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Tafuta Kila kitu Hapa

Monday, June 18, 2012

Pro-poor budget with poor resources

Based on the experiences of implementation of first generation macro-reforms that occurred during 1985/6 and 1995/96, the current government regime has been implement second-generation reforms aiming at facilitating pro-poor economic growth as the basis for poverty reduction by putting in place appropriate policies and strategies.
These pro poor policy strategies promote the creation of enabling environment for good governance, effective co-ordination and public private partnership participation; capacity building for enhancing economic growth through a conducive macroeconomic and sectoral policies and strategies.
However, the current government has failed to initiate third generation reforms where the national should own, manage and operate own natural resource based development projects and activities. Ideally, third generation or a nation's development should be people-centred, based on sustainable and shared growth and be free from abject poverty.
For Tanzania, this development means that the creation of wealth and its distribution in society must be equitable and free from inequalities and all forms of social and political relations which inhibit empowerment and effective democratic and popular participation of all social groups (men and women, boys and girls, the young and old and the able-bodied and disabled persons) in society.
In specific, the current 2012/13 budget aims at addressing the economic challenges facing the economy, including; increasing the opportunities for economic growth, increase availability of food in the country, reducing inflation and strengthening revenue collection and management of expenditure.
Performances of the budget
Policy foundation for previous budget 2011/12:
The budget frame for 2011/12 was a financial implementation plan for the Government efforts to achieve the objectives of the Tanzania Development Vision 2025. Moreover, the budget contains implementation policy issues, strategies and priorities of the first Five Year Development Plan (2011 – 2015/16); the National Strategy for Growth and Reduction Poverty Phase II (MKUKUTA II); the Millennium Development Goals (MDGs) 2015; the Joint Assistance Strategy for Tanzania (JAST); National Debt Strategy; together with strengthening Tax Administration and the National Debt Strategy and Public Expenditure Management.
Social economic performances
Limited Mitigation of High Cost Of Living:
Tanzania is a high cost country, given its resource base. In the implementation of the Budget for year 2011/12, the Government took various measures aimed at addressing the challenges facing citizens with a view to mitigating high cost of living caused by the increase of price of goods and services.
These measures managed to have slightly control the pace of increase in prices of petroleum products in the country. However, tight government fiscal and monetary contraction policies and stability in food production mainly due increasing rainfall in most part of the country are likely to lower inflation rate to single digit by June 2012. The inflation rate is expected to decline in the most part of second half of 2012 and reach 8.3 percent in 2013.
Economic empowerment and employment creation:
In order to address the problem of unemployment, the Government has taken various generic macroeconomic measures to create employment. However, since these policies and strategies were not specific to youth employment, they were either ineffective or not productive.
Improving Domestic Revenue Collection System Revenue Policies:
In the year 2011/12, the Government continued with reforms in the system for collecting domestic revenues from tax and non- tax sources by taking administrative and policy measures, including changing tax rates and amending tax laws. Unfortunately, the domestic revenue policies are fundamentally tax based policies and forgets that Tanzania is a rich mineral resourced economy. A poor developing economy should design the domestic revenue mobilization targeting optimal utilization of mineral and petroleum resources for the interests of nationals.
Trend of Revenue Collections
Good TRA and TAX revenue performance:
On the domestic revenues, including revenues from Local Authorities, the collection up to April 2012 reached shillings 5, 684.5 billion, i.e., about 80 percent of estimates of collecting shillings 7,126.4 billion for year 2011/12. The collections from taxes were about 84 percent of the target of collecting tax revenue. Thanks to TRA reforms.
Poor local government revenue collections:
The revenues from Local Governments reached shillings 143 billion, equivalent to 40.8 percent of the target to collect shillings 350.5 billion per annum. Up to June 2012, the Government expects to collect a total of shillings 200 billion from this source, which is 57 percent of the annual target. The target is not likely to be achieved because of weak legal, institutional structures, corruption and inadequate professional manpower to manage local government reforms.
