BY FUMBUKA NG'WANAKILALA
DAR ES SALAAM Fri Dec 13, 2013 10:31am EST
(Reuters) - Tanzania's economy is likely to grow about 7 percent annually over the next two years, the World Bank said on Friday, but at 6.2 percent of gross domestic product its budget deficit exceeds the level it agreed with the International Monetary Fund.
Like other regional economies, Tanzania has been growing fast, and discoveries of gas could boost it further. But the World Bank warned the government against raising its spending based on unpredictable future gas earnings.
In an economic update, the bank said the overall deficit for 2012/13 at 6.2 percent of GDP was higher than the 2011/12 level of about 5 percent.
"This deterioration was both unexpected and considerably higher than targeted, with the initial target established by the authorities in consultation with the IMF set at a value equivalent to 5.5 percent of GDP," it said.
"The government must tread the tight rope and find the balance between the use of public expenditure to promote economic growth and the need to maintain fiscal and debt sustainability over time," it said, noting that 12 million of Tanzania's 45 million people lived in extreme poverty.
It said Tanzania needed to combat poverty by implementing several measures, including a cash transfer program with an expenditure of about $250 million per year.
Raising more revenue depends on the government's capacity to reduce tax exemptions, which now cost the equivalent of 3 to 4 percent of GDP a year, the bank said.
Public borrowing was more than 2.3 percent of GDP in 2012/13, more than the 1 percent ceiling set by the IMF, the bank said. Public debt was more than 40 percent of GDP at the end of 2012/13, with a higher proportion of non-concessional loans.
"The prospect of significant future gas revenues might also encourage the authorities to borrow excessively, despite the uncertainty regarding the timing and magnitude of these revenues," the bank said.
(Editing by Edmund Blair, Larry King)