How Tanzania's Sh49.35 trillion budget can work

As such, some economists, business leaders and ordinary citizens who spoke to The Citizen say they expect a Sh49.35 trillion plan that stimulates the productive sector.

By coming up with a plan that stimulates the productive sector, Dr Nchemba, who doubles as Member of Parliament for Iramba West, will be helping to raise production of goods and products as well as boosting efficiency in the delivery of services that are essential in the sourcing of forex.

“This should entail the need to deliberately boost tourism, agriculture, livestock and fisheries, as well as attract foreign investments,” said a financial analyst, Mr Imani Muhingo.

Read: Tanzania tables Sh44.39 trillion budget for 2023-24

Performing well

He said while tourism has been performing well, the government could still enhance policies to give such sectors more support.

According to the Bank of Tanzania (BoT), service receipts amounted to $6.618 billion during the year ending April 2024, up from $5.267 billion recorded in the year ending April 2023, driven by tourism and transport receipts.

Tanzania earned $3.58 billion from tourism during the year ending April 2024, up from $2.8 billion during the preceding year, BoT figures show.

“The increase in travel receipts is supported by the recovery observed in the tourism industry, with tourist arrivals increasing by 21.8 percent to 1,938,875,” the BoT says in its Monthly Economic Review (MER) for May 2024.

Mr Muhingo said, “By emphasising investment in these sectors, we can also help exports grow and reduce the use of dollars on imports.”

While the budget of the Ministry for Natural Resources and Tourism for the 2024/25 fiscal year has been reduced, experts say more incentives and the reduction or removal of some fees, taxes, and levies on tourism activities, including accommodation and entry costs for some key sites, could boost the sector further.

The government plans to spend Sh348.125 billion as a budget for the ministry of Natural Resources and Tourism for the fiscal year 2024/25. The amount is 46.5 percent less than the Sh654.6 billion that was approved for the current fiscal year (2023/24).

Raise exports

The focus on the productive sector would help Tanzania raise its exports and reduce the dollar shortage that the country has been grappling with for the past year or so.

A specialist in micro- and macroeconomics from the University of Dar es Salaam’s Business School, Mr Godsaviour Christopher, pointed out that currently, the country imports more than it exports.

Read: Revealed: Asia, Sadc are Tanzania's key trading partners

Official figures show that Tanzania imported goods and services worth $13.819 billion during the year ending April 2024, lower than the $14.405 billion recorded in the year ending April 2023.

On the contrary, the country exported goods and services worth $7.843 billion during the year ending April 2024.

Main exports included gold, receipts from travel (tourism) and transport, as well as traditional goods (tea, coffee, cashew nuts, sisal, cotton, tobacco and cloves).

While actual fiscal measures are still being expected, the government seems to be on the right track in its effort to raise production of agricultural, livestock and fisheries products.

Read: Tanzania coffee exports earnings hit $230 million record

Already, the approved budgets for the fiscal year 2024/25 for Agriculture as well as the Livestock and Fisheries development dockets have seen a monumental rise.

The government is raising the development budget for the Ministry of Livestock and Fisheries by a cool 85 percent in the coming fiscal year. The parliament has endorsed Sh460.3 billion for the 2024/25 fiscal year. Out of the money, Sh363.1 billion has been allocated for development expenditures.

In 2023/24, the Ministry’s development budget stood at Sh196.3 billion, suggesting that a total of Sh166.8 billion more will be available for development expenditure for the ministry during the coming fiscal year.

Similarly, the parliament has approved a total of Sh1.249 trillion as budget for the ministry of Agriculture during the fiscal year 2024/25, which is 22.3 percent more than the Sh970 billion that was approved for 2023/24.

Analysts are of the view that well-blended fiscal incentives that stimulate production of traditional exports and boost the manufacturing sector while also taking care of the fisheries and livestock aspects could not only be good for economic growth but also raise forex reserves.

For the director of policy and advocacy at the Confederation of Tanzania Industries (CTI), Mr Akida Mnyenyelwa, a well-orchestrated plan that systematically protects locally manufactured products from an influx of imports would be good for the country.

