WB faults govts borrowing plan World Bank Country Director for Tanzania, Uganda and Burundi, Mr John McIntyre, addresses a press conference in Dar es es Salaam yesterday. By Lucas Liganga and Beatus Kagashe The World Bank said yesterday the governments plan to borrow $1.5 billion (about Sh2.1trillion) from local financial sources to boost the 2010/11 Budget could have negative implications. The World Bank Country Director for Tanzania, Uganga and Burundi, Mr John McIntyre, told a news conference that borrowing from local commercial banks could be counterproductive if interest rates were too high. Finance and Economic Affairs minister Mustafa Mkulo announced last week that getting the money was possible because the countrys credit rating and worthiness was high. A lead economist with the World Bank office in Tanzania, Mr Paolo Zacchia, said the decision could also squeeze out the private sector because local banks could give preference to the government. The best way out for the government is to avoid wasteful spending. This has been the view of Tanzanian economists, including university academics, said Mr Zacchia, when asked by telephone if there was an alternative to borrowing from local banks. He added: When you have to borrow very expensively you have to look at how you spend your money. Mr Zacchia declined to comment further, saying he did not know how much the government planned to borrow from local sources, the duration of repayment and interest rates to be charged. Coincidentally, Finance and Economic Affairs minister Mustafa Mkulo said separately yesterday that measures to curb wasteful spending included a ban on buying furniture from abroad. He said the government had been buying poor quality furniture from abroad every year. From the 2010/11 financial year, the government will be buying furniture from local manufacturers, he said when opening the Finance and Economic Affairs ministry workers council meeting in Dar es Salaam. He mentioned other measures as continuous verification of civil servants payrolls to avoid paying phantom workers. Mr Mkulo added that from the next financial year, which begins on July 1, housing allowances for senior civil servants would be paid based on specific rates, and not proportionally to salaries. The government would also start using pre-paid electricity meters, popularly known as Luku, to avoid accumulation of bills. On Monday, the newly appointed Tanzania Electric Supply Company (Tanesco) managing director, Mr William Mhando, said government departments owed the firm a whopping Sh58.5 billion in unpaid bills. Mr Mkulo dismissed criticism of the decision to borrow Sh1 trillion from local banks, saying the funds would be Spent on development projects, including roads, railways, water, ports, bridges and irrigation, which will help economic growth and poverty reduction. I dont see any problem is the government borrows to improve the infrastructure...commercial banks in the country hold over Sh50 trillion in deposits, so borrowing only Sh1 trillion should not be a problem, he said. Mr Mkulo told journalists last week that even the International Monetary Fund (IMF) had approved of borrowing since the government had the capacity to repay loans without affecting the macroeconomic, fiscal and monetary fundamentals. Apart from the $250 million we are sure to get from the Stanbic Financial Group, we also expect more funds from other financiers who have shown interest in supporting us, he said. He reiterated that donors decision to withhold $220 million in General Budget Support (GBS) for 2010/11 would not have much impact since the government could get up to $2 billion from other sources. Most of the GBS is used to finance development expenditure. The minister said already Ireland had promised to provide $1 million to support the general budget, adding that everything would be in order before the Budget is read out next week. The money will be invested in areas with economic value and meaningful returns on investment and not for paying allowances or seminars and workshops, he emphasised. The government has announced a Sh11.1 trillion Budget for 2010/11, with part of it being financed through loans, which are expected to make up a fifth of the financial plan. The GBS donors pointed at the governments failure to timely undertake critical reforms as the reason for cutting their support, which is a major component of budget funding. The move raised fears that financing the 2010/11 Budget could face difficulties which could lead to frustrating efforts to undertake social and development projects.