Expenditure policies
In the year 2011/12, the Government continued to implement expenditure policies based upon availability of domestic revenues, grants together with domestic and external loans. However, the Government failed to final disbursement of funds to respective ministries, departments and agencies on time due to problems related with fiscal indiscipline. The Government failed to control debts arising from accumulation of arrears for employees; contractors; suppliers; and other debts. The debt payment system is complex and corruptive.
Satisfactory recurrent expenditure:
During the period between July, 2011 and April 2012, recurrent expenditure reached shillings 7,349.8 billion, equivalent to 85.5 percent of the annual estimates.
Out of that amount, payment of salaries to Government employees, Regional Secretariats, Local Government Authorities, Public institutions and Parastatals was shillings 2,760.5 billion equivalent to 84.4 percent of the annual targets. The payment of external loans was shillings 57.3 billion equivalent to 85.7 percent of annual estimates. The Government spent shillings 526 billion on paying for matured short term treasury bonds and bills. The Government has continued to accord priority to repayment of debts to avoid accumulation of interest.
Other Charges for Ministries, Independent Government Department and Agencies, Regions and Local Authorities reached shillings 2,384.9 billion which is 72.8 percent of annual estimates of shillings 3,275.1 billion. Out of Other Charges, shillings 284.1 billion was spent on higher education loans which is 89 percent of the annual budget of shillings 317.4 billion.
Increasing Importance of Domestic financing by default and not by design
The development expenditure, shillings 2,657.2 were spent on financing development projects compared with annual estimates of shillings 4,924.6 billion. Local funds were shillings 1,201.6 billion compared with annual estimates of shillings 1,871.5 billion equivalent to 64.2 percent. This shortfall is a result of delays in securing on time external non concessional loans due to problems related with global financial crisis and misunderstandings between partners in development .
Highly Indebt Country:
Tanzania is still a highly indebted poor country. The National Debt Stock comprising of External and domestic debt reached Shillings 20,276.6 billion by March 2012, compared with Shilling 17,578.9 billion, at end March, 2011 equivalent to 15.4 percent increase. Out of the National Debt Stock, Shilling 15,306.9 billion is External debt stock and Domestic debt was Shilling 4,969.7 billion. The External debt stock comprised of public debt of Shilling 12,342.5 billion and the Private Debt amounting to Shilling 2,964 billion. This debt is high, increasing and unsustainable.
The Budget for 2012/2013
Good Policy Foundation:
The 2012/13 budget takes into account the priorities set in the Annual Development Plan of 2012/2013, National Strategy for Growth and Poverty Reduction phase two (MKUKUTA II), the Millennium Development Goals (MDGs) 2015, the CCM Election Manifesto 2010, and the public sector reform programmes. The ultimate goal is to realize the objectives and goals of the Tanzania Development Vision 2025.
Objectives and targets of the 2012/13 budget:
The main objectives and targets of the 2012/2013 budget are to intensify implementation of the second generation reforms and objectives. These include the need to increase real GDP growth rate to 6.8 per cent in 2012 from 6.4 percent of 2011; to increase domestic revenues to 18 percent of GDP in 2012/2013 compared to the likely outturn of 16.9 percent in 2011/2012; to continue with efforts to curb inflation to a single digit; to maintain a stable and market determined exchange rate; and to maintain foreign exchange reserves to cover 4.5 months of imports of goods and services.
Classical bretton wood strategies adopted in the Government Budget For 2012/2013:
In order to achieve the above mentioned macroeconomic objectives, the specific policy strategies and basis for the Government budget for the 2012/2013 include [1] Strengthened implementation of monetary and fiscal policies; [2] to continue strengthening the relationship with Development Partners; [3] to continue implementation of public sector reforms including strengthening public finance management; and [4] to continue to improve business environment and increase productivity and investment opportunities.
