mentioned in budget or public finance act (i.e. Japan) or a fiscal responsibility act
(i.e. Pakistan, 2005). It is recommended that, if this cannot be included in either of the two acts
mentioned, then it has to be included in the debt management act or in the case of Tanzania, the
GLGG Act.
8.2.5 It is important that the primary legislation should only mention that a limit should be set
without providing any quantitative targets which should be in the supporting regulations. The
primary legislation should clearly define public debt:
Should it include publicly guaranteed debt?
Should the debt measured in terms of gross debt or net debt.
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8.3 Guidelines and procedures for loan guarantees and on-lent loans
8.3.1 Guarantee Guidelines and Procedures
8.3.1.1 The first step is to identify priority development projects and programmes that will have
to be undertaken that requires external or domestic funding.
8.3.1.2 The justification for the loan that is to be guaranteed, amount required and repayment
ability of the public corporation must follow the defined approval process set in the
regulations.
8.3.1.3 To assess the repayment ability of a corporation `Credit Scoring Methodology’ will be
employed.
8.3.1.4 Public corporations requesting for guarantees must submit the following financial
information for the past 5 years to the Minister:
Rate of return on capital employed;
Cost as a proportion of income;
Debt to equity ratio;
Profit and Loss account;
Cash flow position;
Balance sheet – Assets and Liabilities.
8.3.1.5 After receiving the above information, the `Credit Scoring’ team from the Ministry of
Finance will add qualitative information such as macroeconomic environment and
industry prospects, corporate governance and quality of management etc.
8.3.1.6 After collating all the information, a risk rating methodology based on scores for each
variable (both qualitative and quantitative) will be employed.
8.3.1.7 All successful applicants will have to obtain a score of 60 per cent or more. The credit
worthiness of an applicant increases with an increase in the score.
8.3.1.8 The Ministry will offer a guarantee to a successful applicant.
8.3.1.9 Depending on the scores, a guarantee fee ranging from 0.25 per cent to 1 per cent on
outstanding debt will be charged for each guaranteed loan. Low scoring borrowers will
pay a higher guarantee fee and vice versa.
8.3.1.10 The financial performance and an up to date repayment schedule shall be supplied to
the Ministry of Finance at regular intervals (i.e. statements every six months)
8.3.1.11 In the event of default by any Government Business Enterprise, Government will take full
responsibility in repaying the loan.
8.3.1.12 The Minister of Finance may take appropriate action including recourse action on the
defaulting enterprise.
8.3.1.13 All expenses related to the processing of the guarantee will be paid by every applicant.
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8.3.2 On-lending Procedures
8.3.2.1 The first step is to identify priority development projects and programmes that will have
to be undertaken that requires external or domestic funding.
8.3.2.2 The justification for the loan that is to be guaranteed, amount required and repayment
ability of the public corporation must follow the defined approval process set in the
regulations.
8.3.2.3 Unlike in a direct loan, there are two loan agreements in on-lending arrangements. The
primary loan is signed between the Lender and the Government, and the subsidiary loan
between the Government and the public corporation. The terms and conditions in the
original or primary loan agreement is not always passed on to the final borrower.
8.3.2.4 New terms and conditions for the on-lent loan regarding disbursement, repayments,
maturity etc. may be included. The interest rates for the on-lent loan may be adjusted to
take in to account, on-lending fees and exchange rate risk.
8.3.2.5 To assess the repayment ability of business enterprises a `Credit Scoring Methodology’
will be applied.
8.3.2.6 Public corporations requesting for on-lent loans must submit the following financial
information for the past 5 years to the Minister:
Rate of return on capital employed;
Cost as a proportion of income;
Debt to equity ratio;
Profit and Loss account;
Cash flow position;
Balance sheet – Assets and Liabilities.
8.3.2.7 After receiving the above information, the `Credit Scoring’ team from the Ministry of
Finance will add qualitative information such as macroeconomic environment and
industry prospects, corporate governance and quality of management etc.
8.3.2.8 After collating all the information, a risk rating methodology based on scores for each
variable (both qualitative and quantitative) will be employed.
8.3.2.9 Based on the assessment, only successful applicants will be offered an on-lent loan.
8.3.2.10 Since the Government is taking a credit risk, a fee on the outstanding debt will be
charged ranging from 0.25 per cent to 1 per cent. Less credit risk applicants will pay a
lower fee and vice versa.
8.3.2.11 all on-lending expenses will be paid by the final borrower.
8.4 Other related legislation
8.4.1 In addition to the legislative framework for Loans, Guarantees and Grants, the Public Finance
Act of 2001(and revised edition 2004) and the Public Corporation Act of 1992 (Amended Act of
1993) were also examined. This is to check whether there are overlapping/duplicated or
inconsistent /contradictory legislative articles between these Acts and the Loans, Guarantees and
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Grants Act. It is important that there is no overlapping or duplication in the articles of various Acts
that would cause confusion. It is also important to ensure that there are no inconsistencies or
contradictory clauses that may give rise to further confusion.
8.4.2 The Public Finance Act and its associated Regulations (2001) has briefly mentioned
contingent liabilities. The Public Finance Act under Part IV – Preparation and Examination of
Accounts- under 25(1 e) mentions a requirement for a statement on contingent liabilities, but no
details are given. This is adequate provided that details appear in the associated Regulations.
8.4.3 The regulations covers contingent liabilities under Part 111- The Basic Of Accounting And
The Preparation of The Annual Accounts, section 55 (4, vii) - and Part VII- Estimates of Revenue
and Expenditure, section 36 (2, d (iv)). However, the coverage here does not provide sufficient
details of what is the scope and coverage of contingent liabilities. It is recommended that more
details on the coverage of contingent liabilities should be highlighted here. It is also recommended
that when reporting a detailed list of contingent liabilities the regulations should clearly stipulate that
liabilities other than loans and credit guarantees should be included since guarantees are already
covered under Loans, Guarantees and Grants Act.
8.4.4 The other related primary legislation is the Public Corporation Act 1992 (amended in 1993).
The Act covers all related aspects- establishment and administration, performance monitoring,
financial provisions and transitional provisions- well with the exception of pricing or tariff setting for
products like electricity, gas and water. Proper price fixing and tariff setting is important since
restrictions applied in setting prices would damage the prospects of loan and guarantee
repayments.
8.4.5 Though the responsibility of price fixing/tariff setting lies with the Energy and Water Utilities
Regulatory Authority (established by Act in 2001) mandated via an Act (Cap 414). It derives its
powers from the Electricity Act (Cap 131); in the petroleum sector, from the Petroleum
(Conservation) Act (Cap 392); in the water and sewerage sectors, from the Water (Utilisation and
Control) Act (Cap 331), the Waterworks Act (Cap 272) and the Dar es Salaam Water Supply and
Sewerage Authority Act (Cap 273). In the case of natural gas sector, some of the regulated
activities are governed by the Petroleum (Exploration and Production) Act (Cap 328). It is
recommended that Public Corporation Act should include an article highlighting pricing or tariff
setting and referring to EWURA.
8.5 Legislative framework for Pensions and Health Insurance Sectors
8.5.1 The TA has reviewed the legislative framework for pensions and health insurance in terms of
whether the laws and regulations are clear, consistent and adequate for providing guaranteed
benefits to the contributing participants.
