Leonard Magomba
Dar Es Salaam — Tanzania and its major donors meet for three days in Dar es Salaam starting today to assess the effectiveness of aid given directly to the government amid concerns of the authorities about difficulties encountered in financing the current budget.
Reliable sources have it that the government is currently spending more money than what it is able to raise from various sources and the trend has led to an alarming deficit in this year’s budgetDonors who provide the General Budget Support (GBS) have not only cut down aid but are also taking their time to disburse their pledges to the government.
The awkward budget-financing situation has been made more precarious by poor revenue collections, delicate domestic borrowing and unpredictable foreign commercial financing.
In the first quarter of the current financial year, Tanzania Revenue Authority (TRA) missed its collection target by 18 per cent.
According to knowledgeable sources in Dar es Salaam, the major problem has been failure to get a reliable source of financing the over Sh2 trillion gap in the Sh11.6 trillion financial plan for 2010/11.
The same sources indicated that the deficit issue will be a key item on the agenda of the three-day General Budget Support Annual Review meeting, which will involve high level government officials, heads of missions and development agencies as well as other non-state actors.
The deficit (projected revenues plus grants minus planned expenditure) in the budget as Parliament approved it was almost Sh 2.6 trillion…so far the government has not identified a good source of financing it and that is causing real problems,” a diplomat, who spoke on condition of strict anonymity, said yesterday.
“To make matters worse, there is also a financing gap which is currently projected revenue plus grants plus identified financing minus planned expenditures, which is large,” the source added, noting that resorting to more domestic borrowing was not “very healthy” for a fragile economy like Tanzania with a weak private sector which also relies on the local sources of funding.
Yesterday, Finance and Economic Affairs minister Mustafa Mkulo confirmed the holding of the General Budget Support (GBS) Annual Review meeting but declined to comment on the looming deficit. He said all pertinent issues related to financing of this year’s budget would be discussed and disclosed during the GBS gatherings
“Let’s be patient and wait for the right time and audience to discuss the (deficit) issue…answers to that question will be provided during the GBS review meeting, which starts tomorrow (today),” he said over the phone when asked about the alarming size of the deficit.
Fiscal financing experts mostly argue that budget deficits normally happen when a government does not plan its expenses. In his book titled: Work Hard, Study…and Keep Out of Politics, former US secretary of state James Baker III quotes the late Ronald Regan saying that deficits are not caused by too little taxing but by too much spending.
According to Bank of Tanzania (BoT) figures, deficits have been widening from 0.6 per cent of gross domestic product (GDP) in 2003/04 to 6.5 per cent in the last financial year. The budget deficits get higher when calculated excluding grants, which are the major source of funding for development expenditure.
UK’s Standard Chartered Bank has forecasted Tanzania’s fiscal balance to be negative 5.6 per cent of GDP this year and negative 4.9 per cent in 2011. At GDP value of Sh31.2 trillion, that amounts to about Sh1.74 trillion and Sh1.52 trillion respectively.
Dr Honest Ngowi of Mzumbe University says such huge deficits do not augur well for economies with misbehaving electricity supply and government promising to build castles in the air for its people.
He said solutions to deal with such fiscal problems should include austerity measures such as cutting budgets for seminars and similar retreats as well as drastic reduction of allowances for public officials.
“It is always very difficult to manage the economy with such bad fiscal positions… I have written and spoken several times about my dissatisfaction with spending as if there is no tomorrow in such times as these of a very fragile national and indeed the international economy,” he said yesterday.
Donors have traditionally financed over 40 per cent of Tanzania’s budget. During 2009/10 that external support amounted to 34 per cent of which 12 per cent (about $800 million) was provided by the 14 GBS donors.
Most donors have in recent years been warning the government that weak accountability, rising incidences of grand graft cases and reluctance to undertake key reforms could jeopardise aid flows. In May, the GBS group slashed its funding pledges for fiscal 2010/11 by $220 million to $534 million, citing dissatisfaction with the slow pace of key reforms.
Grants are expected to constitute 25 per cent of this year’s budget. The latest BoT review of the economy shows that the governments managed to get only Sh182.75 billion in grants out of the budgeted Sh336.67 billion in July and August this year.
During the two months, a deficit of Sh549.2 billion was recorded in the overall balance compared to the budget estimates of Sh426.3 billion. The BoT figures further show that net foreign financing was Sh78.57 billion against a projection of Sh172.69 billion.
That forced the government to borrow domestically Sh470.63 billion instead of the Sh253.62 billion it had planned to source locally.
Dr Ngowi cautioned that borrowing from domestic money markets may lead to crowding out the private sector and even raising interest rates.
“Government budget deficits can be cured by cutting spending, raising taxes, enhancing revenue collection or a combination of the three. In most cases, deficits must be financed by borrowing money. Interest must be paid on borrowed funds, which worsens the deficits,” he noted.
source: allafrica.com