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Economic and Social Research Foundation
The government should borrow less from local financial institutions as continued getting such loans amounts to competing with the private sector, a tax expert said this week.
Dr Apronius Mbilinyi, from the Economic and Social Research Foundation, said in an interview that to go on borrowing from commercial banks automatically increases the interest rates.
According to Mbilinyi most commercial banks readily offer loans to government, while often ignoring individual or private sector enterprises because they consider the former a more reliable customer.
A Tanzania Coalition on Debt and Development (TCDD) research shows that up to September 2012 local banks held 73 per cent of all internal debt. The Central Bank alone held 21 per cent of the debt while the remaining 52 per cent were under commercial banks.
According to Mbilinyi most commercial banks readily offer loans to government, while often ignoring individual or private sector enterprises because they consider the former a more reliable customer.
Due to the trend that invariably raises interest rates, not all private institutions would be able to afford loans, resulting in some of them declining.
On his a part University of Dar es Salaam lecturer Dr Oswald Mashindano said when demand increases the price also increases, and in the banking system money is commodity.
He elaborated: “Because money is commodity and the price is interest, therefore all customers should pay the same interest rate since they all depend on the single market.
The TCDD recently alerted the government over the negative impact of its internal, stating that although the external debt is bigger, the former has maximum cost to the government in terms of its interest liabilities.
The report states that the interest on internal debt is high compared to external obligations, while the duration period of internal debt is short.
Hebron Mwakagenda, TCDD Executive Director, said internal debt is increasing rapidly because the government is taking loans from local commercial banks which charge high interest.
SOURCE: THE GUARDIAN
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