Transcript of the African Finance Ministers Press Briefing
April 25, 2009
April 25, 2009Mr. Charles Koffi Diby, Minister of Economy and Finance, Côte d'Ivoire
Mr. Mustafa Mkulo, Minister for Finance and Economic Affairs, Tanzania
Mr. Situmbeko Musokotwane, Minister of Finance and National Planning, Zambia
|Webcast of the press briefing|
MR. DIENG: Good morning, everyone. This is the African Finance Ministers' Press Conference. I’m Ismaila Dieng from the IMF's External Relations Department. Joining us today for this press conference: Mr. Charles Koffi Diby, Minister of Economy and Finance for Côte d'Ivoire, Mr. Mustafa Mkulo, Minister for Finance and Economic Affairs Tanzania and Mr. Situmbeko Musokotwane, Minister of Finance and National Planning for Zambia. The ministers will have each some introductory remarks, and then they will be happy to take your questions. Thank you.
MR. DIBY: Thank you very much, ladies and gentlemen, journalists here in this room. It is, for me, a privilege to talk before all of you, to share with you some ideas on the international financial crisis and mostly its impact on the African continent and my country in particular.
I will not dwell any further on the magnitude of the crisis or the way it came to be. Everybody has been talking about it. It's been discussed at length, and we continue discussing it in depth. But, today, the financial crisis in the international arena is a true threat for our economies which are already quite vulnerable. According to the last estimates and forecasts, the awareness has increased, and the repercussion of this crisis on our economy will be deeply felt.
We see three channels through which the crisis is affecting African economies: the restructuring the global demand, the collapse of the price of commodities and the scarcity of foreign direct investments and funds and various flows towards Africa. Allow me to remind you that, given the difficult situation, the good implementation of the program signed by Côte d'Ivoire with the IMF since 2007 has recently allowed us to reach on March 27th the decision point for the HIPC as well as a program with the IMF supported by the poverty reduction and growth facility of the IMF. On this, allow me to thank all of the financial partners and actors that have allowed us or helped us reach the decision point.
I would like to call for a support to Côte d'Ivoire to allow us to quickly reach the completion point of this initiative. That will allow us to fully take advantage of the reduction of the weight, the burden of debt on our budget.
In spite of today’s difficult international environment, my country in 2008 still had a growth rate of 2.3 percent compared to 2007 where we had 1.8 percent for our growth rate.
However, the impact of the international financial crisis is going to be felt deeply by the various sectors of our economy, which are in the primary sector, except for cocoa, the entire production for exports are sharply declining. We have cashew nuts with a reduction of 52.1 percent because of the lack of organization within the sector, as well as the low prices which do not encourage producers for pineapple and banana which are competing with production from other continents.
Should the lower trends for prices continue, the viability, the sustainability of the agriculture is going to have a negative impact on the growth targets that we have for the primary sector, which we had at 4.8 percent.
In the secondary sector, at the end of the first two months of 2009, the sectors affected by the crisis are wood, construction (BTP) and the wood processing industries, and the production itself, which is frozen because of the lack of orders from the outside. And, this is of course tied to the housing crisis. Nine companies out of the eighty-eight that we have in these sectors are now in dire straits. Some of them are already bankrupt, and we have 3,600 employees in technical unemployment and another further 3,800 that lost their employment in this sector.
Much uncertainty remains as to the achievement of our growth rate, which we revised to 3.6 percent versus the 4.2 originally forecast, given the magnitude of the crisis. This is necessary for prudence reason.
As far as inflation, the average inflation rate on a yearly basis was 1.9 in 2007 and, unfortunately, in 2008, 6.3 percent--unfortunately, so much above the threshold defined by the convergence criterion of the meeting which is some 3.5 percent. This is tied to the increase of the prices of food products as well as crude oil. This rate would have been even higher had we not taken the fiscal measures required to fight the increase in the cost of living.
In 2009, we're already observing a reversal of this trend, and for the first quarter we are reviewing the growth rate to 5.5 percent of these inflation rates that we are trying to bring down before the end of the year to the level that is required by the criteria of our monetary union, 3 percent.
External trade has been diminishing by 22.4 percent compared to last year. Imports decreased faster than exports. On the first two months of the year, we have registered a trade surplus increased by 60.5 percent compared to the first couple of months of the year 2008.
When it comes to public finance, receipts and grants are at 1 percent because of the weak collection of nontax receipts, and expenditures dropped by 14 percent because of the weak implementation of some transfer expenditures. However, we end up with a surplus balance at this point of 13.8 billion CFA francs versus the red, the deficit of 28.3.
Although preliminary, this evaluation gives some useful indication as to the trajectory of the national economy. It shows some concerns in the area of the real economy, particularly for export agriculture whose weak performance might cause a reduced growth because of its weight in our GDP.
