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Tanzania: President Says Government is Broke 0

Making the announcement at a public function, President Kikwete said all government departments received less than their budgetary allocations for the first half of the 2011/12 financial year.

DAR-ES-SALAAM –  “The first six months of this financial year have been very tricky as the government embarked on clearing its huge debts,” he said at a ceremony to mark Law Day, “forcing the Treasury to disburse very little money to other departments,” said the President.

The liquidity problem has seen delays in payment of civil servants’ salaries, disbursement of subsidies to political parties and payments for a wide range of services, including money meant for projects and the local government.

Finance Minister Mustafa Mkulo, who initially denied suggestions that the government was broke, recently put the situation down to poor collection of non-tax revenue and delays in the release of donor funds.

The state is said to have been grappling with a budget deficit of over Sh210 billion in the past six months.

Shadow Finance minister Zitto Kabwe says the deficit peaked at over Sh600 billion and is partly contributed by the power-rationing programme.

Among the most hit government departments include the judiciary. A statement issued by the Chief Justice, Mr Mohamed Chande Othman, said the judiciary had run out of money as the government had failed to disburse its full allocation.

The CJ said the judiciary received only Sh6.32 billion between July and December last year instead of Sh10 billion set aside for the institution for the first half of the 2011/12 fiscal year. At least Sh20 billion was allocated to the judiciary fund for the entire fiscal year.

The minister for Regional Administration and Local Government, Mr George Mukuchika has also disclosed in Parliament that local authorities had been greatly affected by lack of and delays in releasing the cash.

The situation was so bad, the minister revealed, that some services at the councils had ground to a halt and some of them could not even hold meetings.

Meanwhile the economists have forecast downwards Tanzania’s economic growth this year to three per cent. They point out that the government’s conservative monetary policy to tame inflation will stifle financing to the private sector.

The Macroeconomic Country Forecast report, issued in Dar es Salaam by the Netherland-based Currency Exchange Fund (TCX), says the economic slowdown this year will also be caused by weak demand for commodities on the world market due to economic difficulties. But growth will be on the rebound in the next few years on the back of a mining industry expansion, according to the report. Mr Mkulo said the government was optimistic that Tanzania’s economy was on the right track and things could not worsen in a matter of months.

“We wouldn’t want to believe such pessimistic projections…the growth for the 2011 third quarter was 6.4 per cent. This affirms that even this year we will see a real growth of 7.2 per cent as projected by IMF and World Bank.”

Presenting the report at a meeting attended by the business community and representatives of the banking and energy sectors in the city yesterday, TCX Senior Vice President Harad Hirschhofer said the slower growth would be due to the tight monetary policy the central bank adopted recently to curb the depreciation of the shilling and soaring inflation.

“The central bank will continue taking policy measures that are aimed at reducing the amount of money in the economy this year,” Mr Hirschhofer said. “This will result in higher lending rates.”

In a key policy measure to save the free fall of the shilling, the central bank raised the cash reserve requirement on government deposits from 20 per cent to 30 per cent in October last year. It also reduced the core capital of foreign exchange dealers from 20 per cent to 10 per cent to facilitate the release of more forex into the market.

The TCX, whose primary role is to absorb the currency risks of leading global financial institutions active in frontier markets, also invests in long-term emerging market currency and interest rate derivatives on an uncovered basis, managing its risks through diversification across all regions and countries of the developing world. The fund has so far hedged a total of $45 million (Sh72 billion) in some 10 concluded deals with seven different investors mostly in microfinance projects in Tanzania.

It has also conducted the macroeconomic country outlooks for another 16 countries including Kenya, Rwanda, Uganda, Ethiopia and Nigeria. It forecasts that Tanzania’s inflation will speed up, fuelled mainly by rising electricity tariffs.

“The monetary policy will need to remain tight in order to ease the depreciation pressures and bring inflation back to the single-digit target,” said Mr Hirschhofer. The statistics office said last week that Tanzania’s year-on-year inflation rate fell slightly to 19.7 per cent in January from 19.8 per cent a month before, driven lower by energy prices.

Last year’s drought hit hard the supply of hydroelectric power stations, forcing the government to resort to emergency power sources, which has in recent months raised oil imports and widened the current account deficit. The state-run power utility, Tanesco, has since requested a 155 per cent power hike, but the Energy and Water Utility Regulatory Authority only approved a tariff increase of 40.25 per cent from January 15.

“The rising tariffs will affect inflation directly via their share in consumer price index and indirectly due to higher costs of mainly manufacturing production,” the report says.

The shilling, which is appreciating moderately, is likely to return to its depreciation trend, according to the report, depending on the inflationary pressures triggered by food and energy situations in the country. Speaking at the meeting, the IMF Senior Resident Representative, Mr John Wakeman-Linn, said the country could see a stable exchange rate in a decade to come, when it starts exporting  gas and earning most of its revenue through the industry.

By Henry Neondo News From Africa

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Direttore Responsabile Giuseppe Frangi