Tanzania budget could worsen national debt

By AGENCIES

GOVERNMENT is expected to borrow heavily to pay for infrastructure project to drive its economy, but critics say this could worsen the country's national debt.

Tanzania is among the continent's biggest per capita aid recipients, and donors are an important source of hard currency.

Newly-appointed Finance Minister William Mgimwa will unveil his budget to parliament on June 14, focusing on five priorities including infrastructure, agriculture and industry.

The government's 15 trillion shilling budget proposals for the 2012/13 fiscal year (July-June) will raise spending by 11 percent."The government is expected to borrow money from the financial sector to raise some of the funds for the budget. This will likely worsen the national debt, squeeze the private sector and lead to higher interest rates," Honest Ngowi, an economics lecturer at Mzumbe University's Business School said.

"Some 10 trillion shillings of the budget will be spent on recurrent expenditure, with development projects allocated just 5 trillion shillings. This is a poor country, we need to spend more money on development projects."

The government has been struggling to tame double-digit inflation, which has pushed up the costs of living in east Africa's second-biggest economy.

Tanzania, Africa's fourth-biggest gold producer, targets average economic growth of 8-10 percent annually over the next five years, but has failed to spur job creation, leading to high youth unemployment.

Tanzania's potential revenue collection is equivalent to between 22-23 percent of the GDP, but it currently collects just 16 percent of the GDP, say analysts.

Mgimwa is expected to focus on attaining an economic growth rate of 7.2 percent in 2012, before rising to 7.5 percent 2013. Tanzania's economy grew at around 6.4 percent in 2011, slower than its 7 percent target.

The government will increase public investment in power generation, roads, ports, railways and agriculture, on which majority of its population of 44 million people depend on.

Shadow Finance Minister Zitto Kabwe has criticised the budget plan, saying the government is expected to allocate up to 2.7 trillion shillings - the biggest chunk of the total spending - for servicing the national debt which stood at $9.934 billion in the year to April.

A group of donors has pledged to increase direct support to Tanzania's budget to $495 million for 2012/13, up from $453 million in 2011/12, but warned future disbursements could depend on how it tackled corruption.

The budget also proposes to strengthen the State Mining Corporation (STAMICO) to oversee the government's stake in mines, purchase new shares in mines and partner with private investors to develop new mines.