I believe that a lot of countries are like Côte d'Ivoire in this situation. We should have anticipated by taking measures to support those sectors in dire straits such as wood in Côte d'Ivoire. On this point, may I stress that most developed countries have taken a number of strong fiscal measures. Yet, we do not have enough resources, so we are not able to take full advantage of it.
So, given all these elements, we feel that the measures decided since April by the G20 are appropriate and should provide some assistance to the African countries trying to contain the impact of the crisis. The idea is to make sure that the modalities of implementation of the G20 measures are done in the best possible time so that the cost of the impact does not increase too drastically since our countries have rather vulnerable economies.
Thank you for your kind attention.
MR. DIENG: Minister Mkulo.
MR. MKULO: It's a good honor to be invited to address this press gathering. It is particularly so, given the period the global economy is going through and the need for all of us to collectively explore the most efficient means that we should use to address the problem our global economy is facing. Our global economy is going through unprecedented times, and this calls for serious global efforts. As we all appreciate, the problems we are facing in global in nature and will therefore require global solutions, well-structure and well-coordinated.
We are all aware of the origins of the current global financial and economic crisis, but we also appreciate that, irrespective of the origins, countries around the world are being impacted upon differently in terms of magnitudes and times. While Africa was temporarily spared from the direct effects of the first round of the crisis, it has now become clear that Africa is not immune from this crisis. Most African countries are now facing serious economic problems whose origin is traced back to the ongoing global financial and economic crisis.
According to the International Monetary Fund estimates, growth in domestic product, growth for Sub-Saharan Africa will be only around 2 percent in 2009, down from an average growth rate of about 5 percent which has achieved for the past 5 years. In Tanzania, GDP growth is projected to slow down to around 5 percent in 2009 from 7.4 percent which was realized in 2008. The crisis is now threatening to wipe out our gains of the past 10 years and disrupt all our plans for further progress.
Tanzania has been affected in the commodities industries, and the first one is cotton. Prices for major export crops are declining. Some major cotton dealers abroad, for example, have cancelled orders for cotton from Tanzania, and there have been cases of stockpiling due to lack of orders.
Prices have also significantly declined. During the cotton season of 2008-2009, a total of 365,731,549 kilograms of seed cotton were purchased at the price of 450 to 500 shillings. The purchased seed cotton is equivalent to 616,587 cotton lint bales out of which 446,084 cotton lint bales have been sold at the price between sterling pounds, 72 cents per pound and sterling pounds, 60 per pound.
The balance of 169,724 cotton lint bales is still unsold and held by ginners as of the end of February, 2009. This is due to unfavorable cotton prices ranging from sterling pounds, 45 cents to 40 cents per pound being offered by the international and local buyers because of the global financial crisis.
The producer prices for the season of 2008-2009 averaged 450 shillings per kilo of lint cotton, an equivalent of pounds sterling cents 60 to 72 per pound per kilogram of lint cotton. Since seed cotton was purchased from farmers at the price of between 450 to 500 shillings per kilogram of seed cottons, ginners are hesitating to sell at a loss of 300 shillings per kilo of lint cotton or sterling pounds, 48 cents per pound per kilo of lint cotton.
The prices are ex-ginnery in the cotton-producing zones. However, stocking of 169,724 bales of cotton as at February, 2009 by dinners due to a drastic reduction in market price could affect the producer price and the production in the next cotton season of 2009-2010 due to, in particular:
Buyers would incur a loss for the current season if they will be forced to sell at their loss or stock until a fresh crop is realized next season and, hence, occasion an oversupply in the market and further lower the market price.
Two, buyers will not pay back trading loans from commercial banks and other financial institutions expected to buy cotton in the season of 2008-2009, in which case they would not have access to new facilities from the banks, buying a fresh crop season for the season of 2009-2010.
Three, both reasons would oblige the buyers to stay off the market, and, hence, producers will have nowhere to sell the next season's crop. Already, one multinational cotton buyer and processor, Cargill Tanzania, Limited, has expressed doubts of continued operating in Tanzania due to the crisis, which indicates the imperative to have the situation not controlled.
Coffee, total graded coffee procured and marketed at the Moshi Auction as of 25 March, 2009, was 59 million kilograms out of which 36 million kilograms were mild Arabica and 23 million kilograms were Robusta coffee. Mild Arabica graded coffee sold between August and September, 2008 was only 4 million kilograms which is 14 percent of the total procured and marketed mild Arabica coffee and fetched an average price of $158 per 50-kilogram bag.
For Robusta coffee sold between August and September, 2008, it was only 5.8 million kilograms which is equivalent to 36 percent of the total procured and marketed Robusta coffee and fetched an average price of $92 per 50-kilogram bag.