8.5.2 The overarching legislation that governs the social security related Act is the Social Security
Act (2008) and Amended Act (2012). The amendments made in adequately cover the pensions and
insurance sectors. The following list of Acts and Guidelines are worth noting as they constitute the
overall legislative framework under which all matters related to pensions and insurance are
implemented:
The Social Security (Regulatory Authority) Act (2008);
The Social Security (Amended) Act (2012);
Pension Benefit Harmonization Rules 2014;
The Social Security Schemes Investment Guidelines (2012);
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The Social Security Schemes data management Guidelines (2012);
The Social Security Schemes conduct of Actuarial Services Guidelines (2012);
The Social Security Conduct of the Affairs of the Board of Trustees of Schemes Guidelines
(2012);
The Social Security Schemes (Totalization of Contribution Periods) Guidelines, 2014.
8.5.3 Each of the funds had its own Act; National Social Security Fund Act (1997), National Health
Insurance Fund Act (1999), Public Service Retirement Benefits Act (1999) adopted by Public Sector
Pensions Fund, Parastatal Pension Fund Act (2002), Local Authority Pension Fund Act (2006),
GEPF Act (2013). This meant that each Fund was allowed more freedom to choose decisions
without adhering to overall limits and benchmarks. If complete freedom is allowed to make
decisions regarding general administration, contributions and investments decisions without some
limits, then there is a possibility that those decisions made could impact adversely to defined
benefits schemes. Choice of risky investments and lack of adequate contributions can lead to
inadequate revenues for paying pensions, health and other benefits.
8.5.4 In an interview with Tanzania Invest in January 2014, Ms Irene Isaka11
, the current Director
General of SSRA said challenges are being faced in the social security sector due to fragmentation
of legal and regulatory framework, benefits and investment guidelines. TA learnt that reforms in the
social security sector is still on-going in terms unification of clear guidelines and harmonisation of
pension benefits while maintaining sufficient competition among the pension funds. In this regard,
The Social Security Schemes (Benefits Harmonisation) Rules 2014 that is introduced (under
sections 9, 25. 36) of the Amended Act of 2012 is a progressive step. TA recommends that these
reforms are speedily implemented and we understand that some of the harmonisation steps have
been implemented beginning July 2014.
8.6 Legislative framework for Public Private Partnerships
8.6.1 The legislative framework that is to be reviewed under this section is the risks faced in
financing PPPs and the risk sharing arrangements between private and public sector when
guarantees are offered. Typically, in PPP arrangements, most popular guarantees are in the form of
minimum revenue guarantee or concessions. In PPP arrangements when it began in the advanced
countries, private sector brought in its own funds – in the form of equity and debt- for the project.
The typical PPP arrangements will take the modality of Design- Build- Finance- Operate - Transfer
(DBFOT) schemes. However, in developing countries partial funding may have to be provided by
the government in terms loans or it may have to offer guarantees to the private sector to raise
funds. In addition, minimum revenue guarantees have to be offered for example, toll road projects
or bulk concessions (minimum guaranteed purchase of outputs) for power generation projects. In
addition, there may be other financing risks such as resettlement and compensation offered to
communities that have to be resettled due to take over of land by the Government to build
infrastructure i.e. roads, highways and railways.
8.6.2 As the TA is only concerned with the public financing and risk sharing issues, the review of
the legislative framework has been confined to the above mentioned areas. TA has examined the
PPP Act of 2010, PPP regulations of 2011, and the national policy on PPP prepared earlier in 2009.
In our view the Act and the regulations are well prepared with a comprehensive coverage. Overall
the TA has the following concerns that needs to be clarified or addressed:
11
Tanzania Invest Interview with Irene Isaka, Director General of Social Securities Regulatory Authority, Friday 10th
January, 2014.
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The types of risks faced under PPP are broadly defined as construction risk, demand risk,
financial risk and supply/availability risk. It is recommended that brief statements of the type of
risks that need to be shared are included in the Regulations or policy Guidelines;
The Act does not specify what financing modalities – private debt and equity finance, public
finance, public debt and government guarantees- will be allowed. Therefore it is recommended
that a statement describing what type of modalities will be allowed, should be included;
In the PPP regulation, it is recommended that further details on the risk sharing arrangement
and the financial modalities of the project need to be included. This will enable the Act to be
strengthened further and the implementation easier;
TA has briefly looked at the Land Acquisition Act (1967), Land Act (1999) and Land Dispute
Settlement Act (2002). The provisions made under these are adequate in dealing with
compensation, resettlement and dispute resolution for land take over by the public sector for
PPP projects.
8.6.3 With reference to the PPP Special Bill Supplement (2014), TA’s understanding is that the PPP
Centre shall receive recommendation from the Ministry responsible for finance for matters related to
fiscal risks, affordability and other financial matters; since the two fall under two different ministries
(PMO vs Finance), there is a risk of official bureaucracy intervening although the act has put 15
days as the maximum number of days for such relevant analysis to be taken by ministry
responsible for finance. The TA observes that in many other countries, a PPP Centre would be
housed under the ministry responsible for finance. It is also unclear whether when public finance is
needed to support a PPP project whether this will be done within a national budget appropriation or
outside of it.
8.7 Summary of Recommendations
Table 8.1 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short/medium
term
Additions and modifications to the Government Loans Guarantees and Grants Act (1974 and revised
edition 2004) and Regulations(2003)
Recommendation 1 Section 13 only covers loan guarantees
whereas it should cover all guarantees.
MoF and Attorney
General’s Office
Short term
Recommendation 2 Section 13 A, under (b), guarantee limit is
stipulated as 70 per cent, while when all
other guarantees are included the maximum
is 85 per cent. Also though there is a need to
mention the limit, it is not important to
mention a figure such as 70 per cent. The
figure for the limit can be mentioned in the
regulations and respective policy guidelines.
MoF and Attorney
General’s Office
Short term
Recommendation 3 In general the regulations contain some
sections on the guarantee process which
clearly should be in policy guidelines or
procedures. It is recommended that these
sections are reviewed and clear distinction is
made between what should be in the
regulations and what should be in policy
guidelines.
MoF Short/medium
term
Recommendation 4 A guarantee application must be MoF Medium term
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Recommendations Comments Responsible
institutions/agencies
Short/medium
term
accompanied by a minimum set of financial
performance in the recent past and the
organisational structure of the applying
enterprise. It is advised that a proper credit
scoring model is developed (i.e. South
Africa) and applied based on various
financial performance indicators. This will
enable to assess the repayment capacity of
the applicant. This method can also be used
to assess `on-lent’ borrowers.
Recommendation 5 Though Part II, under foreign loans, cover
some aspects of how foreign loans should
be raised and lent to public corporations and
other agencies, it does not clearly define the
whole procedure for `on-lent’ loans. The Act
should include a section that clearly covers `
On-lending’ to public corporations and local
authorities. The two categories namely on-
lent loans that are repaid via the budget and
repaid by the agency via its own funding
sources must be clearly expressed.
MoF Short term
Recommendation 6 It is important that in all cases the subsidiary
agreement (between the Government and
the final borrower) is prepared.
MoF Short term
Recommendation 7 The Government may wish to consider
issues relating to guarantee fee, recourse
action for defaults, etc. The best practices
demands that these are stipulated to
improve credibility of the borrower and
encounter defaults
MoF and Attorney
General’s Office
Short term
Recommendation 8 A section called `Reporting to Parliament’ be
included in the revised Loans, Guarantees
and Grants Act.
