Contingent Liabilities 2015. 8. 13.¢  Tanzania - Contingent Liabilities Study Nov. 2014...

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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


    SS _ LCK 28-11-2014


    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



    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


    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 estimat