However, coffee prices decreased from October, 2008 to February, 2009, and the average price obtained for mild Arabica coffee was only $104 per 50-kilogram bag which decreased by 25 percent, and, for Robusta, it was $65 which decreased by 29 percent.
Since a large percentage of both mild Arabica totaling 24 million kilograms, 86 of total sold mild Arabica coffee, and Robusta totaling 10 million kilograms, at these lower prices, the impact has been high to a majority of coffee farmers. However, the current prices in the world market have increased by $2 to $4 per 50-kilogram bag. But the effect of this increase in price has not yet been realized in Tanzania because we no longer have quality coffee, and therefore we cannot maximize on the market.
As a result of these price decreases, mild Arabica coffee suffered a loss of 21 billion Tanzanian shillings and Robusta coffee, 7 billion Tanzanian shillings. Therefore, total impacts in terms of lost earnings due to the coffee price decrease is 29 billion Tanzanian shillings.
Coffee farmers who are predominately small holders seem presently to have not borne the brunt of these decreases since they obtained good prices for ungraded coffee. The price for ungraded mild Arabica ranged from 1,500 Tanzanian shillings to 2,000 Tanzanian shillings. Farm gate prices were competitive since coffee traders were competing on prices to obtain big volumes.
The third crop that has been affected is sisal. The sisal industry in Tanzania has been in the revival mode for the past few years, but the world economic downturn has come as a blow when the industry is about to benefit from the revitalization efforts.
Sisal crop prices have been affected by the global financial crisis as follows: One ton of sisal fibers fetched $1,000 per ton but decreased to between $750 to $850 per ton between October, 2008 and March, 2009.
In the local scene, the sisal industry has had the following impacts from the crisis: One, sisal fiber prices have already gone down more than 30 percent and all sections of the market are showing a slowdown. Producers are unable to sell the sisal fiber and products, and the stocks have already started accumulating in the hands of sisal producers and processors.
Two, with a tight cash flow situation, operational levels on production, maintenance and replanting activities have come down, creating a void in future production.
Three, more than 120,000 people who have their livelihood from sisal are directly affected both temporarily as well as in the long run. If small holders and other actors are added, the effect is on more than 2.1 million people who will be directly affected.
Four, investors in the sisal industry have become loan defaulters, forcing them to close operations.
Five, the entire impacts have induced additional migration over labor to towns in search of jobs, and in the process the industry loses its skilled labor forever. These losses also translate to risk to the government, given that some of the loans used to purchase these crops were guaranteed by the government.
Flower exports have also experienced some difficulties. Revenues from tourism, which accounts for over 28 percent of Tanzania's service, exports have stagnated. And, overall, domestic revenue collection is currently below target by about 10 percent.
We are projecting declines in foreign direct investment, given the ongoing credit crunch in the global market. We are seeing increased job losses and increased unemployment.
As the donor countries allocate colossal amounts of money to jumpstart or reboot the economies, all the aid to African countries will most likely be affected. Remittances from Africans living in the Diaspora are also likely to be affected by job losses.
Our financial sector is being negatively affected by the crisis. We have recently witnessed rapid exchange rate depreciations across African countries caused by external demand for hard currencies and speculation in the market. There is also evidence of rapid increase in interest rates as risks increase and banks become more cautious about lending.
The crisis is now a real threat to African countries and their economies, but our governments are taking serious measures to minimize these impacts. We are taking measures to preserve macroeconomic stability and promote investment. African countries have intensified surveillance and supervision of their banking systems and continue to ensure prudent monetary policies aimed at restoring and maintaining low and stable inflation while ensuring adequate liquidity to the economy.
Most African countries are taking broad-based measures to reduce the cost of investing and doing business, including measures to bring down the cost of utilities and to ensure protection of assets and income.
In Tanzania, the President has constructed a high-powered team under the chairmanship of the Governor of the Central Bank, Professor Benno Ndulu, to examine the extent of the crisis on the domestic economy and to propose a rescue plan to minimize the negative effects. The rescue plan will include measures aimed at:
First, weathering the storm through preservation of safety nets. This will focus on jobs protection, measures to avert food shortages and ring fencing of life-saving programs like malaria and HIV/AIDS and the measures to protect investment.
Second, measures to minimize the impact of the third round effects to the financial sector through debt restructuring and risk-sharing between the government and the financial sector. And, third, measures aimed at building resilience through increased diversification.
The efforts being implemented by African countries need global support. We need support from the international financial institutions as well as the international community in the interim. We, therefore, call upon the international financial institutions to continue to provide policy advice to the membership, especially developing countries, while ensuring a level playing field.
Advanced countries, which are systemically in the global economy, need to be subjected to the same rigor of surveillance and conditionalities for preserving macroeconomic stability.
