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Budgets, economic health: Tanzania`s position in EA

Discussion in 'International Forum' started by Geza Ulole, Jun 14, 2010.

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    Geza Ulole JF-Expert Member

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    Jun 14, 2010
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    13th June 10
    Budgets, economic health: Tanzania`s position in EA

    Nimi Mweta

    Hospital generalists often require a `full blood picture` on a patient so that they can make out the range of diseases a person faces, and not just the specific ailment for which one is hospitalised, say for instance acute malaria.
    Such an analysis offers a helpful picture of what each part of the body looks like, for everything the body contains is reflected in the blood stream, its contents and character. The same applies to budgetary analysis as it shows the strengths and weaknesses of an economy in graphic detail.
    A few salient features of the budgetary presentations in four East African Community member states were available in scanning the summaries of the other budgets and some rapid comparisons.
    Zanzibar is an indirect member as it has its own budget, which came earlier, but isn’t the subject of scrutiny as ‘Zanzibar is not a state,’ runs no risks at the international level since all its risks are carried by the Union Government as guarantor. Burundi was yet to present its budget; by comparison it is the least stable.
    What however stood out most noticeably was that the two countries’ budgets - Tanzania and Uganda - when put together, have a Sh131 billion shortfall compared to the Kenyan budget, which Finance Minister Uhuru Kenyatta says it stands at Kshs 998bn, which is much higher than Tanzania`s Sh11.6trillion, it means that an exchange rate of ten Tshs to one Kshs would be necessary for the budgets to be comparable or nearly the same. However that isn’t the case, as one Kshs fetches 16 or 17 Tshs; one Ugandan shilling is about 60 cents to the Tanzanian shilling.
    This relative size of budgets is also a reflection of relative size of each country’s economy, where Kenya has maintained a net advantage in terms of increasing size of economy, with Tanzania unable to catch up despite holding a vast advantage in terms of natural resources.
    Physically speaking Kenya is like the Tanga to Musoma portion of the country, with the Usambara Mountains and Kilimanjaro as Taita-Ukamba and Mount Kenya zones respectively, and adding Mount Meru. The other areas are contiguous; for instance Lake Manyara and Serengeti, as Maasai Mara zone, etc. Why Tanzania can’t use resources for higher economic growth has remained enigmatic, despite starting economic reforms 25 years ago.
    When comparison shifts to inflationary spiral, it is clear Tanzania is the weakest of East African economies, as inflation ranges from 2.05 percent for Rwanda, 3.7 percent for Kenya, 5.6 percent for Burundi and 5.9 percent for Uganda, while Tanzania clocked 9.4 percent.
    While that would imply that Tanzania has higher public expenditure and thus is more or less a welfare state, the budgets read out on Thursday don’t demonstrate that impression. Kenya is spreading free secondary schooling, generally.
    In previous budgets for instance, Kenya was spending 32 percent of its budget on education, while Tanzania will spend 17.2 percent in this year’s budget, despite the particularly strong public pressure it has faced in that direction.
    In other words, examined from each direction, it is clear that the Tanzanian economy is structurally weaker than the rest, chiefly in its ability to rein the galloping inflation, and then, worse still, in its dependence on bank borrowing. It raises alarm as to economic stability in the medium term, as borrowing moved from Sh0.5tr to Sh2.1tr in one year. In this year’s borrowing from the commercial banks, Sh0.8tr is meant for `rolling over’ last year’s debts and Sh1.3tr is new money for infrastructure in particular.
    When account is taken of the fact that the borrowing level last year was Sh0.5tr it means that the government hasn’t been able to allocate revenue cash for repayment of loans, and instead it compounds the borrowing so that it borrows more (in new money) and then repays last year’s principal (Sh0.5tr) and interest (Sh0.2tr). Such mathematics of borrowing and repayment and budgeting generally, is an unfolding crisis.
    Economic history shows that a government overly relying on borrowing is a government that is feudal in character, as its privileged classes do not produce, but they have a right to a large share of the ‘national cake’ due to fundamentals of that sociopolitical polity.
    Eventually a revolution must follow so that those who actually produce get a fair share of what they do and pay decently their servants (in that sense, the working class). The outcry for decent pay can’t be louder, but despite the fact that there is a wage increase planned, it couldn’t go half of the way as a ‘living wage.’
    What makes Tanzania’s budget feudal in character, patterned on the pre-revolutionary French governments of Louis XIV to Louis XVI, is that it is holding to a large number of state sub-commercial entities which take a large chunk of public revenue but they can’t operate at a profit. Again, their predominant position in the economy prevents a large amount of foreign capital to take up and purchase their shares, and then recapitalize those sectors that the ‘companies’ now dominate.
    Only in this manner would the cost of doing business be reduced, revenue collection improve when such recapitalised firms begin paying taxes instead of draining the little that is collected. This allocation is however the most hallowed part of the budget, as it is called ‘development financing,’ which is inaccurate.
    When this scenario is added to the pre-electoral jostling where the most notable representatives of the feudal (state companies, bureaucracy, the churches) classes have declared their enmity with collaborators with foreign companies to reduce the hegemony of state firms, the picture gets bleaker.
    The dominant left-wing reflexes of the political system has put the government under utmost strain about rolling back privatization of a major section of the port, and wants many factories privatized earlier to be returned, or houses now placed on the market for plots, to be restored to government use (that is, to this class, as official residences). It means that the government has to be pushed into reform, like when it signs EPA with the European Union in November, and then face demonstrations.


    THE GUARDIAN
    Budgets, economic health: Tanzania`s position in EA
     
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