Revenue policies
Classical tax revenue measures:
It is under-stable that the Government through TRA has to continue with its efforts to strengthen domestic revenue collections by taking various measures in the areas of tax and non-tax revenue; and through expansion of revenue base. Moreover, the Government will continue to strengthen revenue collection, systems, administration, mechanisms as well as reducing tax exemption in order to finance to a larger extent the recurrent expenditure by domestic revenues.
The need for effective non-tax revenue measures:
The government is not very serious on non-tax revenue measures. However, there are signs of awakening where the government has a number of strategic policy measures.
These include first the need to improve collection and administration of non-tax revenue by reviewing mechanism of issuance of receipts and licenses, as well as improving the retention rates by Ministries, Departments, and Government Institutions.
Secondly the government intends to build capacity of the Ministry of Energy and Minerals, Tanzania Petroleum Development Corporation, and Tanzania Mineral Audit Agency (TMAA) in order to enhance their respective capabilities to administer revenues collections in the areas of minerals, gas and petroleum.
These measures are consistent with current policy and legal reforms aiming at empowering the public sector to own, manage and operate productive profit making entities.
Expenditure Policies:
It is interesting to note that the government is aware of correct and effective fiscal measures for the expenditure side. However, in practice they do the opposite. In the year 2012/13, corrective expenditure policies will be based on the [1] expenditure which will be in line with revenues collections (cash budget); [2] votes to align expenditure to ceilings as passed by the Parliament; [3] Accounting Officers continue to comply with the Public Finance Act and Public Procurement Act; and [4] the Government to continue compiling all domestic arrears for the purpose of verification and arrangement for their payment.
Tanzania is good at spending:
Tanzania is good at spending what has not earned. We produce to survive and less serious on development issues. The recurrent expenditure policies for the year 2012/13 aim at, among others to finance the payments of: salaries, domestic and external debt services, improvement of economic and social services; higher education students loans; requirement of Constitution Review Commission; maintenance of Government assets; purchase of food for national reserve; recurrent expenditure component for completed projects; as well as to continue with payment to various claims raised by employees and suppliers.
Only one series development Project:
During the FY 2012/13, the Government plans to implement development expenditure policies based on priorities identified in the Development Plan for FY 2012/1332. These focus on the Infrastructure Sectors. The budget speech has only one serious infrastructure development project. The rest are business as usual development projects which can be done by private sector.
There are intensions to revamp railway transportation through strengthening the central railway line which involves renovation of the train engines and wagons. On roads, priority projects include roads that will open up economic opportunities. On air and water transportation, projects to be implemented include rehabilitation of airports and development of the port at Lake Tanganyika. A total of Tshs. 1,382.9 billion has been allocated for this area.
Curbing Inflation may be desirable but impractical:
Tanzania economy is facing several challenges including high inflation rates which declined from 19.8 percent in December, 2011 to 18.7 percent in April, 2012. The main causes of high inflation rates are high electricity tariff, high prices of oil and food - especially rice and sugar prices.
For example, during April, 2012 food contributed 24.7 percent while electricity and fuel contributed 24.9 percent of inflation. Core inflation, which excludes food and energy prices, is still at single digit of 8.8 percent. Therefore, Government efforts are directed towards controlling the rising food and energy prices. The best way to curb inflation is through increased food agriculture production, efficiency and competitiveness.
Poor Budget Structure
Limited Domestic Revenue Generation:
There are too many and high expectations on the role and impact of government budget on social, economic and political development of the Tanzanian economy. The demands for increased government services are high due to increased awareness, multi-party democracy, globalization and changes in technology. Youth and peoples power have accelerated the need for government and political regime changes.
The Government budget is to raise shillings 15,119.6 billion in 2012/13 fiscal year with a hope of cooping these social, economic and political; pressures.
