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Thursday, April 13, 2017
How Tanzania government borrowing violates laws
In Summary
By Citizen Reporter
Dodoma. The government violated various laws when it borrowed money from the domestic market to fund the budget during the financial year 2015/16, the Controller and Auditor General’s national debt audit indicates.
The audit that is included in the central government audit report tabled yesterday in Parliament indicates that the government violated the Bank of Tanzania Act pf 2006, the East African Monetary Union Protocol (EAMU Protocol), the Government Loans, Grants and Guarantees Act 1974 (as amended in 2004) as well as its regulations of 2003.
The CAG found out that the total domestic debt stock was Sh11.2 trillion by June 2016 out of which Sh1.44 trillion were government securities that had been held by more than 12 months in total violation of section 34(1)(b) and Sec.35(1) of the BoT Act.
The CAG also found out that government violated the EAMU Protocol by borrowing Sh155 billion from the BoT under long term basis to repay (rolling over) a five year bond that was maturing during the 2015/16 financial year. The Sh155 billion had not been in the issuance plan for Government Securities for 2015/16, in which, in fact the government had planned to reduce the amount of outstanding liabilities with the BoT by Sh155 billion during the 2015/16 as part of efforts to phase out long term liabilities with the BOT by 2020/2021 in adherence to Article 5(2) of the EAMU Protocol.
“Such borrowing (rollover) violates the Issuance Plan and implies that the Government may not be able to achieve its objective of phasing out long term liabilities with the BOT by the financial year 2020/2021 which will, in turn, affect her compliance with the EAMU Protocol,” the CAG report reads in part.
The CAG also found that the government failed to respect its own Issuance Plan for the year 2015/16 when making domestic borrowing.
“My review of the Issuance plan for the year 2015/16 and domestic debt portfolio for the same year noted that the government had excessively borrowed above its plan by 42 per cent,” the CAG reports reads in part.
According to issuance plan the proceeds from domestic borrowing were to be used for redemption (Sh2.6 trillion), budget financing (Sh1.4 trillion) and clearance of arrears (Sh660 billion).
But the CAG review indicated that the Sh2.6 trillion redemptions were made but were not reflected in the domestic debt portfolio report.
Worst still despite the government’s plan to abandon financing the budget by Treasury Bills which are short term in nature the same government went ahead to use Treasury Bills worth Sh4.5 trillion to finance the budget which is contrary to the issuance plan.
“I am therefore concerned that unplanned borrowings may lead to unnecessary increase in public debt and crowding out of the private sector,” the CAG report reads in part.
The minister of Finance also violated the Government Loans, Grants and Guarantees Act for renewing a Sh100 billion debt facility (Working Capital Facility) with a private commercial bank (NMB PLC) for funding he 2015/16 budget without prior review and deliberations of the National Debt Management Committee (NDMC). This was contrary to Section 16 and 17 of the Government Loans Guarantees and Grants Act 1974 and its Regulations, 2003 that requires the NDMC to deliberate and advise the Minister on all matters regarding management of the public debt.
“In addition, such borrowing from commercial banks was against the issuance plan for 2015/16 which required the Government to borrow domestically by issuing Treasury Bills and Bonds only,” the CAG says in the report.
The Committee had recommended the signing of the Sh100 billion contract between NMB and the Government for 2014/15 budget support and agreed that it be renewed for a further 12 months. However the CAG says that the 2015/16 loan contract had terms and conditions that were not consistent with the 2014/15 contract and thus it cannot be considered as a renewal technically.
“Non-compliance in the process of soliciting loan, in my view, led to anomalies noted earlier - uncompetitive borrowing and inadequate involvement of the NDMC which resulted into signing loan contracts with higher service costs and unfavourable terms to the government. Thus prudence of the Government borrowings becomes an issue of concern going forward if such practices remain unchecked,” the CAG notes in the report.