MoF and Attorney
General’s Office
Additions to the Public Finance Act (2001 and Revised 2004) and Regulations (2001)
Recommendation 9 The sustainable debt limit (i.e. gross or net
debt of GDP) should be ideally included in
this Act. If not it should be included in GLGG
Act. It should clearly define whether
guarantees are included in the total debt limit
or not.
MoF Short term
Recommendation
10
More detailed coverage of contingent
liabilities should be included. It is also
recommended that when reporting a detailed
list of contingent liabilities the regulations
should clearly stipulate that liabilities other
than loans and credit guarantees should be
included since guarantees are already
covered under Loans, Guarantees and
Grants Act.
MoF Short/medium
term
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Recommendations Comments Responsible
institutions/agencies
Short/medium
term
Additions to Public Corporation Act (1992) and amended Act (1993)
Recommendation
11
Should include article highlighting pricing or
tariff setting and referring to EWURA.
EWURA Short/ medium
term
Additions to Pensions Act (fragmented acts at present)several at the moment)
Recommendation
12
Reforms to unify and harmonise pension
acts for ensuring pensions benefit
guarantees.
Ministry of Finance
and SSRA
Short term
Additions to PPP Act (2010) and PPP Regulations (2010)
Recommendation
13
Clarification on institutional responsibilities
and functions in PPP public financing and
fiscal risk allocations.
MoF and Prime
Minister’s Office(PPP
Centre)
Short term
Recommendation
14
In the Act, what types of financing modalities
are permitted should be stipulated. A brief
description of the various risks to be shared
between private and public sectors should
be included.
MoF and Prime
Minister’s Office(PPP
Centre)
Short term
Recommendation
15
In the Regulation, details of risks should be
included.
MoF and Prime
Minister’s Office(PPP
Centre)
Short term
8.8 References of the Main Acts and Regulations reviewed:
1. Government Loans, Guarantees and Grant Act (1974) and revised version (2004), and
Regulations (2003);
2. Public Finance Act (2001), revised edition (2004) and Regulations (2001);
3. Public Corporations Act (1992) and revised Act (1993);
4. Energy and Water Utilities Regulatory Authority Act (2001);
5. Dar es Salaam Water Supply and Sewerage Authority Act (1981, revised in 2001);
6. The Social Security (Regulatory Authority) Act (2008);
7. The Social Security (Amended Regulatory Authority) Act (2012);
8. National Social Security Fund Act (1997);
9. National Health Insurance Fund Act (1999);
10. Public Service Retirement Benefits Act (1999) adopted by Public Sector Pensions Fund;
11. Parastatal Pension Fund Act (2002);
12. Local Authority Pension Fund Act (2006);
13. Public Private Partnership – Act (2010) and Regulations (2010);
14. Land Acquisition Act (1967);
15. Land Dispute Settlement Act (2002);
16. PPP- Special Bill Supplement (2014).
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9 Disclosure and Reporting of Contingent liabilities
9.1 Statistical Presentation
9.1.1 This section covers the disclosure and reporting requirements of contingent liabilities. Better
disclosure helps to become more transparent about contingent liabilities and reporting them has to
meet accepted standard practices. There are also different views on whether contingent liabilities
are actually liabilities when they are entered into or become so only when the contingent event
occurs. For example, current accounting standards (accrual such as IPSAS) recognize
contingent liabilities as liabilities if it is deemed to have a more than 50 per cent chance of a default
occurring. This requires reliable measurement and in this case the expected value of the payments
is recognized as a liability on the balance sheet and expense in the income statement. Current
statistical standards (UN-SNA), on the other hand, recognizes contingent liabilities only if and
when the contingency actually materializes and the obligation must be met by Government.
9.1.2 For loan and credit guarantees that fall in to the category of one-off and standardised
guarantees a simple format on presentation (example) for disclosure is given below;
Table 9.1 category of one-off and standardised guarantees for disclosure
Type of Guarantee Loan / Export Credit/SME etc.
Project/sector Identification Energy/Electricity
Creditor IBRD, Pension Fund etc.
Borrower Tanesco
Guarantee Agency Government
Contracted date 31-12-2002
Original Amount USD 300 mln
Loan –currency US dollars
Interest rate 3 %
Original maturity 20 yrs
Balance outstanding USD $ 200mln
Status A narrative on the status of next repayment due i.e.
ability to repay
The above presentation which contains the details of the loan guarantee should be made on every
individual loan / guarantee. This format can be also used for export credits and SME credits. Status
should explain whether guarantee repayments will be met or not. If this can be included then this
format will satisfy both statistical reporting and fiscal risk position. Already similar but more basic
formats are in use (i.e., MoF and Treasury Registrar) but need to be further strengthened in terms
of accuracy, timeliness and details.
The above information should be further supplemented by an aggregate statistical table
representing all the major categories of contingent liabilities of Tanzania and their magnitudes
during the completed fiscal year.
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Table 9.2
Types of Contingent Liabilities Amount during Previous Fiscal
year
Amount during the current
fiscal year
One-off guarantees
Standardised guarantees
PPP guarantees issued
Litigations
On-lent loans with credit risk
Other un- expected contingent Claims
The other type of guarantees such as pending litigations, minimum revenue guarantees, unitary
concessions, social security scheme provisions and do not require such detail and at the initial
stage these can be presented and disclosed under a fiscal risk presentation.
9.2 Fiscal Risk Reporting of Contingent Liabilities
9.2.1 In line with IMF’s Code for Fiscal transparency (revised 2013, Section 3 under Fiscal Risk
analysis and management) and IMF’s Public Sector Debt Statistics-Guide for Compilers and Users
(2012, chapter 9 section D Fiscal Risk and Vulnerability) Fiscal risk reporting is becoming more
relevant for better governance. When preparing and attaching a Fiscal Risk statement to the
budget, it is important that it includes the likely fiscal risks caused by contingent liabilities.
9.2.2 A brief definition of fiscal risk can be defined in terms of any potential deviation between
actual and expected fiscal outcomes. These differences can be caused by implicit and explicit
contingent liabilities. As a first step, in preparing a fiscal risk statement that includes contingent
liabilities and submitted as an attachment to the budget document, a list of all contingent liabilities
should be identified and listed. If it is possible, the likely risks of defaults, expected outcomes and
efforts that are to be taken to mitigate it can be expressed in a narrative form, even if it is not
possible to prepare a presentation that contains measurement or quantitative analysis.
9.2.3 The TA recommends that the Government also adheres to standards set in IMF’s Code for
Fiscal Transparency (revised version 2013), especially section III) Fiscal Risk Analysis and
Management (Risk Disclosure sub sections 3.1.2 and 3.2.5) and (Fiscal Coordination sub-section
3.3.4). The Government is advised to adopt these standards using a gradual phased approach. In
terms of timeframes, many advanced countries (i.e. South Africa), monthly, quarterly and annual
reporting are carried out. However, for Tanzania, the TA recommends that at the initial stage it can
prepare the annual financial statement/budget presentation (for the next year) that includes a list of
contingent liabilities and the potential fiscal risks likely to be caused by such liabilities.
9.2.4 As a sample format for presentation the TA proposes the following table:
Table 9.3 sample format for presentation
Type of Guarantee Exposure
(amount of principal outstanding
plus accrued interest
Status
Loan guarantees
Standardised guarantees- export
credits, SME etc.