This budget is too small and not sufficient. Out of this amount, shillings 8,714.8 billion are tax and non-tax revenue which is equivalent to 18 percent of GDP. This about 57 percent of total financial resources needed. In additional, Local Government own revenue sources are projected at shillings 362.2, equivalent to 0.7 percent of GDP.
Introduced Source of Government Uncertainty:
About 43 percent has to come from other sources where the government has limited control. During the fiscal year 2012/13, Development Partners will continue to support the Government budget in the form of grants and concessional loans amounting to shillings 3,156.7.
Out of this amount, shillings 842.5 billion is General Budget Support and shillings 2,314.2 billion are grants and loans for development projects, including basket funds and Millennium Challenge Account funds.
The Government plans to borrow shillings 2,886.1 billion from both domestic and external sources to bridge the financing gap. Out of this amount, shillings 1,148.1 billion will be for rolling over of maturing Government securities, shillings 483.9 billion equal to 1 percent of GDP and shillings 1,254.1 billion will be raised from non-concessional loan.
High Recurrent Expenditure:
About 70 percent of total expenditures go to recurrent expenditure. That is the current budget is geared at making the system survive and struggle. People are paid to come to work and there is less work to be done. During the financial year 2012/13, the Government plans to spend shillings 15,119.6 billion for both recurrent and development expenditure. Out of the total amount, shillings 10,591.8 billion is allocated for recurrent expenditure including shillings 3,781.1 billion for wages and salaries for Government Ministries, Departments and Agencies employees; while shillings 2,745.1 billion is allocated for Consolidated Funds Service (CFS).
Negligible Development Budget:
It is argued that the Government is set to implement the 2012/2013 Development Plan, which directs investment of national resources in few priority areas with a view to accelerate economic growth and reduction of poverty. However, minimum financial resources, that is about 29.9 percent of the total budget i.e., shillings 4,527.8 billion is allocated for development expenditure. Out of this amount, shillings 2,213.6 billion is from domestic sources and shillings 2,314.2 billion will be raised from external sources. About 51 percent of the development budget comes from development partners. This is a sign of increasing use of domestic financing and self-reliance in financing development efforts.
As the world economy continue recover from global economy from the recession, the trend of still carries some vulnerability, because strong policies to foster internal rebalancing of demand from public to private sources and external rebalancing from deficit to surplus economies are not yet in place.
The strongest performance is mostly recorded in the emerging Asian economies. As the global economy continues to recover and demand strengthens, earnings from exports are expected to improve throughout the year 2012 and probably 2013, and accordingly the pace of growth of credit particularly to private sector is expected to pickup and hence benefiting Tanzania economy.
However, the economy in 2012/2013 will still face structural and supply limiting factors of production such as weather (i.e. dependence on rain-fed agriculture) and oil prices that still, unstable power supply pose challenges in terms of achieving the sustainable level of real output growth, and hence poverty reduction
Likewise, Tanzania is characterized with underdeveloped financial market, low level of productivity in the productive sectors of the economy, sizeable level of youth unemployment, social political uncertainties, large current account deficit due to mismatch in export and import growth, and globalization with its associated stiff international competition.
High imports bill amidst sluggish growth of exports continue to exert pressure on the country’s current account, which in turn has negative implications on foreign reserves and exchange rate. Again, inflation remains a threat to future growth and productivity of the economy. The need for an aggressive domestic approach in dealing with the above social, economic and political challenges is more critical.
Indeed the continuation of the macroeconomic and structural reforms across a wider range of sectors, including need to be hasten in order to transform the Tanzanian economy into one where growth is high, flexible and driven largely by exports and business as well as infrastructure investments necessary for poverty reduction.
The need for the governments to kick start third generation reforms is vividly vital though 2012/2013 – 2014/15.
However, effective implementation of current second generation policies, strategies and plans depends on the effectiveness in addressing the major institutional, financial and human resources and challenges required combined efforts from all stakeholders, including serious political and government commitments and support.


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