Monday, January 19, 2009

Tanzania Postpones Issuing Sovereign Bond; Can a New “Vulnerability Fund” Help?

Reuters Africa

Tanzania’s Finance Minister Mustafa Mkulo cited the global credit crisis as the reason the east-African country will postpone issuing its first sovereign bond offering. Tanzania planned to use the proposed $500 million sovereign bond sale to fund necessary infrastructure projects, such as building new power plants and roads. The country is currently experiencing electricity shortages and Mkulo stated that “[t]hese projects are needed in order to steer [Tanzania’s] economic development.”

However, the global credit crisis has increased borrowing costs forcing Mkulo to look elsewhere for the funds. Mkulo said that Tanzania is in the process of working with the African Development Fund to secure funding and that he will make an announcement as soon as February about potential alternative sources.

One potential source could be a new “vulnerability fund” proposed by World Bank President Robert Zoellick. Zoellick met with Arab leaders this Monday, and stated that emerging economies need support but cannot afford their own bailout packages or budget deficits. He will urge follow G20 countries at this April’s meeting to set up a fund for "investment in infrastructure projects that can create jobs while building a foundation for future productivity and growth".

Regardless of the current struggles Tanzania faces in trying to raise funds for infrastructure, its economic analysts are still predicting decent growth prospects for the country. Though demand for Tanzania’s vast diamond and gold mines have decreased due to the credit crisis, the country expects a 7% growth rate fueled by expansion in its telemarketing and tourism industries.

1) What type of projects do you think the vulnerability fund will choose to give money to?
2)Do Tanzania’s relative strong growth prospects hurt its chances of securing money from such a fund?

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