On-lent loans with credit risk
PPP – Minimum Revenue
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Type of Guarantee Exposure
(amount of principal outstanding
plus accrued interest
Status
Guarantee-
PPP- Concession guarantee -
Litigations
Social security payments including
pensions
9.3 Accounting Disclosure of Contingent Liabilities
9.3.1 Although risks associated with contingent liabilities can affect the sustainability of fiscal
position of a government, they are more often not disclosed to decision makers or the information is
presented in financial statements but it is not in understandable form. Adequate disclosure of
contingent liabilities would go a long way towards triggering action to scale down growth in off-
balance sheet items. In this section we highlight disclosure practice of contingent liabilities in the
government financial statements.
9.3.2 The National Board of Accountants and Auditors in Tanzania, since 2004, fully adopted
International Accounting Standards for use by both private and public entities in the country.
Consequently, the private entities and government business enterprises are required to report their
financial statements according to the International Financial Reports Standards (IFRS) while public
entities (including government non-business entities) are required to report their financial
statements according to International Public Sector Accounting Standards (IPSAS). There is also
IFRS for SMEs focusing only on the Small and Medium Enterprises in Tanzania. The Government
of Tanzania since July 2012 adopted the use of accrual basis of Accounting in its reporting of
central government financial affairs. The migration is intended to generate high quality and
internationally comparable financial reports. In 2006 Government of Tanzania had migrated to
cash-basis IPSAS and the financial statements since then to June 30, 2012, have been prepared
under cash-basis IPSAS and audited by the Controller and Auditor General, the National Audit
Office, Tanzania. Some contingent liabilities, particularly litigations were disclosed even then.
9.3.3 Based on the assessment done, the TA has established that that the Government
Consolidated Financial Statements for the period ended June 2013 were for the first time prepared
using accrual basis of International Public Sector Accounting Standards. Local Government
Authorities and government business enterprises were already preparing their financial reports
using accrual-basis IPSAS or IFRS as the case required. The Standards require that an entity that
prepares and presents financial statements under the accrual basis IPSAS apply IPSAS 19 in
accounting for Provisions, Contingent liabilities, and Contingent assets. According to IPSAS 19,
which is applicable for Central Government financial reporting, a contingent liability is:
(a) A possible obligation that arises from past events, and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the reporting entity; or
(b) A present obligation that arises from past events, but is not recognized because:
i. It is not probable that an outflow of resources embodying economic benefits or
service potential will be required to settle the obligation; or
ii. The amount of the obligation cannot be measured with sufficient reliability.
A legal obligation is an obligation that derives from a contract, legislation or other operation of law.
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9.3.4 An entity shall not recognize a contingent liability, a contingent liability is only disclosed,
unless the possibility of an outflow of resources embodying economic benefits or service potential is
remote. Where an entity is jointly and severally liable for an obligation, the part of the obligation that
is expected to be met by other parties is treated as a contingent liability to the entity. For example,
in the case of joint venture debt, that part of the obligation that is to be met by other joint venture
participants is treated as a contingent liability. Government guarantees and litigations of civil nature
against the government are some of the examples that could qualify as contingent liabilities.
9.4 Contingent liabilities of Public Authorities and other Bodies (PAOBs) and
LGAs
9.4.1 The contingent liabilities of PAOBs or LGAs are not under the direct control of the Central
Government. However, any contingent liabilities which the relevant entity might not be able to meet
from within their own resources when they crystallise could fall to the Central Government. The
Central Government should therefore be satisfied that there are adequate arrangements in place to
ensure that the acceptance of contingent liabilities by the entities concerned is consistent with the
entities' defined powers and that, in the event of the contingent liabilities maturing, the bodies would
have the ability to meet the costs from within their own resources. Any contingent liability which the
entities might not be able to meet from within their own resources should be treated in the same
way as the Central Government's own contingent liabilities.
9.5 Accounting treatment of contingent liabilities
9.5.1 The accounting treatment depends on the assessment of the likelihood of adverse outcome;
either likely, medium or unlikely to crystalize for an entity.
Likely
Contingent liabilities that are assessed as likely to result in an adverse outcome and which can be
estimated, are totalled and recorded as an estimated liability and recognised. No disclosure is
provided of either the individual estimates or the total amount of the allowance. In the case where
an accrual is recorded but only covers a portion of the estimated range of liability, the difference
between the amount recorded and the top of the range should be considered for disclosure in the
notes to the financial statements.
Medium
Contingent liabilities where the likelihood of an adverse outcome is assessed as medium or where
the likelihood cannot be determined and for which a potential liability has been estimated are
totalled and disclosed in the notes to the financial statements. The fact that the estimate covers
only a portion of all claims against the Government is also disclosed.
Unlikely
Contingent liabilities that are assessed as unlikely to result in an adverse outcome are provided no
accounting treatment.
The central government has set for itself a 5 years’ transition period from July 2012 to fully comply
with IPSAS and that includes, IPSAS 19 on contingent liabilities. On the other hand, Government
Business Enterprises are guided by IFRS (IAS 37 Provisions, Contingent Liabilities and Contingent
Assets).
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In the table below, we summarise a guide that can help determine when to recognise or disclose
contingent liabilities. The Government can use the guide to determine which contingent liabilities
should be recognised, which ones should be disclosed and which ones not to be reported at all.
Table 9.4 guide to help determine when to recognise or disclose contingent liabilities
Likelihood and measurability
of loss
Loss more likely than
not (probability>50%)
Loss less likely but
more than remote
Loss remote
Loss can be measured Record in financial
statements and disclose
nature of contingency
Disclose nature of
contingency and amount
No disclosure
Loss cannot be reasonably
measured
Disclose nature of
contingency
Disclose nature of
contingency
No disclosure
9.6 Disclosure of Contingent Liabilities in Central Government
9.6.1 As already stated above, the Central Government’s Consolidated Financial Statements for the
year ended 30 June 2013 were prepared based on IPSAS Accrual Basis. To comply with the
requirements of the standards, contingent liabilities in addition to other disclosures were disclosed
in the Consolidated Financial Statements of the Government. The total contingent liabilities
disclosed during the period amounted to TZS 526,244,283,984. The list of litigations included in the
Consolidated Financial Statement for the year ended 30 June 2013 are presented below by entity
and face value. It is important to point out here that the disclosure in CFS was not comprehensive
and therefore the amount disclosed does not represent the total amount of contingent liabilities by
the Government.
Table 9.5 list of litigations included in Consolidated Financial Statement for year ended 30 June 2013
List of contingent liability (litigations) as disclosed in the CFS 30 June 2013 TZS
PM – Office 870,000,000
Ministry of Agriculture 1,474,581,567
Ministry of Education 2,320,346,676
Ministry of Water 7,768,530,893
Ministry of Health and Social Welfare 2,592,000,000
CHRGG 2,095,000,000
Ministry of Minerals 404,268,130,000
Ministry of Natural Resources 22,433,614,827
RAS Lindi 240,713,467
RAS Mara 272,200,000
RAS Singida 17,171,650
RAS Tabora 154,180,013
RAS Tanga 101,918,400
Ministry of Works 80,733,841,991
Ministry of Livestock and Fisheries 902,254,500
Total 3091,145
9.6.2 During the period ended 30 June 2010, contingent liabilities, made up only of litigations and
disclosed were TZS 26,276,783,317. The disclosed contingent liabilities in the Consolidated
Financial Statements were made up of outstanding litigations against Central Government
Ministries and Regional Secretariats. The contingent liabilities disclosure did not include other
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classes of contingent liability e.g. various Government guarantees that were in existence during the
reporting year, e.g. loan guarantees, pension guarantees, etc.
