Tanzania’s austerity measures slow down implementation of projects

Tanzania plans to spend Tsh31.7 trillion ($13.9 billion) in the fiscal year 2017/18, but may face hurdles in implementation because of revenue shortfalls.

A range of austerity measures implemented by the government in the past year have led to a shortage of cash in the country and reduction of jobs in the public and private sectors.
For example, measures that were aimed at curbing tax evasion at the port of Dar es Salaam have led to closure of several inland container depots (ICDs).

The Association of Hotel Owners in Tanzania (THA) said that the industry’s revenue has dropped by 40 per cent. Latifa Sykes of THA said that last year more than 400 hotels were auctioned after defaulting on repayments of bank loans.  

Mwananchi Communications Ltd (MCL) recently announced a lay-off of eight per cent of its staff following a decline in revenue due to large spending cuts by government institutions that led to low purchasing power of consumers of MCL products and services.

Last week Tanzania Distilleries Ltd announced the retrenchment 50 workers due to what the company termed as “changing market conditions.”

The austerity measures included the implementation of the Treasury Single Account (TSA), which has had adverse results in the banking sector according to a recent study by Exotix Partners, a finance consulting firm.

TSA has removed about $437 million from the country’s banking system since last June, and increased the sector’s Loan to Deposit Ratio (LDR) to 86.3 per cent in the fourth quarter of 2016, the experts said. CRDB Bank’s profits, which fell by 38.9 per cent in 2016, was the most affected bank.

Reports show also that the quality of assets of banks declined following the increase in non-performing loans.

The 2017/18 budget framework, read by Tanzania’s Minister of Finance and Planning Philip Mpango last week, proposes the continued implementation of the austerity measures.

Accounting officers have been instructed to give priority to public institutions and those in which the government owns shares when they buy services such as insurance, financial services, transport, mail, Internet, telephone, transportation, packaging, and advertising.

The Finance Minister also told the officers to continue cutting unnecessary spending by ensuring all meetings including board meetings, training, workshops and seminars are held in the halls of government and public institutions, and to do away with sitting allowances, foreign travel, printing T-shirts, hats and handbags.

Regarding foreign sources, the proposed budget builds on the Tsh29.5 trillion ($13 billion) budget of 2016/17, which already falls short with several development projects unimplemented so far due to lack or delay of expected funding.

For fiscal year 2016/17, the government had allocated Tsh11.8 trillion ($5.3 billion) for the development budget, but up to February this year, four months before the budget expires, the government has disbursed just Tsh3.9 billion ($1.7 million) for development projects. The disbursed amount constitutes 34 per cent of the amount allocated for development.
Mr Mpango said the shortfall in disbursement was caused by the fact that discussions between the government and development partners for grants and loans took a long time to be concluded.

About commercial loans, the hitches were due an unexpected rise in interest rates in the international financial markets, he added.

“That made the government postpone the borrowing to wait for a favourable time,” he said, adding that “the climate is now changing positively.”

Analysts say the problem of unpredictability on commitments made by development partners and other foreign sources of funding may roll over to the 2017/18 budget, which hopes to get up to 37 per cent of the total budget from foreign sources.

According to Mr Mpango, development partners are expected to contribute Tsh3.9 trillion ($1.7 billion) under general budget support and project and sectoral grants, which constitutes about 12.6 per cent of the budget.

Some Tsh1.5 trillion ($657 million) is expected to be acquired from loans in the international market and Tsh6.1 trillion ($2.6 billion) from local commercial loans.

The 2017/18 proposed budget has ambitious goals of expanding the infrastructural base to meet the long term strategic objectives of building an industrial society.

Some of the signature projects to be carried out in the 2017/18 fiscal year include Mchuchuma coal project, construction of the central standard gauge railway and its subsidiaries, improving the Tanzania Airways Corporation, construction of gas processing plants in Lindi, and construction of an 868.7km road to link Masasi and Mbamba Bay.