“Our manufacturing sector has grown to the point whereby it is now capable of producing enough iron sheets and steel that meet the required quality standards,” he told The Citizen, adding that raising taxes on imports of such products would raise sales by local manufacturers, which also means the creation of jobs and more revenues for the government.

He said the government should also look at ways of curtailing increases in the price of petroleum products.

“Since all the products manufactured by local industries will need to be transported to the market, a rise in the price of petroleum products would still deal a heavy blow to the domestic manufacturers.

Maintenance of the road infrastructure as well as the availability of electricity must all be done in a way that supports local manufacturers to produce effectively, efficiently, and in a cost-effective manner.

Fewer substantial investments

As for members of the Tanzania Business Community, all the government needs to do is raise the minimum investment threshold amount that a foreign investor could be allowed to bring into the country from $500,000 to $10 million.

“This will enable the country to attract fewer but more substantial investments in industries that create jobs and enable Tanzania to sell products to neighbouring countries, thereby increasing foreign exchange,” said the secretary for the Tanzania Business Community, Mr Riziki Ngaga.

He said it was bad for the economy to see foreign nationals engaging in small-scale retail businesses.

Read: Tanzania to double investment by 2025, targeting local Investors

“By allowing some foreign nationals to engage in such low-profile tasks, the government is denying job opportunities for locals... We ask the government to ensure that it closely monitors these issues,” he said.

He said the government should also look at the tax system, with a view to ensuring that turnover is not used as a parameter for taxing. “Tax has to be exclusively deduced from the profit generated and not otherwise,” he said.

Forex and bond trading

Research and analytics manager at Vertex International Securities Ltd Mr Beatus Mlingi, said the recent surge of the dollar above Sh2,600 was one of the highest levels in recent times.

This, he said, presents several challenges for Tanzania’s equities and bond markets.

To address these issues, the government can implement fiscal policies aimed at strengthening foreign exchange reserves, promoting export diversification, tightening fiscal policy, supporting domestic production, and enhancing coordination with monetary policy.

Read: Tanzania's tourism hits record 1.8 million visitors as gold exports soar

Also read: Tourism tops gold in foreign exchange 

“A strong dollar results in exchange rate volatility, making Tanzanian exports more expensive and less competitive globally. This can potentially reduce revenues for export-oriented companies listed on the Dar es Salaam Stock Exchange (DSE), leading to a decline in their stock prices,” he said.

“Investors who sell their stocks or receive dividends in shillings will find that these amounts convert to fewer dollars, reducing their returns in foreign currency terms. This further decreases the attractiveness of Tanzanian equities to foreign investors,” he noted.

Mr Mlingi also noted that for investors holding Tanzanian bonds, the depreciation of the shilling means that the value of their returns in foreign currency terms is reduced. This scenario might deter foreign investment in Tanzanian bonds, potentially leading to higher yields and increased borrowing costs for the government and corporations.

It also introduces inflationary pressures, whereas higher inflation expectations can lead to increased nominal interest rates, reducing the market value of existing bonds with lower interest rates and negatively affecting bondholders’ portfolios.

“Building up foreign exchange reserves is one approach to stabilising the shilling, which can be achieved by securing external financing or encouraging foreign direct investment (FDI),” he said.

The financial expert also emphasised that promoting export diversification by developing and encouraging a varied export base can help mitigate the impact of exchange rate volatility.

“The government can reduce fiscal deficits and control inflation by cutting non-essential public expenditures, improving tax collection, and targeting subsidies more effectively. Supporting domestic production to reduce reliance on imports can also help stabilise the currency,” said Mr Mlingi.

Furthermore, enhancing monetary policy coordination is vital. The government should work closely with the central bank to ensure that monetary policy supports exchange rate stability. This could involve coordinating interest rate policies to control inflation without excessively hampering economic growth.

Moreover, regardless of the shortage, the central bank noted that foreign exchange reserves remained adequate, increasing to $5.32 billion at the end of March 2024, up from $5.01 billion at the end of a similar period in 2023.

“The reserves were sufficient to finance 4.4 months of projected imports of goods and services,” said the icon bank.