Dar breaches IMF benchmark in bid to plug deficit


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Lunyungu

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Lunyungu

Lunyungu

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Joined Aug 7, 2006
8,842 99 145
[h=1]Dar breaches IMF benchmark in bid to plug deficit[/h]

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Traders display their wares in a Dar es Salaam market. The Tanzanian economy has performed well in the past one year, with rapid and stable economic growth of about 7 per cent and significant drops in the rate of inflation. FILE
By RAY NALUYAGA, The East African

Posted Saturday, December 14 2013 at 16:07
In Summary

  • The overall fiscal deficit rose to 6.6pc, triggering higher local borrowing of up to 2.3pc of GDP.


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A growing deficit forced Tanzania to increase its domestic borrowing in the 2012/2013 financial year, breaching a ceiling set by the International Monetary Fund.

The country’s overall fiscal deficit rose from five per cent of GDP in the 2011/2012 financial year to the current 6.6 per cent, triggering higher local borrowing of up to 2.3 per cent of the GDP, in the process passing the ceiling of one per cent set by the international lender.

According to the World Bank’s fourth Tanzania Economic Update, released last Friday, the deterioration in fiscal accounts is the result of the government’s overestimation of revenue and underestimation of expenditure.

Domestic revenue

The report says that, during the period under review, domestic revenue increased by 0.2 per cent of GDP, while the total value of public expenditure increased by 0.8 per cent, reaching a value equivalent to 27.8 per cent of the GDP.

“The resulting gap was met through domestic financing, with the value of public borrowing reaching a figure equivalent to more than 2.3 per cent of GDP, exceeding the ceiling of one per cent as agreed by the International Monetary Fund (IMF),” says the report.

The World Bank says the government will have to reduce the deficit to 5 per cent and keep the public debt below 50 per cent of GDP in order to maintain its debt distress risk at a low level.

However, the attainment of these desired levels is dependent on higher levels of “revenue mobilisation and controlled expenditure.”

Tax exemptions

According to the World Bank, the achievement of higher levels of revenue mobilisation is dependent on the government’s capacity to reduce the level of tax exemptions, which currently cost the economy the equivalent of four per cent of GDP annually.

In addition, the government will have to successfully implement reforms to the country’s VAT system and collect higher levels of non-tax revenues.

Compared with the recent past, the level of public debt has increased to a value in excess of 40 per cent of the GDP as at the end of 2012/2013 financial year.

The report further warns that while the government appears committed to the necessary fiscal adjustments, there may be a temptation to delay implementation due to political pressures related to the forthcoming national elections slated for November 2015, with history showing public expenditure is generally higher in the months preceding the general election.

The prospect of significant future gas revenues may also encourage the authorities to borrow excessively, despite the uncertainty regarding the timing and magnitude of the expected revenues.

The report says that, overall, the Tanzanian economy has performed well in the past one year, with rapid and stable economic growth of about seven per cent and significant drops in the rate of inflation.
 

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