9.6.3 SME and Export Credit Guarantee Schemes both managed by the Bank of Tanzania were
disclosed under a separate note (guarantees) in the Consolidated Financial Statements amounting
TZS 799,596,351,406 (SME credit guarantee scheme TZS 499,495,426,401 and Export Credit
Guarantee Scheme TZS 300,100,925,005). Although they were separately disclosed in the financial
statements, these standardised guarantees were not disclosed under contingent liabilities. In
addition, various direct guarantees issued to various PAOBs have not been disclosed in CFS.
Classes of contingent liabilities that have not been disclosed in the CFS are: PPP guarantees,
Pension guarantees, Higher Education student loans, Callable share capital, Indemnities, Joint
venture liabilities, and Environmental and disposal guarantees.
9.7 Disclosure of contingent liabilities in PAOBs
9.7.1 Most PAOBs are preparing their financial statements to comply with International Financial
Reporting Standards (IFRS). International Accounting Standard, IAS 37 which covers Provisions,
Contingent Liabilities and Contingent Assets outlines the accounting for provisions (liabilities of
uncertain timing or amount), together with contingent assets (possible assets) and contingent
liabilities (possible obligations and present obligations that are not probable or not reliably
measurable).
9.7.2 The TA therefore reviewed Financial Statements of some PAOBs to determine the level of
disclosure of contingent liabilities in their financial statements as required by accounting standards.
The team has established that overall, most organisations comply with the requirement to disclose
contingent liabilities, IAS 37 or IPSAS 19. In the table below we highlight some examples of
contingent liabilities that were disclosed by the various PAOBs whose financial statements we
reviewed.
Table 9.6 Examples of contingent liabilities disclosed by various PAOBs financial statements reviewed
Name of PAOBs Disclosures
TTCL Litigations – TZS 11,893 million corporate tax liability claims, TZS 773 million
indirect tax liability claims by TRA; various lawsuits amounting to TZS 33,584
million. Still under dispute.
Tazara In the Tazara FY 2012 Financial Statements, there is a disclosure statement
stating presence of litigations, although no face value has been disclosed.
A statement on potential unpaid penalties and interest for non-payment of PAYE
and pension contributions has been disclosed but there is no estimate of the value
of the contingent liability.
NHIF FY 2012/13, there was no contingent liabilities during the period however,
contingent liabilities are usually disclosed in the Financial Statements.
NSSF FY 2011/12, there is a note of the presence of litigations but the face value of the
claims has not been disclosed.
MSD FY 2012/13, contingent liability disclosed for litigations during the period,
amounting to TZS 144 million. No other contingent liabilities have been disclosed.
NBAA FY 2012/13, contingent liabilities of mainly court cases of TZS 380 million have
been disclosed.
TPA FY 2012/13, TPA had disclosed litigations in Financial Statements, chief being TZS
337,727.1 Million against Mvita Construction Company Ltd. Other litigations are
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Name of PAOBs Disclosures
employment cases (TZS 8,556,575,589), Port operation cases (TZS
7,545,517,464), Contract and land related cases (TZS 4,454,000,000) and Others
including defamation (TZS 59,499,000).
There are also unresolved corporate tax disputes with TRA amounting to TZS
72,500,403,472.
Dawasco FY 2012/13 Contingent liabilities related to key performance targets with Dawasa
have been disclosed.
Unpaid Statutory requirements with respect to PAYE to TRA and staff pension
contribution all amounting to TZS 8 billion has been disclosed.
Disputed tax liabilities amounting to 15.5 billion related to income tax, PAYE, VAT,
withholding tax have been disclosed.
EWURA FY2012/13 Some litigations have been disclosed in Financial Statements however,
there are no values that have been attached or the probability of success of the
cases based on past experience.
TAA Contingent liabilities have not been disclosed, however, they have litigations in
court of laws worth disclosing.
LAPF FY 2012/13, LAPF discloses contingent liabilities in its financial statement but there
was no such contingent liabilities during the reporting year.
PSPF FY 2012/13, PSPF disclosed contingent liabilities in its financial statement but
there was no such contingent liabilities during the reporting year and therefore the
note was empty. There were no other contingent liabilities disclosed.
NHC FY 2012/13, NHC discloses contingent liabilities; the total amount claimed in the
various lawsuits approximates to TZS 16,809 million during the reporting year.
TWB FY 2013, disclosed contingent liabilities made up of litigations and of advance
guarantees and performance bond (TZS 173,268,600). The provision was done for
established amounts for probable lost court cases.
Tanesco FY 2012, disclosed litigations by standard Chartered Bank Hong Kong against
Tanesco and IPTL demanding a payment of US$ 71,140,437 for unpaid capacity
charges and increasing at a rate of Us$ 2,659,669 per month since 2008 i.e.
US$258.7 million as of 31st Dec 2012.
Another litigation by Dowans Tanzania Ltd demanding US$65,812,630.33plus
interest of 7.5% per annum rom 15 November 2010. “The directors believe that in
the event that the company is obliged to settle the potential liability, the GoT
through the Ministry of Energy and Minerals shall finance it with immediate effect”.
9.7.3 How to Report Contingent Liabilities
Although most government entities disclose contingent liabilities in their financial statements, the
information that is provided is not always appropriate enough to help in decision making. The
disclosed information in financial statements is expected to be meaningful enough to provide
information for assessing potential fiscal impact of contingent liabilities, information should be
presented to explain the government’s policy and rationale in support of contingent liabi lities, and
information should disclose stock of contingent liabilities in comparable years. Based on IPSAS 19
and best practice from other countries, the following information for each item of contingent liability
is required:
Brief description of the nature of the contingent liability and the expected timing of payments;
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An indication of uncertainties about the amount or timing of these payments including the major
assumptions made concerning future events;
The possibility of any reimbursements; and
Amount at the beginning and end of period and the breakdown of the changes during the
period, including cause.
The government should present an estimate of the financial effect of each class of contingent
liabilities; if it is not possible or practicable then that fact should be stated clearly. The Government
is therefore recommended to fully adapt to the requirements of IPSAS 19 when disclosing
contingent liabilities. In Addition, PAOBs should also be required through TR to fully comply with
IPSAS 19 or ISA 37 as the case may be. In the medium to long term, the capacity of NBAA (The
National Board of Accountants and Auditors) should be strengthened to enable it monitor
compliance of all public interest entities to accounting standards i.e. IPSAS 19, IAS 37.
9.8 Summary of Recommendations
Table 9.7 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short/medium
term
Recommendation 1:
Individual loan guarantee and
on-lent loan with credit risk
Details of each loan
guarantee, credit guarantee
and on-lent loan (with credit
risk). Proposed table format
9.2.1 a.
MoF (Budget, Debt
and Acc Gen)
Short term
Recommendation 2:
Aggregate statement of
Current and previous year on
contingent liabilities
Disclosure /reporting of
aggregate amounts of
previous and current year of
major categories of
contingent liabilities 9.2.1 b.
MoF (Budget, Debt
and AccGen)
Short term
Recommendation 3:
Aggregate fiscal risk
statement
Fiscal risk due to contingent
liabilities for the forthcoming
year. Exposure and probable
outcome. an attachment to
the national budget.