It is also our view that technical assistance to the membership needs to continue to be public good, but, most importantly, there's an urgent need for international financial institutions to increase concessional and exogenous shock facilities to low income countries and to reduce the conditionality for their access. We call upon measures to enhance and broaden debt relief to poor countries.
We appreciate the assistance that has been advanced to African countries so far by the developed nations. However, the general impression is that the rich nations can do more to assist developing countries. As we are all aware, this crisis has come at a time when African governments have taken broad-based measures to reform their economies. This has been followed by significant achievements which are not being threatened by a crisis which they could not prevent because they did not originate it.
I would like to take this opportunity to call upon developed countries to, first, honor all their pledges.
Second, rich countries should provide part of their stimulus resources to developing countries to enable these countries to deal with the threat they are facing.
Thirdly, they must ensure that they provide additional resources to the international financial institutions to enable these institutions increase their responsive capabilities, capacities to the current economic challenges.
Last, but not least, I call upon developed countries to broaden market access to exports from developing countries and particularly from Africa.
Thank you for your attention.
MR. DIENG: Thank you, Minister Mkulo. Minister Musokotwane.
MR. MUSOKOTWANE: It is also a pleasure from my side to be able to share with members of the press the perspectives of the crisis from Zambia. I will present my remarks on the basis of about three broad headlines. First of all, I'm going to talk about the effects that this crisis has presented in the specific case of Zambia. Then I'll talk about the reaction, what measures we have taken in the reaction to the crisis. And then, finally, I will talk about the international perspective to the crisis. Therefore, let me start with the effects as we have seen them in the case of Zambia.
Let me begin with our banking sector because the crisis originated from the advanced world via the banking sector. Here, I would say that we have not--obviously, our banking sector is not as much integrated with the countries where the crisis originated from. Therefore, we did not, our banking sector did not consume any of the toxic assets that the others did, and, as a result of that, the crisis came and found the banking sector to be fairly stable. We believe this remains to be the case, but obviously we are watching very carefully because the second round effects, which I'll talk about later, these could negatively impact on the banking sector.
But that is not to say that the entire financial market was fully immunized from the crisis. We suffered in the case of our portfolio investments that had come to Zambia. Since the economy began to improve about six, seven years ago, we saw lots of interest in investors from the advanced world coming to buy treasury securities, treasury bonds and, indeed, even investments into our stock market.
These investors, as the conditions became difficult, we saw an increasing tendency whereby they were no longer rolling their investments. They were not even bringing any new investments. To the contrary, they were taking out their money. So, obviously, that put a lot of pressure on the exchange rate.
In addition, of course, the fact that the general public, as they saw their current account deteriorating and foreign exchange becoming less available, this led to a very quick depreciation of our currency by about 45 percent in nominal terms between about mid-2008 to the end of the year.
Our ability to finance imports, therefore, saw a decline from about 3.8 months of import cover to just about 2 or something like that. So this is one area where we have seen us being adversely affected.
It is clear to the problems in terms of our ability to service our extended debt. Obviously because of the depreciation, the local currency equivalent of that is much higher.
On the other hand, there are obviously some positive aspects about this depreciation, which is an important point to raise because in the seventies and eighties when we had a similar crisis, the response via the exchange rate mechanism was quite slow, not just in Zambia but in many African countries, and I believe that this is one aspect in previous times that contributed to the heavy accumulation of debt during that time. Consumption patterns tended to remain constant, whereas the external sector had declined. Therefore, a lot couldn't financed by more borrowing which led to the debt pileup and to the HIPC initiative.
Obviously, with the more rapid reaction through currency depreciation that has happened, we believe that part of that problem has now been put aside.
But much more fundamentally, the way we've been affected has been through the real economy. We have, like my colleagues have said, we have also revised our growth projections from the average of 6 percent that we have achieved in the past few years to something lower. That could be 5 or even 4.
But, more specifically, Zambia is a major mining country exporting copper. And, as the price of copper fell, just like the prices of many commodities, we saw a number of mining companies closing or shedding of labor. Obviously, in our case, I think we have lost about 12,000 jobs directly in the mining sector, and that creates social and economic problems.
Social in the sense that when people are thrown out of jobs, you know what happens, but also economically in the sense that the second round effects have launched. There are some towns which are entirely mining towns. So, if you close the mine, it means the shop owners, the bus drivers, the farmers in the neighborhood, obviously, they get affected.
So, for us, really, I think the biggest pain that we've suffered is in the mining industry because of labor shedding and also because their contribution to the tax revenue as a result of lower prices. Both have declined.
So, in summary, therefore, three things: Banking, not so much. Financial sector, we have seen depreciation, but much more severely the economic side through the mining industry.
