The 32.9trn/- interim fiscal plan for 2017/18 is 3.4trn/- more over the current budget, an increase of almost 12 per cent of what the government said it would spend in 2016/17.
Last week, Treasury published guidelines it wants public entities to use in preparing their financial plans, which will also be used to implement the second budget of the fifth phase government.
“Coherent to the macroeconomic and fiscal policy objectives, the resource envelope for 2017/2018 is projected to be 32,945.8bn/-, which is expected to be collected and spent during the period,” Treasury notes in the Medium Term Revenue and Expenditure Framework section of the Guidelines for the Preparation of Plans and Budget for 2017/18.
“These are preliminary estimates and final estimates will be established after assessment of the mid-year review; report of the Task Force on Tax Reforms; and the final commitment of Development Partners,” it adds.
“The estimate comprises of tax revenue amounting to 18,097bn/-, non-tax revenue 2,022bn/-, and Local Government Authorities (LGAs) own sources 753.3bn/-, external grants and concessional loans is 3,699.8bn/-, external non-concessional loans is 2,080.2bn/- and domestic borrowing is 6,293.5bn/-.”
According to the document, the government intends to spend about 32.94trn/- in accordance with key priorities stipulated in the second Five Year Development Plan (FYDP II). Development expenditure is estimated at around 13.16trn/-, of which the local component is 9.96trn/- and foreign funding is expected to be 3.2trn/-.
Running and managing the day-to-day operations of the government machinery is estimated at about 19.78trn/-, of which 7.2trn/- are for wages and salaries. While 2.85trn/- are for other charges, 9.72trn/- is for servicing the public debt, which was 45.68trn/- at the end of September.
“The Plan and Budget Guidelines (PBG) is a government instrument for the preparation and implementation of government budget, public entities‟ budget and National Development Plan for 2017/18,” the ministry of Finance and Planning said on its website.
“The PBG for 2017/18 guides mobilization and allocation of financial resources for the implementation of Annual Development Plan, which is the second in the series of five annual plans for the implementation of the second Five Year Development Plan (2016/17 - 2020/21),” it adds.
The preparation of the PBG has taken into account several factors, including the CCM Election Manifesto and Dr John Magufuli’s inauguration speech of the 11th Parliament on November 20, 2015 whereby he outlined focus and priorities of his administration.
Other factors considered in preparing the PBG are the new government’s decision to shift the headquarters of its operations to Dodoma, the FYDP II, and the Sustainable Development Goals (SDGs).
“The core objective of PBG for 2017/18 is to guide accounting officers of ministries, independent departments and executive agencies (MDAs); regional secretariats (RSs); local government authorities (LGAs); and public entities on preparation and implementation of their plans and budgets for 2017/18,” Treasury further notes.
The development budget will be increased by 1.34trn/- from the 11.82trn/- earmarked for socio-economic investment in the current budget. This vote will account for 40 per cent of the total new budget compared to about 31 per cent in fiscal year 2016/17.
Unlike in the past when donors used to fund most of development expenditure, this time around the local component accounts for nearly 76 per cent of the planned investments. In the current budget, local funding of development expenditure amounted about 8.7trn/- while foreign sources are expected to contribute 3.11trn/-, which is almost 74 per cent and 26 per cent respectively.
Recurrent expenditure is an increase of 2trn/- over the current estimate of 17.71trn/- of which almost half the amount will go to the consolidated fund services (CFS) account. The next budget’s CFS will comprise 9.72trn/- compared to 8trn/- earmarked for 2016/17, which among other items covers outlays for servicing public debt.
Funding the 2017/18 budget will not involve general budget support (GBS) from donors as aid is mostly expected to be provided in form of grants and concessional loans.
“Gradually GBS is disappearing across the world,” the Head of Delegation of the European Union to Tanzania, Roeland Van De Geer, told Smart Money recently when asked about the current status of this source of financing the government budget.
When tabling estimates of the 2016/17 budget Finance and Planning Minister Dr Philip Mpango said the GBS component would be only 483bn/-. The Budget Support Partnership Memorandum between Tanzania and GBS donors is expiring in this year and diplomatic sources say there are no signs of renewing the deal.
Tanzania has been one of the largest recipients of budget support in the world. During the years 2005/6–2011/12, the total amount of budget support was US$5 billion, about 11trn/- at the current market exchange rate.
For quite some time, budget support disbursements were the most predictable form of aid to Tanzania. In 2014/15, disbursements were delayed due to the IPTL saga and since then things have not been the same again.
With aid dependence slashed to 11.2 per cent compared to 12.2 per cent in 2016/17, commercial loans have been increased by 898.5bn/-. They will account for 25 per cent of the new budget like in the current financial year.
The International Monetary Fund (IMF) said recently after a review of the economy by a team of its experts that Tanzania was at low risk of external debt distress therefore it can still borrow externally on commercial terms to meet its financing needs.
Team leader Mauricio Villafuerte emphasized the need of mobilizing external financing to step up the pace of planned capital spending. According to him, robust performance of the economy was in danger of being held back by two major risks, which are the current tight stance of macroeconomic policies and the slow pace of implementation of public investment.
The prudent fiscal stance, which some quarters have likened to austerity measures, is being pointed at as among factors behind the current tight liquidity in the economy.
Government budgetary operations data in the October MER show that recurrent expenditure was 391bn/- less in the first quarter of 2016/17. The local component of financing development projects was 61.2 per cent less of the earmarked 1.4trn/- for the July-September period.
The IMF team called for steps to be quickly taken to ease liquidity conditions in the economy. Measures proposed by the global financial prefect experts include further liberalization of the capital account and acquiring a sovereign credit rating to expand Tanzania’s opportunities to borrow abroad.