Tanzania Infrastructure Financed Through Eurobonds

The Daily News has recently reported that the Government of Tanzania has renewed its pledge that, beginning next year, the development of Tanzania infrastructure will be financed through Eurobonds, which are the equivalent of sovereign bonds that are issued in a currency other than the currency that is issued in a particular country or market.

According to the Daily News report, one of the advantages of these sovereign bonds is that they allow the issuers the flexibility of choosing in which country they will offer their bonds, a decision that will primarily be based on the country’s regulatory constraints.

Before the current international credit crunch had begin, the Tanzanian government had already announced its plan to begin issuing the Eurobonds, but, as a result of the worsening financial markets around the world, the plan was postponed until recently.

In 2007, Ghana and Gabon became the first African countries other than South Africa to issue Eurobonds, however, as a result of the credit crunch, the issuance of the bonds was greatly reduced last year.

As an economic recovery begins to take hold in the global markets, a number of countries, including both Tanzania and Kenya, have indicated their intentions of issuing bonds in order to finance various infrastructure projects in the coming year.

In an interview with the Daily News, Mustafa Mkulo, the Tanzanian Minister for Finance and Economic Affairs, explained that his country was currently working towards that goal as well and is already moving in the right direction to achieve it.

“We are also in the process and I can say we are in the right direction,” he said.

According to the report, Tanzania is currently hoping to submit the market bonds in order to raise 500 million Euros, which will be used to fund projects such as roads, railways, power and port facilities in an effort to improve the country’s infrastructure.

Prior to issuing the bonds, Dr. Joseph Massawe, the Director of Economic Research and Policies for the Bank of Tanzania (BOT), said in the Daily News report that the country will be looking to acquire international credit ratings by early 2010.

Originally, the Tanzanian government had planned to receive their credit rating earlier this year, but based on evidence that markets were not promising for the undertaking, the plan was terminated.

The government has recently reopened that plan and, while acquiring this rating could take some time, in the meantime, Dr. Massawe said that the bonds could still be floated in the international markets.

“What will give us higher rating is stability of our economy, politics and our banking sector,” he said in the Daily News report, “Rating firms normally looks at how the country is committed to economic reforms.”

Credit ratings are given to countries in order to effectively assess the default risk for a bond in addition to a focus on the prevention of possible financial crisis.