So what have we done? The biggest priority has been to try and save as many jobs as possible and in the mining sector. So, in the budget that we presented earlier this year, we had to take some fiscal measures, lowering some taxes, aspect of taxes in the mining sector, so that jobs, those jobs that we can save, we would be able to save them, and also encouraging through tax measures certain aspect value addition in the mining sector so that new jobs can be created. Smelting capacity has increased. So we wanted to create jobs around this.
The other thing that we have done is that obviously there is less room for a stimulus package in a country such as Zambia, but in a limited fashion we've had to do that. So we saw the domestic borrowing increasing from 1.4 percent of GDP last year to 1.8 percent of GDP this year, most of this money arising from the increased deficit. We have put it on education. We will put it on health so that we protect all levels of society. But, much more importantly or so, we have put it on specific infrastructure that we believe if implemented, and this is what we are doing, can create the basis for private sector investment.
Obviously, this crisis is not going to last forever and ever. We want to find ourselves in a situation whereby when the crisis comes to the end, the basis for private sector investment will have been enhanced. So, therefore, the stimulus package can be seen from the expenditure side in that perspective.
But, also, it is to be seen on the side of tax cuts. We have to introduce some tax cuts in certain aspects, particularly those that we believed would help to save jobs in the mining sector as I indicated early on. But we also cut taxes in certain other aspects of the economy, particularly agriculture, constructing, so that some of the people losing jobs on the mining side, they could find jobs in the other sectors.
Now, I think the point to emphasize here once again is that this crisis will not last forever and ever. In the past few years, Africans, most of us, have made good progress. You've heard it from my colleague in Tanzania and Cote d’Ivoire. Growth has been increasing.
And, what we have seen is that growth was increasing. The impact of that on poverty reduction, I think was quite powerful. We saw jobs being created. We saw many companies being created. We believe that this is really the future for Africa, to join in the leagues of what the Asian countries did some decades ago. So, for us, this is really an opportunity to reorganize ourselves, to diversify the economy, create conditions for private sector investment to come in because we believe this is the future.
My final remark is on the international perspective. Obviously, we welcome the announcements made by the G20 to provide more resources for international financial institutions, such as the World Bank and the IMF, to provide more resources to us.
The major point I wish to stress is that we have seen similar announcements in the past, and sometimes when it comes to implementing these announcements, that's where there's been disappointment. We all recall how the HIPC initiative started. It was a very noble idea. When it came to implementing that, all types of problems, conditionalities and so forth. As at the launch, there are still some countries today which are still struggling to get out of debt.
Similarly, I want to say that this time around, let's ensure that this noble idea of providing more resources, it actually happens on the ground. Let's not see another lot of all types of obstacles being created by bureaucracies to prevent this from happening.
My final point is that obviously this crisis did not start from Africa. It started from here. And, we urge the rich countries to take more definite action to ensure that this crisis is as short as possible.
As the global economy grew, we saw ourselves also benefiting from that. Most of us have taken painful measures in the last 15, 20 years, so that we have become part of the global economy. And, this has happened with such success, and we believe that this success can be more sustainable if the global economy begins to grow. So we urge the rich nations to take these necessary actions to ensure that the crisis is as short as possible.
MR. DIENG: Thank you, Minister. We'll now take questions.
QUESTIONER: The first question has to do with the HIPC initiative. African countries have a number of problems. Have you secured from the authorities of the Bretton Woods institutions some firm promises in what has to do, for instance, with the facilities that you may secure so that those countries in trouble can easily reach the completion point for the HIPC initiative? Indeed, we have noticed that the pattern for the completion date for the HIPC initiative is becoming extremely difficult. Countries cannot manage to make their debt burden sustainable. That's my first comment. We've seen Bretton Woods institutions granting mitigating circumstances to some countries.
My second concern is this, and this is a question for our three ministers. You are holding your hand out towards to the Bretton Woods institutions, the G20. You've waiting for them to give and give and give to you. What are the mechanisms that you have put in place at your level to increase receipts, speed up structural reforms, increase tax income and collection so that you have a large enough budget? You are not collecting enough, particularly in the informal sector. Yet, you are turning towards those who are constantly putting you down to your knees and demanding such strong conditions from you.
MR. DIENG: Minister Diby?
MR. DIBY: I'd like to thank our friend who just asked this question. Yes, indeed, as far as we are concerned, moving from the decision point to the completion point under the HIPC initiative is not always the panacea, and we are not really waiting on the institutions.
Yes, they are helping us, setting the fundamentals that we need to create a healthy economy. But, together, we are committing to implement a number of reforms so that the macroeconomic situation be cleared, so that we can greatly improve the situation of our public finances and to be able to manage public finances in such a way as to create trust in our populations. The wealth created each year through our reforms should be distributed evenly to really reduce poverty. This is why we've made these commitments.