MoF (Budget and
Debt)
Short term
Recommendation 4: The
Government should fully
adapt to the requirements of
IPSAS 19 when disclosing
contingent liabilities.
The disclosed information in
financial statements is
expected to be meaningful
enough to provide information
for assessing potential fiscal
impact of contingent liabilities,
information should be
presented to explain the
government’s policy and
rationale in support of
contingent liabilities, and
information should disclose
stock of contingent liabilities
in comparable years.
MoF (AccGen) Medium term
Recommendation 5:
Treasury Registrar should
TR should monitor disclosure
of contingent liabilities by
MoF (TR) Short term
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Recommendations Comments Responsible
institutions/agencies
Short/medium
term
ensure comprehensive
disclosure of Contingent
liabilities for PAOBs
PAOBs by requiring full
compliance of IPSAS 19 or
ISA 37 as the case may be
for all organisations under its
mandate.
Recommendation 6:
AGC should compile annually
all litigations for disclosure
purposes and share it with
Accountant Generals Office
The AGC develop a computer
database to keep all
litigations that face the GoT
and which might crystallise
into liabilities. There should
be a specific requirement that
such information is submitted
to Accountant General
annually.
Attorney Generals
Office and MoF
(AccGen)
Short to medium
term
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10 Institutional Arrangements for Managing Contingent Liabilities
10.1 Introduction:
10.1.1 In many of the more advanced countries, the contingent liabilities are managed within an
Asset/Liability management framework or a Treasury management framework. On the other hand,
in most developing countries, contingent liabilities are managed on ad hoc basis with no specific
reference to its institutional responsibility or proper terms of reference in terms of scope and
coverage. It is also evident that in developing countries the main or in some cases the only
contingent liability that is recognised is loan guarantees. Even under such narrow coverage, much
work is needed in monitoring and managing such guarantees. As other types of contingent liabilities
become gradually recognised with wider scope and complexity, more focused attention will be
needed to monitor and manage these contingent liabilities.
10.1.2 Over time many developing countries have come to recognise the increasing number and
the impact of explicit contingent liabilities such as other credit schemes, unfunded pensions, PPP
guarantees, litigations, indemnities schemes. Implicit guarantees such as natural disasters and
bank failures/bail outs to protect savers have also been recognised.
10.1.3 There are two sets of questions to be addressed. The first is related to governance and
administration issues which mainly cover the legal framework, guidelines to offer guarantees,
recording, budgeting, accounting, reporting/disclosure. The second is related to institutional
responsibilities and coordination for information sharing and decision making. In the past, it was
much easier since the only contingent liability that was acknowledged and dealt with was loan
guarantees. This function was conveniently placed in a debt management unit within the Ministry of
Finance.
10.2 Recommended Institutional Structure and Responsibilities:
TA proposes a Front, Middle and Back Office (F_M_B) structure:
Figure 10.1 Recommended Institutional Structure and Responsibilities
Front Office Middle Office Back Office
Guarantee negotiations;
On-lent negotiations.
Credit risk analysis and valuation of guarantees and on-lent loans; PPP Finance and risk analysis; Interpretation of Actuarial studies; Analysis of potential defaults of other contingent liabilities.
Initial recording of loan guarantees and on-lent loans; Collating other data from institutions i.e. TR, BOT; Preparation of data for fiscal risk and contingent liabilities report.
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In brief, the Front Office functions are related to negotiations and assessing the various financing
opportunities in the form of guarantees and on-lending arrangements, export credit guarantees etc.
The Middle Office functions include analysing the options and recommending the most desired
option for negotiation and funding programmes and projects. The Back Office functions include
recording, receiving various contingent liabilities reports that are prepared by outside agencies,
contributing to fiscal risk reports and disclosure of contingent liabilities.
10.3 Terms of Reference and Responsibilities
Front Office
1. Negotiating for on-lending type loans and guaranteed loans, export credits, bond issuance etc.;
2. Participating in Fiscal risk reports due to contingent liabilities and general statistical reports
(jointly with Middle and Back Offices and other departments in the Ministry of Finance);
3. Staff should regularly update their skills and competence to meet the requirements to fulfil their
responsibilities and specific tasks.
Middle Office
1. As contingent liabilities such as guarantees and on-lending arrangements face credit risks it is
important that credit risk analysis are carried out. This will involve various analytical techniques
such as default calculations, simulations and scenario analysis;
2. Under PPP arrangements, ability to calculate risk sharing proportions between the public and
private sector;
3. Ensure that Debt Sustainability Analysis and Medium Term Debt strategy preparations include
contingent liabilities. Establish benchmarks for indicators that include relevant contingent
liabilities;
4. Ability to analyse other reports – actuarial valuation reports for pensions funds, litigations from
Attorney General’s Chambers, Auditor Generals reports, PPP performance reports etc.;
5. Participating in Fiscal risk reports due to contingent liabilities and general statistical reports
(jointly with Middle and Back Offices and other departments in the Ministry of Finance);
6. Staff should regularly update their skills and competence to meet the requirements to fulfil their
responsibilities and specific tasks.
Back Office
1. Recording on-lent and guaranteed loans;
2. Ensuring that guarantee letters and on-lending agreements (both the main and subsidiary) and
other contractual obligation letters and notices are stored in a safe place;
3. Receive and act as a registry for all the other reports that cover other types of contingent
liabilities (see information flow arrangements in section 10.5);
4. Provide data and information on contingent liabilities for DSA and MTDS exercises;
5. Participating in Fiscal risk reports due to contingent liabilities and general statistical reports
(jointly with Middle and Back Offices and other departments in the Ministry of Finance);
6. Staff should regularly update their skills and competence to meet the requirements to fulfil their
responsibilities and specific tasks.
The TA recommends that a small staff complement of three (3) be allocated to manage and monitor
the contingent liabilities. Since there is not a dedicated contingent liabilities management unit, the
responsibilities and functions can be carried out by the relevant debt management staff with
cooperation with other departments in the Ministry of Finance.
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10.4 Contingent Liability Committees
TA recommends that two committees are set up to monitor and manage the contingent liabilities.
First to establish a Management committee that is responsible for making decisions and the second
to establish a technical committee that supports the management committee, providing advice and
consultancy based on sound analysis and assessments.
Members of the Management Committee
Senior member (at least Deputy PS level) Ministry of Finance- Head of Committee;
Head of Contingent liabilities Division;
Senior member of the Accountant Generals Department;
Other senior members from relevant institutions depending on the type of contingent liability
being considered.
Members of the Technical Committee
Senior member (at least Deputy Commissioner level) Ministry of Finance – Head of Committee;
Contingent Liabilities division technical staff;
Other Ministry of Finance technical staff depending on the type of contingent liability being
addressed;
Technical staff from Accountant General’s Department;
Outside agency technical staff depending on the contingent liability issue being addressed.
10.5 Information Flow arrangements
10.5.1 It is important that a central place is designated to receive all statistics and information on all
the various types of contingent liabilities that is managed outside the Contingent liabilities unit within
the Ministry of Finance. As stated earlier, contingent liabilities unit or a broader unit of liabilities
management (including debt liabilities) will be mainly involved in managing on-lent loans and
guarantees. However the inclusion of other contingent liabilities where the management is carried
out outside the MoF will mean that information flow and coordination should be strengthened. The
following diagram shows the likely flows need and the responsible institutions.