How Tanzania government borrowing violates laws
How Tanzania government borrowing violates laws
In Summary
- The audit that is included in the central government audit report tabled yesterday in Parliament indicates that the government violated the Bank of Tanzania Act pf 2006, the East African Monetary Union Protocol (EAMU Protocol), the Government Loans, Grants and Guarantees Act 1974 (as amended in 2004) as well as its regulations of 2003.
By Citizen Reporter
Dodoma. The government violated various laws when it borrowed money from the domestic market to fund the budget during the financial year 2015/16, the Controller and Auditor General’s national debt audit indicates.
The audit that is included in the central government audit report tabled yesterday in Parliament indicates that the government violated the Bank of Tanzania Act pf 2006, the East African Monetary Union Protocol (EAMU Protocol), the Government Loans, Grants and Guarantees Act 1974 (as amended in 2004) as well as its regulations of 2003.
The CAG found out that the total domestic debt stock was Sh11.2 trillion by June 2016 out of which Sh1.44 trillion were government securities that had been held by more than 12 months in total violation of section 34(1)(b) and Sec.35(1) of the BoT Act.
The CAG also found out that government violated the EAMU Protocol by borrowing Sh155 billion from the BoT under long term basis to repay (rolling over) a five year bond that was maturing during the 2015/16 financial year. The Sh155 billion had not been in the issuance plan for Government Securities for 2015/16, in which, in fact the government had planned to reduce the amount of outstanding liabilities with the BoT by Sh155 billion during the 2015/16 as part of efforts to phase out long term liabilities with the BOT by 2020/2021 in adherence to Article 5(2) of the EAMU Protocol.
“Such borrowing (rollover) violates the Issuance Plan and implies that the Government may not be able to achieve its objective of phasing out long term liabilities with the BOT by the financial year 2020/2021 which will, in turn, affect her compliance with the EAMU Protocol,” the CAG report reads in part.
The CAG also found that the government failed to respect its own Issuance Plan for the year 2015/16 when making domestic borrowing.
“My review of the Issuance plan for the year 2015/16 and domestic debt portfolio for the same year noted that the government had excessively borrowed above its plan by 42 per cent,” the CAG reports reads in part.
According to issuance plan the proceeds from domestic borrowing were to be used for redemption (Sh2.6 trillion), budget financing (Sh1.4 trillion) and clearance of arrears (Sh660 billion).
But the CAG review indicated that the Sh2.6 trillion redemptions were made but were not reflected in the domestic debt portfolio report.
Worst still despite the government’s plan to abandon financing the budget by Treasury Bills which are short term in nature the same government went ahead to use Treasury Bills worth Sh4.5 trillion to finance the budget which is contrary to the issuance plan.
“I am therefore concerned that unplanned borrowings may lead to unnecessary increase in public debt and crowding out of the private sector,” the CAG report reads in part.
The minister of Finance also violated the Government Loans, Grants and Guarantees Act for renewing a Sh100 billion debt facility (Working Capital Facility) with a private commercial bank (NMB PLC) for funding he 2015/16 budget without prior review and deliberations of the National Debt Management Committee (NDMC). This was contrary to Section 16 and 17 of the Government Loans Guarantees and Grants Act 1974 and its Regulations, 2003 that requires the NDMC to deliberate and advise the Minister on all matters regarding management of the public debt.
“In addition, such borrowing from commercial banks was against the issuance plan for 2015/16 which required the Government to borrow domestically by issuing Treasury Bills and Bonds only,” the CAG says in the report.
The Committee had recommended the signing of the Sh100 billion contract between NMB and the Government for 2014/15 budget support and agreed that it be renewed for a further 12 months. However the CAG says that the 2015/16 loan contract had terms and conditions that were not consistent with the 2014/15 contract and thus it cannot be considered as a renewal technically.
“Non-compliance in the process of soliciting loan, in my view, led to anomalies noted earlier - uncompetitive borrowing and inadequate involvement of the NDMC which resulted into signing loan contracts with higher service costs and unfavourable terms to the government. Thus prudence of the Government borrowings becomes an issue of concern going forward if such practices remain unchecked,” the CAG notes in the report.
How Tanzania government borrowing violates laws