Indeed, when a third of your budget is dedicated to paying external debt service or the debt itself, what is the margin of maneuver that is left to you to increase public investments so that private investment may come and support the state in the risk-taking operation? Clearly, private investors are not going to come in your countries and build your own roads. No, before that, the state must make a number of commitments. This is what creates competitiveness in an economy.
So, please, rest assured, the completion point has now become something flexible. The conditions have been made less stringent. It can take 5 years or it can take 18 months. In the case of Côte d'Ivoire, my country, we want to be as quick as possible to reach the completion point so that we can benefit from these commitments and reduce the weight on our burden, on our budget.
Second, when you said we're holding our hand out, my colleagues just said--and I will, of course, wait to hear their answer--the crisis didn't come from us. We are the victims here. The crisis created such dysfunctions that since we have an economy that's interdependent with others, it creates a drain on our resources. International financial institutions exist, and we're all members from it. If they're ready to finance others, we are entitled to a request that they finance us too.
We're not just holding our hand out, but, as we've said to you, an economy that is beginning to register losses, loss of jobs, companies closing their doors, of course, this will have expected impact on the budget. There will be gaps. But please know that we have made tremendous efforts.
Today, all African countries are recording most interesting growth rates to reduce poverty, and this was happening until this international crisis started. It started with a monetary and a financial crisis. It is now an economic crisis, and everybody is feeling it, and this is what I wanted to say.
MR. DIENG: Minister Mkulo.
MR. MKULO: Yes, thank you very much for the question. For Tanzania, we are past the HIPC era. We completed it, and we're now off that. In fact, now, we have bigger fiscal space that we can now get into the world and get money at commercial rates. On raising a hand to the Bretton Words institutions and the G20, for Tanzania, as I said in my paper, if it was not for the economic crisis, the economy was robust. We were doing very well. In fact, we had a sustainable 7 percent growth rate for more than 3 years.
Last year, the economy grew by 7.4 percent. This year, we had projected the economy to grow by 7.8 percent. And, those figures were actually confirmed by the IMF. But, unfortunately, six months ago this thing happened, and so it deterred all our efforts to growth. But we have proposals which we presented to the World Bank and the IMF over the last two or three days. Luckily enough, they have accepted them. And, for Tanzania, at least, we are going to get to sit down and get even better terms for more funds from these Bretton Woods institutions.
So, it is not true that we have raised our hand. It is not true that we have bent our arms to them. For Tanzania, we are talking as partners, and I can say publicly that on behalf of the government we thank the International Monetary Fund. We thank the World Bank. We thank the G20 because Tanzania got something out of the G20 as well, for what they are doing to assist the Tanzanian economy to get out of this crisis.
MR. DIENG: Thank you, Minister Mkulo.We'll take a second question on this side of the room.
QUESTIONER: Would that our finances were in as good shape as those of Zambia. Unfortunately, this isn't the case. One of the things that one notices here is that you talk about the crisis, but you don't explain the cause of the crisis. So, without making a speech, may I please tell you what the cause of the crisis is? It's called fraudulent finance. And, the most interesting thing that the minister from Zambia said was at the very beginning, namely, that you had not absorbed any toxic assets. Now, don't, because they're trying to revalidate them and they will try and sell them all over the world. Do you understand this factor and, if not, will you be discussing it with your colleagues in the international fora?
MR. DIENG: Minister Musokotwane?
MR. MUSOKOTWANE: Well, I thank the speaker for those comments, and if indeed these assets are circulating, I think we've been alerted, and we'll take note of that. Let me take seconds just to say something about the dependence on the IMF. First of all, I think everybody agrees that many of us in Africa have made tremendous progress in the last decade or so. So, we're really beginning to see ourselves disengaging from aid dependency--not immediately, but I think it's something that was on track, and I think this is positive.
The fact that a crisis has come, which we did not cause, is just unfortunate. And, if we are to come and ask for financing to deal with that, I don't see anything embarrassing about that.
And, by the way, I think in this global economy it's not just us who depend on external financing. Let's look at the deficit that has been created in this country, the U.S., close to $2 trillion. Where is this money coming from? Is it from the U.S.? No. Most of this money, I believe is coming from outside the U.S.--China and other countries that were running surpluses. So, if it is proper for an economy such as this to access funding, what is wrong with the African countries accessing financing from outside?
MR. DIENG: Thank you.
QUESTIONER: During the Dar es Salaam meeting, conference, you asked for new debt alleviation initiatives be taken by the Bretton Woods institutions beside or beyond the HIPC initiative. Do you think you are being heard on this? And, secondly, this question is for the Minister of Côte d'Ivoire. You've just concluded a program with the IMF. You've also reached the decision point in the HIPC initiative. So, as we speak today, if you had to ask something to the IMF, what would that be, because you're planning to meet with your creditors from the Paris Club?