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Figure 10.2 Information Flow arrangements
10.5.2 TA recommends that the collection of information and reports be carried out at the Back
Office. After collection of the information it can be distributed to the Front and Middle Offices as
required. This information flow must be formalised in terms of timeliness of supplying data and its
quality and consistency. The timeliness of reporting can vary from week, month, quarterly to annual.
Various periodic reports will be compiled by the contingent liabilities unit and distributed to the
various interested parties.
Interim arrangements for monitoring and reporting of contingent liabilities
10.5.3 The TA’s view is that it will take some time to establish a new Contingent Liabilities Unit in
accordance with the Front-Middle-Back office arrangement with qualified staff and to formally create
all the necessary information channels that will help to fulfil all the related functions of contingent
liabilities. However, in view of some of the critical work that need to be started, in the interim, it is
suggested that one staff from CPAD and one staff from Acc Gen’s Office (each giving 50 percent of
their work time) be allocated to carry out these functions. The TA identifies the following functions
be performed with defined targets to be achieved by next year’s national budget (2015/16)
submission in June.
1. Strengthening on-going legislative framework on guarantees;
2. Introduction of guarantee and on-lending guidelines;
3. Identifying and listing all loan and credit guarantees which will include data collection;
4. Preparing fiscal risk statement for contingent liabilities.
Back Office
Attorney General's Office
Litigation cases pending and latest evaluation report
Parent Ministry and Corporation
-performance Report and Finanacial statements
SSRA
Actuarial Valuation Reports Bank of
Tanzania
Export Credit Guarantees and SME guarantee
reports
MoF
AccGen Office
Budget Office
Treasury Registrar
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10.6 Summary of Recommendations
Table 10.1 Summary of Recommendations
Recommendations Comments Responsible
institutions/agencies
Short/medium term
Recommendation 1: Interim
structure with responsibilities
A small functional unit with
2 staff, one from CPAD
and other from AccGen (50
% of the work time)
CPAD and AccGen of
MoF
Short term
Recommendation 2: set up a
clear institutional structure
To monitor and manage
contingent liabilities. Clear
Terms of Reference,
responsibilities and
functions
Contingent Liabilities
Unit to established in
the MoF
Medium term
Recommendation 3:
Strengthening capacity and
skills
Recruit the appropriate
staff, provide relevant
training
Contingent Liabilities
Unit to established in
the MoF
Medium term
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Annex 1: People contacted and their organisations
1. Prof Adolf Mkenda – Deputy PS,
Ministry of Finance
2. Ms. Dorothy Mwanyika – Deputy
PS, Ministry of Finance
3. Mr. Bwire Magere – Debt Office,
Ministry of Finance
4. Mr. Alice Matembele – PER
Secretariat, Ministry of Finance
5. Mr. Sigsbert Kavishe – PER
Secretariat, Ministry of Finance
6. Mr. Elias Mwakibinga – Treasury
Registrar Office
7. Mr. William Bohunire – Treasury
Registrar Office
8. Mr. Peter Gwagiro – Treasury
Registrar Office
9. Mr. Guy Anderson – East AFRITAC
10. Mr. Tawafiq Ramtoolah – East
AFRITAC
11. Mr. Fazeer Sheik Rahim – East
AFRITAC
12. Mr. Samuel Mayiku – PPP Unit,
Ministry of Finance
13. Dr. Frank Mhilu – PPP Unit, Ministry
of Finance
14. Ms. Virginie De Ruyt – European
Union
15. Ms. Victoria Cunningham – World
Bank
16. Ms. Fatuma Kimario – Bank of
Tanzania
17. Mr. Ismail Lasekwa – Accountant
General’s Office
18. Mr.Phillip Mlewo – Accountant
General’s Office
19. Ms. Tatyana Bogomolova – WB,
Pensions Study
20. Ms. Barbara Calvi – WB, Pensions
Study
21. Mr. Sergi Biletsky – WB, Pensions
Study
22. Mr. Thomas Baunsgaard – IMF,
Resident Representative
23. Mr. Jeff Delmon – WB, PPP Advisor
24. Mr. Idan Makala – Treasury
Registrar Office
25. Mr. Elikana Ally – Treasury
Registrar Office
26. Ms. Irene Kisaka – SSRA, Director
General
27. Ms. Lightness Mauki – SSRA
28. Mr. Reuben Mmasa – Accountant
General Office
29. Ms. Frida Mwakifanmba – RAHCO
30. Mr. Cyprian Mugemuzi – RAHCO,
Director of Finance
31. Eng. Felix Nlalio - RAHCO
32. Eng. Omari Aminiel – RAHCO
33. Mr. Fuad Abdallah – RAHCO
34. Mr. Alfred Missana – MoF
35. Mr. Nuru Ndille – MoF
36. Mr. Laurent Mwigune – Tanzania
Airports Authority
37. Mr. Msoke – Tanzania Airports
Authority
38. Mr. Joachim Magambo – Tanzania
Airports Authority
39. Ms. Asteria Ndunguru - Tanzania
Airports Authority
40. Mr. Cosmas Sasi – PPF
41. Mr. Arun Che – PPF
42. Mr. Celestine Some – PPF
43. Mr. Godbless Rosian - PPF
44. Mr. Fortune Magambo – LAPF
45. Ms. Rose Meta – LAPF
46. Ms. Anatolia Anatory – Accountant
General Office
47. Mr. Msafiri Mtepa – Ewura
48. Ms. Rosemary Lyamuya – Dawasco
49. Mr. Leone Mtego – Dawasco
50. Mr. Elias Kalowa – Dawasco
51. Mr. C. Magori – NSSF
52. Mr. Ludovick Mrosso – NSSF
53. Mr. S. Riwa – NSSF
54. Mr. Chedrick Komba – NSSF
55. Mr. Abdallah Mseli – NSSF
56. Mr. Sais Kyejo – Dawasa
57. Dr. Joctan Matogo – Ewura
58. Ms. Mponji – Ewura
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59. Ms. Irene Nzagi – Ewura
60. Mr. Siame – Tanesco
61. Ms. Amina Muhaji – CRDB
62. Mr. Xavery Makwi – CRDB
63. Mr. Sosthenes Biseko – CRDB
64. Mr. Richard Mwakalukwa – NMB
65. Mr. Mark Wiessing – CEO, NMB
66. Mr. Deusdedith Rutazaa – NHIF
67. Ms. Christina Ilumba – NHIF
68. Mr. Michael Mhando – NHIF
69. Mr. Ally Othman – NHIF
70. Ms. Grace – NHIF
71. Ms. Jane Kijazi – NHIF
72. Mr. David Sikaponda – NHIF
73. Mr. Mziray – NHIF
74. Mr.Dome Malosha – CHC
75. Mr. Methusela Mbajo – CHC
76. Mr. Albert Semhindo – CHC
77. Ms. Germana Ibreck – CHC
78. Ms. Clara Kanza – CHC
79. Ms. Luciana Maganga – CHC
80. Mr. Badru Ami – Air Tanzania
81. Mr. Ernest Kituri – Air Tanzania
82. Mr. Wenceslaus Mkenganyi –
NBAA
83. Mr. Remi Urio – NBAA
84. Mr. Adam Mayingu – CEO, PSPF
85. Mr. Masha Mshomba – PSPF
86. Mr. Godfrey Ngonyani – PSPF
87. Mr. Maftah Ibrahim – PSPF
88. Mr. Andrew Mkangaa – PSPF
89. Mr. Abdul Mwinyi – PSPF
90. Mr. Godlove Mville – TTCL
91. Mr. Felix Maagi – National Housing
Corporation
92. Mr. Cosmas Kimario – National
Housing Corporation
93. Mr.Kisiraga Jasper – TRL
94. Mr. Hoseah Albert – TRL
95. Mr. Aloyce Mshilli – TRL
96. Ms. Barke M.A. Sehel – Attorney
General Chambers
97. Mr. Michael Luena - Attorney
General Chambers
98. Ms. Sia Mrema - Attorney General
Chambers
99. Ms. Ndeonika Mwaikambo -
Attorney General Chambers
100. Mr. Kamwaya Evans – Tazara
101. Mr. Gisbert Sambala – Tazara
102. Mr. Justin Kabela – Tazara
103. Mr. Chiduga Christian – Tanzania
Ports Authority
104. Mr. I. Masoud - Tanzania Ports
Authority
105. Ms. Koku Kazaura - Tanzania Ports
Authority
106. Mr. Mathayo - Tanzania Ports
Authority
107. Mr. A. Massawe - Tanzania Ports
Authority
108. Eg. Madeni Kipande – CEO,
Tanzania Ports Authority
109 Mr Jean Jose Padou, Canadian
Cooperation Office,
110 Mr JP Fanning, Economic and
VfM Advisor, DFID
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Annex 2: Questionnaires
a. Questionnaire: Banks and Funding Agencies
This questionnaire is for Banks like CRDB and NMB which gives export credits and loans to Small
and Medium size Enterprises and Pension funds like PSPF under some form of Government
guarantees.
