DAR ES SALAAM: THE government’s acquisition of 1.7tri/- from the central bank constitutes standard short-term financing aimed at covering temporary cash shortages, typically repaid within a short period, it has been clarified.
The Bank of Tanzania (BoT) Director of Banking, Agathon Kipandula told reporters in Dar es Salaam on Monday that the law that established the BoT allows the government to obtain funds from the central bank to cover temporary revenue shortfalls.
“It is normal practice for central banks to make advances to the government to offset temporary fluctuations between revenue and payments,” he said, adding that normally, this type of lending consists of advances or overdrafts on the government account at the central bank and aims at compensating for seasonal shortfalls in government revenues.
Kipangula said the law imposes a limit on the amount of the advances or overdraft to 18 per cent of revenue collected on the previous financial year and will be repaid within 180 days.
Section 197 of the Bank of Tanzania Act of 2006 specifically permits the central bank to make direct advances to the government to manage fluctuations between budgeted revenue receipts and government payments.
These advances are intended to provide temporary accommodation to the government and must be repaid within 180 days, with interest at market rates determined by the central bank.
However, a private owned newspaper reported that the government secured 1.7tri/- loan from the central bank and it has not returned the money.
The Minister for Finance, Mwigulu Nchemba reacted by dismissing the report as a deliberate attempt to cause alarm, noting that the Bank of Tanzania adheres to national laws and central bank standards worldwide.
“Ignore the …report. There is no withdrawal of funds from the Bank of Tanzania. This is a deliberate attempt to create panic. The Bank of Tanzania carefully upholds national laws and all central banking principles globally,” he wrote on his x platform.
“I have read the report, which is based on an analysis by an NGO called WAJIBU led by Mr Ludovic Uttoh, retired Auditor General. Generally, the explanation in the report is clear and devoid of any controversy, so I don’t understand why the Nipashe writer mentioned there being controversy with the Bank of Tanzania (BoT),” he noted.
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The minister said the report describes a normal practice that occurs annually under the BoT Act, which allows for advances or short-term loans to the government to meet expenditure needs before revenues are received.
According to Sections 34 to 37 of the BoT Act, the government is permitted to borrow up to 18 per cent of the previous year’s actual domestic revenue collections, he said.
“This has been a standard practice since the establishment of BoT; the bank serves as the government’s bank, enabling the government to take advances according to the law instead of borrowing at higher interest rates from commercial banks,” he said.
The finance minister said in the fiscal year 2022/23, the government was able to get advance of up to 4.5tri/- from the Bank of Tanzania.
“Therefore, the report of 1.7tri/- is within the legally acceptable framework. This amount was included in the respective year’s Treasury Bonds, which continue to pay interest as part of domestic loans,” he said.