MR. DIENG: Can we start with Minister Mkulo on the first part of the question?
MR. MKULO: Thank you very much. The first part of the question, I think is a good question. In Dar es Salaam, true, the African ministers requested the IMF to voice on behalf of Africa so that Africa can be assisted in several areas. Luckily enough, yesterday, I had a very fruitful meeting with the Deputy Managing Director of the IMF. He gave us a progress report on those promises that were made in Dar es Salaam, and the progress report is very encouraging. I think they are acting on all. There are five points which we agreed that should be followed up, and they are acting on all the five points.
Because this was an African meeting and my meeting yesterday was bilateral, between Tanzania and the IMF, it would not be appropriate for me to say what I was told by the IMF before I have communicated to the other ministers from Africa.
But it is suffice to say that the IMF took it seriously. The Managing Director himself presented a paper to the G20. My president, President Jakaya Kikwete, who has just finished his term as Chairman of the African Union, was sent by Africa to present those issues that were agreed in Dar es Salaam to the IMF. They were received by the Prime Minister of Britain, and what I know is that something has been done towards those recommendations that were given. So, I think in brief I can say the Dar es Salaam was successful. Whatever was agreed in Dar es Salaam, they have been heard by the international community, and the international community is working on them.
MR. DIENG: Minister Diby on Côte d'Ivoire.
MR. DIBY: I must say that, yes, we intend to meet with the Managing Director of the International Monetary Fund simply to express our gratitude with regard to the staff team he has appointed to work with Côte d'Ivoire. That allowed us to conclude a three-year program under the PRGF program, and we are here to ask him for a successor arrangement because we are making specific and strong steps to reach the completion point under the PRGF program. That's what we intend to say to the Managing Director.
QUESTIONER: I was wondering if you have an original framework through which you help one another share experiences apart from approaching the international institutions, not just because of the current crisis, but for the future of the continent, especially in terms of economy.
Secondly, Mr. Charles Diby, you did mention that some countries spend about 30 percent of their budget financing debt. Minister Musokotwane, you said that your country's debt is going to be or has risen from 1.4 percent of your GDP to 1.8 percent. This obviously raises a serious concern. So how are you working to make sure that you don't drag yourself back into debt, which is a huge problem?
MR. DIENG: Minister Musokotwane?
MR. MUSOKOTWANE: At a time like this, when we interact, we interact a lot among ourselves. Certainly, in the region where we are, we have very regularly SADC meetings. We meet very frequently. Similarly, I think we have interactions at the level of the A.U., and I think sometime in June, actually, there's a meeting by the African Ministers of Finance to discuss the crisis and share experiences in a more detailed fashion.
Now, on the debt, first of all, I don't think you clearly understood what I was saying. What I was talking about is the deficit to GDP ratio which has increased this year from 1.4 percent last year to 1.8 this year. That, obviously, has a net effect of increasing our indebtedness. But, for us, the external debt is quite low after the HIPC and the MDRI. So I think we are like our colleagues in Tanzania here. We don't consider external debt to be a burden right now.
But, obviously, we have to watch out because a crisis such as this can lead to a potential for us piling up debt. This, as I indicated earlier on is how the debt problem of the seventies and eighties arose in the first instance, and I also indicated very clearly that this time around we responded more swiftly. We have allowed our currency to depreciate which means that the level of balance of payments problems, I think will be curtailed much sooner than before.
And, of course, now we are much more aware. In the '70s and '80s, our appreciation of these things was low. Now I think we understand these relationships very carefully, and we are watching our debt situation very carefully so that we don't drift back into the pre-HIPC days.
MR. DIENG: We are going to take a question from this side of the room. Patrick.
QUESTION: Since this crisis broke last year, there's been a lot of talk about greater transparency with regard to tax payments and trying to end the system of secret banking, confidential accounts, that is, dragging money out of developing countries in particular and putting them in jurisdictions that are totally unregulated. Now I know both Zambia and Tanzania, your governments spent a lot of time trying to renegotiate mining tax royalties with some success, and now you're saying that you're trying to go back and give tax concessions. So I've got two questions really on that. Are you convinced that there's enough determination to deal with this issue of multinational companies not paying enough tax and doing everything they can to limit their tax payments in the developing world, well, actually, in the developed world as well and to deal with the issue of tax havens? And are you satisfied with the level of tax royalties you're getting from your respective mining sectors and are you worried that really, because of this crisis, you're being pushed into a situation where you're going to have to offer the big mining companies more bargain basement deals to keep them in the game?
MR. DIENG: Minister Mkulo?
