By Adonis Byemelwa
Tanzania’s Finance Minister, Dr. Mwigulu Nchemba, presented the government’s TSh 49.3 trillion budget for the fiscal year 2024/25 in Parliament, outlining key priorities and addressing the challenges ahead.
Speaking on June 13, 2024, Dr. Mwigulu emphasized the importance of strengthening human resources, increasing ICT usage, and improving the business and investment environment.
“Other important areas in implementing the 2024/25 budget include funding public servant salaries, servicing government debt, the 2024 local government elections, and preparations for the 2025 general elections,” stated Dr. Mwigulu.
The flamboyant economist highlighted the preparations for the National Development Vision 2050 and the 2027 Africa Cup of Nations (AFCON).
Dr. Mwigulu detailed the allocation of the budget, with TSh 20.7 trillion set aside for administrative services and debt servicing, TSh 10.29 trillion for development and economic activities, TSh 6.17 trillion for education, security, law enforcement, and safety, and TSh 2.65 trillion for healthcare. Water, housing, and community development have been allocated TSh 1.42 trillion.
As the Tanzanian government gears up to mobilize and spend TSh 49.3 trillion for the 2024/25 fiscal year, the critical question remains: where will these funds come from? A substantial portion, TSh 33.25 trillion, is expected to come from domestic revenue, including tax and non-tax revenues.
The government plans to secure TSh 9.6 trillion from domestic and international commercial loans, while grants and concessional loans from development partners will contribute TSh 5.1 trillion. Local government revenues are expected to contribute TSh 1.3 trillion to the budget.
However, Dr. Mwigulu emphasized several risk factors that could impact budget execution, including changes in economic, financial, and political policies, as well as diplomatic relations.
He warned of potential disruptions from climate change, natural disasters, pandemics, and international conflicts. These risks could hinder revenue collection targets, slow project implementation, increase costs, and raise the government’s debt servicing and commercial loan costs.
In assessing Tanzania’s recently announced budget of TSh 49.3 trillion for the fiscal year 2024/25, it is crucial to understand a key concept: the real value of money is not in the numbers themselves but in their purchasing power.
To illustrate, consider this example: if you have TSh 1,000 which can buy two mangoes, and your friend has USD 3 which can buy ten mangoes, the USD 3 is more valuable despite the seemingly larger number represented by TSh 1,000. This principle applies to the analysis of national budgets as well.
The budget for the fiscal year 2023/2024 was TSh 44.38 trillion, equivalent to USD 19.28 billion at the time. In comparison, the budget for 2024/25 is TSh 49.34 trillion, which translates to USD 19.00 billion. On the surface, this appears to be an increase of TSh 4.96 trillion.
However, when viewed through the lens of purchasing power and currency value, it becomes apparent that the previous year’s budget (USD 19.28 billion) was larger than this year’s (USD 19.00 billion). The depreciation of the Tanzanian shilling has resulted in a decrease in the real value of the budget, despite the nominal increase in shilling terms.
In contrast, Kenya’s budget for 2024/25 demonstrates a significant rise from KSh 3.95 trillion (USD 25.75 billion) in 2023/2024 to KSh 4.2 trillion (USD 32.0 billion) this year. This stark difference underscores the importance of considering currency value and purchasing power in budget analysis.
According to Dr. Chris Cyrilo, an economist based in Dar es Salaam, “Despite the nominal increase in the budget, the depreciation of the Tanzanian shilling has meant that the actual purchasing power, when converted to USD, has decreased. Last year’s budget was USD 19.28 billion, while this year’s stands at USD 19.00 billion.”
This understanding is essential for accurately interpreting the implications of Tanzania’s budget changes. While the numbers suggest an increase, the actual value in terms of purchasing power and economic impact tells a different story. The nominal growth in the budget does not equate to an increase in economic capacity or resources available for development projects and public services.
Tanzania’s national debt has surged to TSh 91.7 trillion by March 2024, up from TSh 77 trillion the previous year, marking a 19.1 percent increase, according to Minister for Planning and Investment, Professor Kitila Mkumbo.
“The increase in debt is attributed to the government’s continued receipt of funds from existing and new loans to finance development projects, including infrastructure such as roads, railways, airports, electricity, and water,” Prof. Mkumbo informed lawmakers while presenting a National Economic Status Report.
Despite the escalating debt, Tanzania has been announced as a middle-income economy, a significant milestone for the nation.
This status reflects substantial progress in economic development, yet it also brings challenges, particularly in managing high debt levels. Tanzania joins other African countries grappling with high debt, including Zambia, Mozambique, and Angola, where debt burdens have impacted economic stability and growth.
Managing the balance between development and debt sustainability will be crucial for Tanzania. As the government continues to invest in critical infrastructure and social services, ensuring effective debt management and fostering economic resilience will be key to sustaining its middle-income status and achieving long-term development goals.
