Tanzania is seeking to borrow an extra $581 million from the international money markets this year to finance the construction of a gas pipeline and restructure its power utility, further pushing up its spiralling public debt.

In a letter to the International Monetary Fund, Tanzania wants a waiver to raise its non-concessional loans (expensive borrowing that must be reimbursed or repaid over a period of time) ceiling from $2.1 billion to $2.68 billion.

Ordinarily, non-concessional borrowing is expensive to service and carries a higher risk of default than concessional loans.

The government hopes to use this borrowing space to finance various infrastructure projects, including the gas pipeline and the ongoing restructuring of the Tanzania Electricity Supply Company (Tanesco), said Finance Minister William Mgimwa and the Bank of Tanzania (BoT) governor Benno Ndulu in the letter dated December 19, 2012.

The IMF has endorsed the request, on the grounds that the country’s debt levels are sustainable and allow it to borrow more.

The government intends to issue a Eurobond of Tsh1.1 trillion ($700 million) in the first quarter of this year to finance infrastructure projects.

The country shelved plans to issue the sovereign bond two years ago due to the global economic crisis.

The overseas funds are expected to ease pressure on Tanzania’s local credit market, where the government is set to raise part of the funds to finance the 2012/2013 budget.

Owing to Tanzania’s governance record, London-based research firm Capital Economics estimates that it can access credit at eight per cent, a little higher than Kenya’s rate of 7.5 per cent and Uganda’s seven per cent.

The country is building a new gas pipeline to bring lower-cost natural gas from Songo Songo and Mnazi Bay gas reserves to Dar es Salaam and surrounding areas for electricity generation and other uses. At least $20 million is to be put into Tanesco.

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“To ensure compliance with the external debt ceiling, which includes all borrowing by parastatals, the government is closely monitoring all external non-concessional borrowing by the public enterprise sector,” said the letter.

Dar is already facing fresh pressure to tame its spiralling public debt, which hit new highs in the first 10 months of 2012, raising fears the overhang could hurt the economy and make it more expensive for the country to borrow from the international market.

Data from Bank of Tanzania shows the country’s external debt stock at the end of October 2012 stood at $10.5 billion, an increase of $456.1 million or 4.5 per cent from the same period last year.

The figure was up $27.1 million over the amount recorded at the end of September.

The increase, BoT said, was due to new disbursements received from the International Development Association (IDA) and Japan International Cooperation Agency (JICA).

In seeking to borrow more, Tanzania is betting on higher revenue collections and projected reduced imports of oil because of domestic gas production to offset the debt in coming years.

According to the Letter of Intent to the IMF, in the course of the current financial year, which ends in June, Tanzania has already borrowed $1.3 billion in non-concessional loans for the gas pipeline and a Dar es Salaam water supply project.

Tanzania’s external non-concessional debt ceiling for infrastructure projects is set at $1.76 billion for the period ending June 2013.

When the pipeline is completed in the next 18 months, it is expected to result in significant savings on foreign exchange used to buy diesel for power generation.