MR. MKULO: On the part of Tanzania, we have mining contracts with different companies, almost 14 of them, and mostly in gold and diamond. Those are the main minerals that are found in Tanzania, some other smaller ones, but those ones. I think the third one is tanzanite. We realized even before this crisis that the agreements that were entered between those mining companies and the government were not really favorable to the people, but, unfortunately, the agreements had been signed. So we cannot abrogate those agreements without discussions.
So we've entered into discussions with the individual companies, and, luckily enough, those discussions are bearing fruit. I will not mention the companies here specifically, but we have already agreed with three of the companies, two of them from Canada, one from Australia. They have realized that there is need to review the agreements so that the people in Tanzania can see that they benefit from the natural resources. And, we are continuing negotiating with the other 11 companies.
Now last year, the president set up a commission to review the mining contracts. That commission was chaired by a very high-ranking court of appeals justice, and the commission came up with a lot of recommendations. These recommendations are due to be discussed by parliament, and there's most likely a review of some of the law, maybe tabled in Parliament during the budget session in June.
So, hopefully after that, I can be able to say whether we're benefiting or we're not benefiting. But it is true that we're not getting big enough royalties from the mining contracts, but we shall know exactly how much we can get after negotiating them and after the mining legislation has been reviewed and passed by parliament into a new law. Now, on the revision of taxes, what I said is we have not specifically decided that we're going to reduce the taxes. What the president has done in Tanzania is he has created a high-level task force headed by the governor of the central bank. Now this high-level task force has been tasked to review almost everything to see how the economy in Tanzania has been affected by the global financial, global economic crisis. Now it's upon the recommendation from this high-level task force that the government will be able to take action. But, as of now, we have not yet, even if we know that there are weaknesses here and weaknesses there. But until we get an independent advice from this high-level commission or task force, we are not taking action.
MR. DIENG: We are going to take two more questions because we are running out of time. Here, Lucia.
QUESTIONER: I've got a couple of questions for the Tanzanian Finance Minister. You mentioned something about more funds from the IMF. Can you elaborate on that? And also, secondly, can we get an update on your plans for a Eurobond? Is this still on hold or are you going to move forward at some point?
MR. DIENG: We'll take a second one here.
QUESTIONER: My question goes to Minister Mkulo. So, in your meeting yesterday with the IMF, did you discuss the reform of the international financial systems? So this is the outcry from the world in the wake of the financial crisis. So, if you don't discuss this with the IMF also, what do you have to say today?
MR. MKULO: Reform of what?
QUESTIONER: Reform of the international financial structure, yes.
MR. MKULO: Okay.
QUESTIONER: Okay. So what do you have in your mind about this issue?
MR. MKULO: First of all, get more funds from the IMF. Yes, we're going to get more funds, a substantial amount, a part of the stimulus package. That is why I said the G20 in London for Tanzania, at least we benefited out of it, but I'm not sure whether I'm indebted to say exactly how much we got from there. Our principle is that I have to go and brief my president first before. Yes, I've got to brief my employer before he hears it from Reuters. Otherwise, I'll be risking my job.
But it is suffice to say that we really have a very, very good package on how to stimulate our economy, how to help the balance of payments in Tanzania. It's a very good package from the IMF.
Now, on the Eurobond, it is true Tanzania had planned to go into the international sovereign bonds. Initial work had been done by the Central Bank, and, fortunately, before even we appointed a rating agency the financial crisis stepped in. And, when we looked the inside story, it's the rating agencies who are vying to come and rate Tanzania that were involved in rating all the institutions in the U.S. that collapsed.
So, as a government, we felt it was not prudent to use those rating agencies at this mature time. We also felt it's not prudent before we know exactly what is inside the story of this sovereign rating business is to involve ourselves in that.
But two of our sister countries, I'll not mention them, had already been rated and actually went into the international bond market. They borrowed at about 8.5 percent. By December, last year, the interest rate had risen to 17 percent. And so, that was the third reason for Tanzania deciding not to stop, be careful. We have not stopped. We have suspended that move in order to study it, understand it, see how beneficial this window can be before we can get into the stream and ask these people to come and rate us. But because of our plan to get some money from the international bond market, we have designed a different mechanism. So we're going to get the money that we would otherwise get from the international bond from different sources.
Now, on the reform of the IMF, unfortunately, at my meeting yesterday, I concentrated more on bilateral issues between Tanzania and the IMF, and because the IMF was so positive on the issues that I had come to talk to them, I did not really talk with the IMF on the reform package.
Thank you very much.
MR. DIENG: Thank you, Minister Mkulo.
This brings to an end our press conference with African Finance Ministers. We are running out of time, and we have to bring this to a close. So, thank you very much for your attendance.
[Press briefing concluded at 12:18 p.m.]