Tanzania raises debt servicing allocation to Sh13.1 trillion

Dar es Salaam. Tanzania has set aside Sh13.131 trillion for servicing the government debt next financial year.

The sum is Sh2.651 trillion more than the current financial year’s Sh10.48 trillion debt servicing budget.

The allocation forms the bulk of the Finance ministry's Sh18.287 trillion budget for 2024/25 which Parliament passed on Tuesday evening in Dodoma.

“The Finance ministry is requesting a total budget of Sh18.287 for the next financial year. Out of this amount, Sh17.63 trillion is for recurrent expenditure, which includes Sh13.13 trillion for government debt servicing,” Finance minister Mwigulu Nchemba said earlier when presenting the proposals before the House.

The increase, according to analysts, can partly be attributed to the appreciation of the US dollar, the currency in which most international transactions are made.

The government’s 2024/25 Budget is expected to total Sh49.35 trillion, up from the current financial year’s Sh44.39 trillion.

This means that the Sh13.131 trillion to be spent on servicing the government debt is 26.6 percent of the 2024/25 Budget.

Dr Nchemba said the Tanzania Revenue Authority (TRA) is expected to collect Sh29.42 trillion to partly finance the government’s next revenue and expenditure plan.

What this means is that the Sh13.131 trillion debt servicing allocation translates into a whopping 44.6 percent of what the taxman is expected to collect next financial year.

In other words, government debt will gobble up Sh44.6 of every Sh100 the taxman will collect in 2024/25.

It also means that debt servicing will take up about 72 percent of the Finance ministry’s entire budget for the coming financial year.

Dr Nchemba told lawmakers that apart from the Sh29.42 trillion TRA is expected to collect, the government will source Sh5.13 trillion through concessional loans from domestic and foreign sources to partly finance the 2024/25 Budget.

The government will also source Sh9.6 trillion through commercial loans from various domestic and foreign lenders.

Dr Nchemba painted a rosy picture of Tanzania’s economy, saying despite various global economic challenges, the domestic economy has been performing well and remains liquid.

“Despite global economic uncertainties, liquidity in Tanzania’s economy remained strong, with the money in circulation growing by an average of 15.5 percent during the first half of 2023/24 against a  target of 10.1 percent,” he said.

Credit to the private sector grew by 19.2 percent compared with a target of 16.4 percent, Dr Nchemba added.

The country’s foreign currency reserves stood at $5.5 billion at the end of December 2023, which was enough to cater for Tanzania’s import requirements for four-and-a-half months.

“This compares positively with our target of four months of imports cover,” Dr Nchemba said, adding that the banking industry remains well capitalised, profitable and liquid.

“The quality of assets in the banking industry remained sound, with the rate of non-performing loans to total loans declining to 4.3 percent as of December 2023 from 5.5 percent in June 2023,” he said.

Parliament’s Budget Committee commended the government for its timely disbursement of funds to the Finance ministry, noting that of the total Sh15.889 trillion ministerial allocation the House endorsed for 2023/24, at least Sh12.390 trillion, or 77.98 percent, had been disbursed as of April 30, 2024.

“The disbursed funds include Sh8.854 trillion issued for servicing the government debt, Sh335.35 billion for salary payments and Sh2.813 trillion for other costs,” committee chairperson Oran Njeza said.

He outlined the committee’s recommendations in eight areas, including the need for the appointment of Tax Revenue Appeals Board (TRAB) members, reviewing the Tax Administration Law to set a time limit for the TRA commissioner general to submit tax complaint reports to the arbitrator’s office and the need for financial institutions to provide the Financial Intelligence Unit (FIU) with reports detailing suspicious transactions

“Others are the imposition of zero-rated value-added tax on gold purchased by the Bank of Tanzania, the need for the government to promote cash transactions and the central bank expediting the Revenue Tracking System for exports and payments arising from them,” Mr Njeza said.

“The government should reduce transaction costs associated with  the Tanzania Instant Payment System (TIPS) and work on recommendations regarding the scope of audits for the Office of the Auditor General and oversight of the microfinance industry in the country,” he added.