Tanzania Fiscal Year 2016/17 a ‘Mixed Bag’ of Outcomes as Government Spending Falters

Tightly controlled recurrent spending and delays in securing external financing to blame. IMF advises Tanzania to secure a sovereign credit rating to ease access to foreign bond markets.

Mauricio Villafuerte of the International Monetary Fund (Internet Photos)

By TZ Business News Staff.


The Tanzania Government budget spending plan in fiscal year 2016/2017 has faltered, but this has  happened in the context of  considerable positive achievement. It’s a  year of mixed outcomes according to an assessment by the International Monetary Fund (IMF).

The level of government spending is likely to fall well short of budgeted levels because of tightly controlled recurrent spending and delays in securing external financing the IMF said in Statement released from Washington.

But the IMF has commended the authorities’ efforts to reorient toward development spending, urging them to avoid accumulating new domestic arrears.

The statement released on April 14, 2017 reports findings made by an IMF team which just completed a mission to evaluate implantation of Policy Support Instruments in Tanzania. The IMF team,  led by Mauricio Villafuerte, visited Tanzania from April 3-13, 2017 and held discussions with authorities on the sixth review under the Policy Support Instrument (PSI) program that was approved on July 16, 2014.

The team, which also discussed the broad parameters of the 2017/18 budget, noted that spending levels must be underpinned by realistic revenue and financing assumptions, and urged the authorities to address concerns about the payment of VAT refunds negatively affecting exporting companies.

“Implementation of the PSI-supported program has been broadly satisfactory,”  Villafuerte has said in his statement.  “Preliminary data indicate that most targets for end-December 2016 were met except the one on tax revenue that was missed by a small margin. The pace of structural reforms remains slow, but some progress has been made recently towards the implementation of key measures”.

Dr. Philip Mpango, Tanzania Finance and Planning Minister.

Economic growth, estimated at about 7 percent, remained strong in 2016. More recently though, the economy has hit a soft patch in the context of slow budget implementation, a slowdown in monetary aggregates and credit to the private sector, and the impact of a drought,  Villafuerte said.  But these factors are expected to ease in the second half of the year and the growth momentum to strengthen”.

Rising food prices have pushed headline 12-month inflation to 6.4 percent in March 2017. However, core inflation remains well anchored at 2.2 percent. Good rains in Tanzania’s southern region and easing of drought conditions in its neighbors should relieve pressures on food prices. The external current account deficit is estimated to have narrowed and the Bank of Tanzania’s stock of external reserves remains at a comfortable level.

The statement then adds: “Revenue collections during the 2016/17 fiscal year have picked up over the previous year, although they are likely to fall short of the ambitious target. The level of government spending is likely to fall well short of budgeted levels because of tightly controlled recurrent spending and delays in securing external financing.

“Thus, there was a small surplus of about a 0.3 percent of GDP during the first half of the fiscal year, and even with financing constraints easing in the 2nd half of the year, the overall fiscal deficit in 2016/17 is projected to be 2.5 percent of GDP, compared to 4.5 percent in the budget.

Prof. Benno Ndulu, Bank of Tanzania Governor

“Liquidity conditions remain tight, but are expected to ease in coming weeks, including through a decision to lower the statutory minimum reserve requirement. Furthermore, as the pace of economic activity has slowed down, non-performing loans of the banking system have risen. The mission welcomed the steps the Bank of Tanzania was taking to modernize the monetary policy framework.

The IMF staff team held discussions on how to address these macroeconomic challenges. It welcomed the progress in finalizing non-concessional borrowing agreements, which would help budget implementation. It advised the authorities to resolve the outstanding issues that would allow it to secure a sovereign credit rating.

A positive sovereign credit rating would enable Tanzania to access finance from international bond markets.

“The team noted that for Tanzania to meet its medium-term growth objectives would require a vibrant private sector and that ample scope remained to improve the business environment.

The team welcomed the initiation of the national dialogue with the business community, and encouraged the authorities to ensure that regular exchange of views become the norm.

“The team met with Minister Philip I. Mpango, Governor Benno Ndulu, Permanent Secretary Doto M. James and other senior officials of the government and the Bank of Tanzania. The team  describes their visit to Tanzania as hospitable with constructive dialogue during the visit.