Dar es Salaam. The International Monetary Fund (IMF) has raised the alarm over the inability of the government to control its appetite for spending above its means, warning that the trend could distabilise Tanzania’s monetary policy.
An IMF mission report released on Tuesday noted that the government, faced with tax shortfalls and aid freeze by donors, has resorted to heavy borrowing through the central bank and this may impact negatively on the market.
According to IMF, the government needs to urgently re-align its spending priorities with what it can afford.
“Front-loading of domestically-financed capital expenditure in July and August was facilitated by the Bank of Tanzania (BoT) through conversion of liquidity paper into financing paper but this complicated monetary policy implementation,” it said.
“The expected implementation of VAT reforms in early 2015 should help bolster the revenue base,” IMF noted in the brief that usually follows meetings with top government leaders.
The warning yesterday coincided with a stinging attack on the donor community by Prime Minister Mizengo Pinda who stopped short of accusing development partners of patronising the state.
Mr Pinda expressed the government’s frustrations over donors who have withheld nearly Sh1 trillion in budget support for the current financial year, saying the only solution to evade embarrassment was to “completely avoid budget dependence.”
He was speaking to journalists at the Julius Nyerere International Airport soon after arriving from an official visit to the UK, Poland and Oman.
The PM was responding to a question on what measures the government was taking to stabilise its budget amid piling debts threatening public service delivery in critical areas such as health, infrastructure, elections and the referendum for the new Katiba.
The Budget has taken a knock after donors withheld their support pending the Controller and Audit General’s (CAG) investigation report on the Sh201 billion IPTL sale scandal.
He said: “The only and permanent solution is to be independent by 100 per cent; we must strive to finance our general budget by using our own money from local sources.”
Mr Pinda admitted that so far, there was no immediate plan to address the hole in the 2014/15 Budget created by the donors.
“We might not have Plan B at the moment, but we are monitoring the situation and using the money we collect from our local sources as well as what we get from donors, but our focus is to be independent economically,” he said, alluding to a windfall in revenue from recent huge gas discoveries.
He said the government was currently building its capacity with Tanzania Revenue Authority and that as days pass by, the situation has been improving.
“TRA is now collecting an average of Sh800 billion a month—this is encouraging,” said the Premier.
He noted that the utilisation of natural gas in power generation would improve production in various sectors and thus escalate economic development.
The Premier said he successfully negotiated a soft loan with Poland that would be used to construct silos for storage of up to 1 million tonnes of cereals. “We’ve been asked to write an official application for a loan; I hope we’ll succeed in this,” he said.
Earlier, the IMF statement said the mission hoped the government would successfully complete the IPTL investigation and also settle its debts to suppliers and pension funds.
“The mission took note that an important first step to address alleged governance concerns related to the IPTL case is underway through the special audit by the CAG.”
On a positive note, the IMF team pointed out that macroeconomic performance has been broadly in line with the programme, although new challenges have emerged during the last three months. For instance, economic growth was found to be strong during the first half of 2014 and was expected to remain close to seven per cent this year.
“Almost all programme targets for end-June 2014 were met, with the exception of the one for tax revenue. Despite the significant revenue shortfalls in the 2013/14 fiscal year compared to the original Budget assumption, the fiscal deficit was contained to 4.4 per cent of the GDP, well below the programme target,” the report reads.
The Citizen
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