Tanzania's budget leans on loans and grants for 30 percent of funds

Dar es Salaam. Tanzania will rely on loans and grants to finance 30 percent of its 2024/25 financial year budget, according to the budget document tabled in parliament on Thursday, June 13, 2024.

The document tabled by Finance minister Mwigulu Nchemba shows that Tanzania expects to spend Sh49.35 trillion in the 2024/25 fiscal year.

From the total amount, the government aims to collect Sh33.25 trillion as domestic revenue from the central government, accounting for 67 percent of the budget.

Additionally, it plans to collect Sh1.36 trillion as revenue from local government authorities' (LGAs’) own sources, which represents three percent of the total collections.

The government has also planned to collect Sh14.74 trillion from grants and loans, amounting to 30 percent of the budget.

This includes Sh9.6 trillion from domestic and external non-concessional loans, which is equal to 19.5 percent of the total budget, and Sh5.13 trillion from grants and concessional loans from development partners.

Further breaking down of domestic and external non-concessional loans includes Sh2.99 trillion from external loans, Sh2.59 trillion from domestic loans for financing, and Sh4.02 trillion from domestic loans for rollover.

In the 2023/24 fiscal year, the government endorsed a Sh44.388 trillion budget, forecasted to be funded by the central government by Sh30.237 trillion and Sh1.144 trillion of revenue collections from LGAs.

However, grants and low-interest loans from development partners amounted to Sh5.466 trillion as well as Sh7.541 trillion in domestic and foreign concession loans, totalling Sh13.007 trillion.

The 2023/24 budget document tabled by Dr Nchemba shows that of the Sh7.541 trillion, a staggering amount of Sh2.100 trillion would be sourced externally, while Sh1.898 trillion and Sh3.542 trillion, respectively, would come from domestic sources and rollover.

Tabling the document on Friday, Dr Nchemba said as of March 2024, the public debt stock stood at Sh91.708 trillion out of which Sh60.954 trillion was external debt while Sh30.754 trillion was domestic debt.

“The Debt Sustainability Analysis (DSA) conducted in December 2023 revealed that debt is sustainable in the short, medium, and long term,” he told the Budget House.

“Indicators show that in 2023/24, the present value of government debt to GDP (Gross Domestic Product) ratios is 35.6 percent compared to the threshold of 55 percent,” added Dr Nchemba.

He said the present value of external debt to GDP ratios was 19.0 percent compared to the 40 percent threshold and the present value of external debt to exports stood at 113.2 percent compared to the 180 percent threshold.

Speaking to The Citizen on Friday, June 14, 2024, an economist and a lecturer at the University of Dodoma (Udom), Dr Lutengano Mwinuka, said that the government has remained on the same sources of income.

This has led to continual dependence on commercial loans, suggesting that more strategies are needed, especially in the collection of revenue from LGAs.

He said commercial loans have high interest rates, noting that if they are not paid on time, they could put the country at risk of defaulting, despite the government’s carefulness on the type of secured loans.

Furthermore, he said there was a need for the councils to create new sources of income to enable the government to reduce over-dependence on budget funding.

According to him, there is also a need to improve the use of information and communication technology (ICT) to increase transparency in revenue collections.

“For instance, there is a lot of income on the land, but a large area has not yet been measured; this denies the government income. Also, the government should look into the possibility of allowing diaspora bonds and give them projects that can help increase revenue,” he said.

A finance and banking lecturer from the University of Dar es Salaam (UDSM), Dr Tobias Swai, said the level of domestic borrowing has increased, which is a good thing.

He said it shows that people are motivated to borrow locally, noting that recent data shows oversubscription of green bonds.

Furthermore, he said an increase in domestic borrowing is significant in the stabilisation of the economy, adding that the decrease could have been more challenging to the country.

“We have witnessed various green bonds performing well in recent months, and the one owned by the government shows that people are ready to invest,” he said.

“This means that the level of the economy and engagement is increasing, which is good for the country,” he added.