1. Policies and coverage of lending
2. Application and approval process
3. Credit assessment techniques
4. Past 5 years performance record
5. If defaulted – type of projects, sector
6. Default rate calculation and amounts
7. Remedial or Recourse actions taken
8. Detail data – sector, project, debt outstanding, annual repayments etc
b. Questionnaire: Regulatory Bodies
This questionnaire covers Regulatory bodies such as DAWASA, EWURA and SSRA.
1. Regulatory role and policies
2. Completed, on-going and near future reforms
3. Price fixing/tariff setting
4. Disclosure requirements
5. Remedial actions/recourse/penalties
c. Questionnaire: for Public Corporations receiving loans under government guarantee
Section 1:
The purpose of this section is to understand what factors enable some corporations to easily pay off
the loan and while others find it difficult to repay. These factors fall in to the following categories:
1) Financial and economic factors;
2) organisational factors;
3) technological factors;
4) legal factors.
A questionnaire will be set and sent in advance before interviews are held. Table below shows the
variables and indicators under each factor.
Factors Past 5-10 years
Financial Capital structure, Balance sheet, profit and loss account, liquidity,
financial performance ratios
Economic Demand and price variables
Technological Application of modern technology, quality, capital output ratios,
Organisational Management structure, Political interference
Legal/regulatory Price determination, minimum quantity
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This questionnaire also allows us to introduce a `credit rating system’ that would help the
government to assess whether to offer a guarantee or not. South Africa, an advanced country in the
region and Standard and Poor’s -the international rating agency- use such methods to assess the
credit risk. Strengthening credit assessment process would enhance the ability to pre judge the
likelihood of a guarantee being honoured on time.
Section 2:
This section covers specific loan features, terms and conditions and status (prompt payments,
default, under litigation etc.). Questions will be also asked about any identified plans for the future
such as debt restructuring, arrears clearance, divestiture/privatisation and liability take-over by
Government. A draft questionnaire is given below:
1. Disaggregated data to be collected on on-going guarantees and on-lending. These are
guarantees/ on lent loans that have been given in the past 15 years and being serviced.
Table A.2.1 guarantees/ on lent loans that have been given in the past 15 years and being serviced
Sector
Project and purpose
Creditor
Borrower/Beneficiary
Guarantee or On- lending
Guarantee Agency/On-lending
Agency
Type of Guarantee
Contracted date
Original Amount
Original & Remaining Maturity
Loan –currency of repayments
Interest rate
Balance outstanding
Probability of default Assessment
There are 13 items to be filled by each selected individual public enterprise, private enterprise or
government agency that has received a guarantee:
i. Sector denotes an economic sector for example Electricity or power.
ii. Project denotes the project for which loan has been guaranteed for example power
generation plant at Dar Es Salaam.
iii. Creditor is the Institution offering the loan i.e. World Bank or EU.
iv. Identify whether guarantee or on-lending arrangement.
v. Borrower is the final borrower i.e. Tanzania Electricity Corporation, Dar es Salaam.
vi. Guarantee agency; Government or other appointed agency like Central Bank.
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vii. Type of guarantee i.e. loan guarantee or if a PPP arrangement then could be Minimum
Revenue Guarantee. Also whether guarantee is legal or letter of consent/comfort/no
objections etc.
viii. Contracted date; When was the loan contracted and agreement signed.
ix. Original amount: the original amount of the loan contracted.
x. Original and remaining maturity.
xi. Loan currency repayments: in what currency should the loan repayments (both interest
and principal) be paid.
xii. Interest rate charged; the rate at which interest is paid.
xiii. Balance outstanding; the remaining principle to be paid.
xiv. Probability of default assessment: what are chances of being defaulted in the future and
reasons.
2. Disaggregated information to be collected on new guarantees/ on lending applied or offered but
not disbursed yet
Table A.2.2 Disaggregated information to be collected on new guarantees/ on lending applied or offered
but not disbursed yet
Sector
Project and purpose
Creditor
Borrower/Beneficiary
Guarantee or on-lending
Guarantee/on-lending Agency
Type of Guarantee
Original Amount
Original Maturity
Loan –currency of repayments
Interest rate
Status
History – previous Guarantee/on lent
loans
The information requirement is similar to Table 1 except for some of the details are not required
(items 7, 12 and 13). Additions are:
i. Status – Applied for loan guarantee or for an on-lending loan and under consideration or
guarantee/on lending offered but not yet disbursed;
ii. History of previous guarantee or on lending – has the borrower received any guarantee or
on lent before and was it fully honoured or honouring (on-going repayments).
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3. Disaggregated information to be collected on defaulted guarantees and on-lent loans
Table A.2.3 Disaggregated information to be collected on defaulted guarantees and on-lent loans
Sector
Project and purpose
Creditor
Borrower/Beneficiary
Guarantee or on-lending
Guarantee/ on lending Agency
Type of Guarantee
Original Amount
Original Maturity
Loan –currency of repayments
Interest rate
Defaulted amount
Resolution/Restructuring options under
consideration
Enterprise agency status
Similar to Table 2, without status and history of earlier defaults, but with the following additions: i) Defaulted amount and when defaulted ii) Resolution/Restructuring: How it is going to be solved iii) Enterprise: Is the enterprise being considered for divestiture/privatisation etc.
4. Contingent liabilities that are undergoing through or pending litigation process
Table A.2.4 Contingent liabilities that are undergoing through or pending litigation process
Sector
Project and purpose
Creditor
Borrower/Beneficiary
Guarantee or on-lending
Guarantee/ on lending Agency
Type of Guarantee
Original Amount/ Amount under
litigation
Litigation status
Which Jurisdiction
Probability of outcome
1. Litigation status: on-going or pending and also whether for pending ones all other potential
settlement/recourse action has been investigated.
2. Under which jurisdiction or country laws that litigation is taking place.
3. Probability of outcome: win or loss for Government agency.
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