Donor support threatened by US $40 million deal

Officials of the World Bank and the International Monetary Fund (IMF) have indicated that donor support for Tanzania may be threatened if it completes a controversial deal to upgrade its air traffic control system, according to news reports. The ‘Financial Times’ in London said on Tuesday that the Bretton Woods institutions had told the Tanzanian government that the proposed US $40 million deal with a UK company, BAE Systems, was too expensive, had unnecessary military capability and would add to Tanzania’s external debt burden (currently about US $7 billion).

The World Bank has said that it supports the upgrading of Tanzania’s air traffic control system in principle, but estimated that a suitable system should cost only US $10 million. Both the IMF and the World Bank considered that Tanzania should not borrow more money to fund the expensive defence-related aspects of the system, the BBC reported.

Tanzania was “currently one of the stars of the Heavily Indebted Poor Countries Initiative (HIPC). There has been a concerted effort to reduce the debt burden, to add to it is strange,” the BBC quoted David Cowan of the Economist Intelligence Unit as saying.
Tanzania is to receive between US $50 million and US $100 million in debt relief under HIPC, and has set out a poverty reduction strategy which agrees to limit public expenditure mostly to education, health, agriculture, rural roads, water, the judiciary and the fight against HIV/AIDS, according to the ‘Financial Times’. The BBC quoted Cowan as saying that it was unlikely the World Bank and IMF would stop lending to Tanzania because of the project. “I doubt if it [lending] would be stopped... The idea is that they [the Tanzanians] would go back to the drawing board and think about whether it is a suitable system,” he said.

UK-based aid agency Oxfam was also critical of the proposed deal. It called on British Prime Minister Tony Blair to keep sustainable development in mind when deciding whether to allow to deal to go through, since it has to be approved by the UK government because of the system’s military component. The ‘Financial Times’ quoted it as saying that objections from UK parliamentarians were based on the threat posed to Tanzania’s sustainable economic development.