- Govt in talks with the World Bank in a bid to close the possible financing shortfall
Jan 10, 2010
The government may be forced to seek supplementary financing for its Sh9.1 trillion 2009/10 Budget due to some predictable and unforeseen economic difficulties, The Citizen can reveal today.
According to information obtained from independent sources, a review carried out by experts recently had identified some of the obstacles hampering the achievement of budget targets.
An International Monetary Fund (IMF) review of the economy, the sources said, had established that achieving improved tax compliance would not be easy in the context of a slowing economy, and difficulties in reining in tax exemptions.
The IMF also found that foreign financing appeared high relative to current commitments, and the contingency reserve was limited, given the potential need to respond to food shortages or fix key infrastructure.
This, it was found, had forced the country to hold discussions with the World Bank, with a view to finding ways to plug the financing gaps, according to the IMF document released last month, and a copy of which was made available to The Citizen. However, we could not immediately establish the outcome of the negotiations.
And yesterday in Dar es Salaam, President Jakaya Kikwete hinted at more problems, when he told members of the diplomatic corps that the El Nino rains had already caused immense damage estimated at Sh6.7 billion, and the government would have to seek funds from other sources to fix the ruined infrastructure.
Addressing diplomats at a sherry party he threw at the State House, President Kikwete said it was, however, "very unfortunate" that the rains had come too late to salvage the withering crops.
"The El Nino rains are set to become a major destructive force on our infrastructure. Already in the two weeks of rains since Christmas, the damage done to the central railway line and roads in Morogoro and Dodoma regions requires some Sh6.7 billion to repair and rebuild," he said.
The government, he added, would have to raise the money within the existing Budget, meaning that allocations to various ministries and government departments may be cut to raise the funds.
"We are at a loss about how many more times shall we have to do this if the rains persist at this pace until the end of rainy season at the end of May," he said
But he assured the diplomats that the government would have to shelve some of its plans and programmes or omit others altogether to enable the country to respond to the emergencies.
"Determining which ones to sacrifice will be another big headache. But, having to do this again after the emergency economic rescue programme, means major reversals in our economic fortunes and projections," he said, pleading for help from donors.
Apart from damage to infrastructure, the raging floods have also claimed a number of lives.
Thousands have been displaced and property damage after floodwaters either destroyed or swamped their houses, notably in Kilosa district in Morogoro and Kongwa and Mpwapwa districts of Dodoma.
Last September, mudslides in Same district, Kilimanjaro Region killed more than 20 people, and destroyed property, whose value has yet to be determined.
According to the IMF document, the government has been in talks with the World Bank for possible supplemental Budget financing.
The document indicates that the discussions were aimed at seeking ways to largely close possible financing shortfalls, estimated at around 0.8 per cent of gross domestic product (GDP).
According to the Bank of Tanzania's economic review for last November, the GDP stood at Sh25.3 trillion.
This suggests that the financing shortfall (estimated at around 0.8 per cent of GDP) could be about Sh202 billion.
The gap might have increased by the Tanzania Revenue Authority (TRA) collection shortfall amounting to a whopping Sh100 billion, which was exclusively revealed by our sister paper, the Sunday Citizen, in November.
The loss was recorded in the first three months of the current financial year, sparking concern that the government might fail to meet some of its financial obligations.
The taxman did not meet the income targets for July, August and September; with impeccable sources indicating that the situation was not any better in November either.
The poor performance means that the government may find it increasingly difficult to finance the 2009/2010 Budget, should the trend in this first quarter of this financial year persist.
However, Finance minister Mustafa Mkulo appeared to downplay the issue when contacted by the Sunday Citizen for comment, saying that the three-month shortfall should not raise any alarm.
He said it was a normal trend during the early months of the financial year, and gave an assurance that government plans would not be in jeopardy.
Given the precarious situation, further plans by IMF are to review the fiscal situation carefully by mid-year, and the authorities indicate that in the event of shortfalls, low-priority expenditure would be curtailed, notes part of the 46-page document.
"A comprehensive public financial management reform programme is in place, but budget planning and execution could be strengthened further to ensure value for Money," said the document in appraisal of the government Budget.
The IMF noted substantial risks to the outlook for both growth and inflation. The uncertainty on recovery in global demands, drought, the strain on the existing infrastructure, including the introduction of rolling electricity blackouts in October, were cited as major factors that could jeopardise economic recovery efforts.
The Sh9.1 trillion Budget announced by Finance minister Mkulo in June last year was targeted to invigorate agriculture, boost education, livestock, health, infrastructure, tourism and manufacturing sectors.
Education, at Sh1,743.9 billion, received the lion's share of the national Budget followed by infrastructure (Sh1,096 billion), health (Sh963 billion), agriculture (Sh666.9 billion) and water (Sh347.3 billion).
Together with the Sh285.5 billion allocated for minerals and power sectors, this accounts for 64 per cent of the entire 2009/10 Budget.
While the donors' contribution was pegged at 33.4 per cent, the TRA was tasked to collect Sh5.1 trillion to finance the Budget.
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