Tanzania now forced to fund its budget as donor aid freeze bites

External support for Tanzania’s 2018/19 budget has dried up as the country continues to cross swords with international donors over governance issues.

According to official figures from the central bank, donors released just 0.016 per cent of promised funds for government projects during the year to November 2018, forcing the government to dig deeper into its pockets to keep those projects running.

The Bank of Tanzania’s monthly economic review for December 2018 shows that Tsh625.1 billion ($271,005,000) out of Sh625.2 billion ($271,048,000) spent on development activities in November came out of state coffers. Donors contributed Tsh100 million ($43,353).

Foreign relations

President John Magufuli’s administration has over the past year been at loggerheads with international donors over widely perceived authoritarian leadership.

Sticking points include the closing of political and democratic space, diminishing civil rights, and gagging of dissident voices, along with sharply conservative stances on issues concerning LGBT rights and schoolgirl pregnancies.

Analysts say that Tanzania risks damaging its relations with key development partners these as the European Union and World Bank due to such hardline policy positions.

"Given that the Magufuli government has already faced setbacks to implementation of projects, we note authoritarian policies and criticism by international observers could risk forfeiting more concessional loans in the future," the global credit rating agency Fitch Ratings Inc said in a recent report on Tanzania.

The World Bank and the EU have been at the forefront of recent international pressure on Dar es Salaam to ease up its repression.

The EU recalled its ambassador from Tanzania after a highly-publicised tiff over the LGBT rights issue in early November, with the EU parliament following up in December with a statement critising increased civil-rights abuses and diminished democratic space in the country.

The EU now says it is conducting a comprehensive review of its relationship with Tanzania.

The World Bank in October last year pulled out of a planned $300 million educational loan to Tanzania due to concerns over the government’s tough stance on pregnancies among schoolgirls, as well as the controversial Statistics Act, which prohibits criticism of official government statistics.

But the Washington-based lender later backed down after its vice president for Africa Hafez Ghanem visited Dar es Salaam for talks with President Magufuli.

Mr Ghanem said later that the money had been made available again, but only after “the government reassured us that there would be no more discrimination against people of any ethnicity, religion or sex orientation.”

Difficult times

Unveiling Tanzania’s State of the Economy report at the turn of the year, Finance Minister Philip Mpango said the country was going through difficult times as a result of more and more development partners cutting down on financial aid.

But Dr Mpango reiterated that Tanzania would not sacrifice its sovereignty and bow to Western demands for the adoption of gay rights in the country in exchange for such aid.

Dr Mpango said development partners pledged Tsh2.67 trillion ($1.157 billion) in support of the government’s 2018/19 budget, but as of November 2018 had made available just 54 per cent, or Tsh928.7 billion ($315.5 million), which was expected from them between July and November.

“The diminishing amount of the assistance is mainly the result of stern conditions put by the donors and prolonged negotiations, plus delays in implementing some projects that also delays disbursement of funds for the following phases,” Dr Mpango said.

BoT figures quoted by the minister show that donors pledged Tsh3.97 trillion ($1.69 billion) budget support in 2017/18, of which Tsh2.46 trillion ($1.042 billion) had been remitted by the end of that fiscal year, equivalent to 63 per cent of the total.

Budget support from overseas donors as a percentage of total government revenue has been gradually declining over the past few years, from 19.3 per cent in 2010/11 to 5.2 per cent in 2015/16, with the downward trend expected to continue in 2018/19.

Fitch Ratings said, "Diminished aid flows will exert more pressure on the budget in the medium term, forcing the Tanzania Revenue Authority to source these funds from elsewhere.

However, we view this as credit positive on the whole, as it will reduce dependency on foreign aid inflows which can be a volatile source of revenue."

Foreign policy dealings

Magufuli continues to flummox many observers by being quite unlike any of his predecessors in his approach to economic diplomacy, a mainstay of Tanzania’s foreign policy dealings since the time of founding president Mwalimu Julius Nyerere.

He remains a largely mysterious figure in international circles due to an apparent abhorrence for foreign travel.

More than three years since assuming the presidency, he has ventured only as far as Rwanda, Uganda, Kenya and (furthest) Ethiopia — making him the polar opposite of his immediate predecessor Jakaya Kikwete.

This is over and above the fact that his austerity policies and rigid anti-corruption stance have both won him many admirers in the global arena.