Govt selectively cuts budget to match available resources

Dar es Salaam. The government has proposed a 3.8 per cent cut in the budgets of eight of its ministries in the 2018/19 financial year which begins on July 1.

In the event, it has asked Parliament to endorse a total of Sh14.16 trillion for the eight ministries – a sum which is below the Sh14.72 trillion that was budgeted for the 2017/18 financial year.

However, analysts are of the view that this may have a negative impact on sectors that are directly linked to the provision of social services to the Tanzanian community.

More than three-quarters of the budget is channelled to two State ministries in the President’s Office-Regional Administration and Local Government (PO-Ralg: 46.5 per cent of the sum), and Works, Transport and Communications (29.7 per cent). Talking about spending cuts, the impact depends on which area of government spending is reduced.

Initially proposed for budget reduction was the ministries of Health; Works, Transport and Communication; Public Service and Good Governance; Prime Minister’s Office and Parliament; Constitution and Legal Affairs, and the Union and Environment Affairs.

On the other hand, the ministries of Education and PO-Ralg enjoyed a slight increase of 2.9 and 0.2 per cent respectively.

The increases to these two institutions were, however, ignored by economists, saying they had nothing to do with the real-term budget, as the percentages were below the current inflation rate, which was in March this year recorded at 3.9 per cent. From an economic perspective a 16 per cent cut in spending on Health, and a slight increase in Education, may have a negative impact on labour and capital in the long-term.

However, in totality, the government plans to increase its budget to a stock of Sh32.47 trillion for the next financial year – well above the current budget of Sh31.71 trillion.

Economists have criticized the government for attaching more importance to infrastructure while forgetting ministries that directly touch people’s lives.

“Investing in ‘things’ tops the list of the government’s priorities; this is unacceptable,” Repoa (Policy Research for Development) strategic research director Abel Kiyondo told The Citizen, suggesting that the government should pump more money into ministries which directly affect people – like Agriculture, Health and Education.

Speaking at the May Day celebrations held at the national level in Iringa this year, President John Magufuli said the government’s focus is currently on implementation of major development projects. In the event, the President said increasing public workers’ salaries would be done after completion of the projects.

Dr Magufuli cited some of the projects as the construction of the standard gauge railway (SGR) from Dar es Salaam to Dodoma and beyond; the Stiegler’s Gorge hydroelectricity power station and the construction of new airports and upgrading existing ones in various administrative regions of the country. “I think it is better to allocate sufficient funds to facilitate implementation of development projects instead of increasing salaries,” the Head of State stressed.

But Dr Kiyondo was of the view that the situation is likely to lower purchasing power, and compromise consumption.

“This may adversely affect investments. Investors go where people do consume – and not otherwise. That’s why Tanzania’s property market is not performing well. Banks also have reduced lending to customers,” he reasoned. But, that effect depends on monetary policy, another economist argued.

“If the government cuts spending but, at the same time, there is a loosening of monetary policy – cutting interest rates – then, in this case, demand for final products and services could continue to rise,” Dr Donath Olomi opined.

An economist and business expert, Dr Olomi said that, unless the business environment is improved, a cut in government spending should be expected to have a negative impact on the total demand for final goods and services in an economy. This would then lead to lower economic growth.

However, if other components – such as consumer spending – were rising, then a cut in government spending may just reduce the growth of demand for final goods and services. “We need to have a regulatory impact assessment (RIA) if we are to create business-friendly environments that would spur economic growth – or we would be shooting ourselves in the foot,” Dr Olomi warned.

Why budget cutting?

At the end of the day, economists view all that as a move by the government to make the next budget more realistic.

From an economics point of view, longer-term budget deficits are harmful as they slow down economic growth, and indebtedness to foreigners – both of which are expensive and risky, according to Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics department.

“Previous budgets were too ambitious. I think the government has now realized the outcome,” Prof Rwegasira told The Citizen.

“The move by the government is commendable. The budget has to be realistic and aligned with the available resources. Besides, balancing the budget must be a priority, to put the debt on a declining path,” Prof Rwegasira explained.

Tanzania’s national debt increased by 17 per cent, to $26.115 billion (Sh59.02 trillion at the current exchange rate) last June, compared to what it was at the same period in the previous year.