June 14 (Bloomberg) -- Tanzania’s Finance Ministry said it plans to raise as much as $700 million through selling debt to selected investors and commercial bank loans to help tackle unreliable electricity supplies and poor infrastructure.
Even though the interest rates will be higher than from development institutions, the private funding will be more predictable for the country, Deputy Finance Minister Saada Salum said.
“While non-concessional loans have higher interest rates and shorter grace periods than concessional loans, non-concessional loans have been a reliable tool for us in borrowing,” Salum said in an interview yesterday in the capital, Dodoma. “As Tanzania expects continued economic growth, it is important that we invest in infrastructure to make sure that the country can sustain this growth.”
Tanzania, East Africa’s second-largest holder of natural gas reserves, plans to spend 5.7 trillion shillings ($3.5 billion) on development projects in 2013-14, including moving forward with plans to build a pipeline from the southern Mtwara region to the commercial hub of Dar es Salaam. The country is also going to spend money on strengthening the electricity transmission network and bringing power to rural communities.
Finance Minister William Mgimwa said in his annual budget speech yesterday that his spending plan factors in 1.2 trillion shillings in external, non-concessional borrowing for the year through June 2014.
The government estimates the economic growth rate will be almost unchanged at 7 percent this year from 6.9 percent in 2012, and rise to 7.5 percent next year and 8 percent in 2015.
Tanzania had periodic power outages earlier this year after drought cut water levels in hydroelectric dams, forcing the country to rely on emergency thermal generation to cover an electricity deficit of as much as 365 megawatts.
Improvements to Tanzania’s infrastructure to the level of that in Mauritius would increase its annual per capita growth rates by 3.4 percent, according to the World Bank. Spending on infrastructure is only half of the $2.4 billion a year required for the country to achieve its growth targets, the bank said.
Tanzania raised $600 million in March by selling seven-year debt securities to selected investors at 600 basis points over the London Interbank Offered Rate.
The government also financed its current budget with loans from Credit Suisse Group AG and Stanbic Bank Tanzania Ltd., Salum said. Total non-concessional borrowing in 2012-13 will be about 1 trillion shillings ($609.8 million) less than the 1.3 trillion shillings targeted, carrying an average interest rate of 6 percent, she said.
The country aims to secure at least one sovereign debt rating by June 2014 and then prepare to offer its debut Eurobond. Neighboring Kenya, East Africa’s largest economy, announced plans yesterday to issue its first Eurobond by September and use the proceeds for infrastructure projects.
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