Fiscal deficit projected to narrow

DAR ES SALAAM: FISCAL deficit is projected to narrow in the near term as the economic recovery bolsters domestic revenues and the pace of public spending slows, the World Bank says in its 19th Tanzania Economic Update.

The report launched in Dar es Salaam this week shows the central government’s overall fiscal deficit is projected to narrow slightly to 3.4 per cent of GDP in 2023/2024 financial year.

It says rebounding of economic activities and improved revenue mobilisation are expected to offset increased recurrent expenditures brought about by the fertiliser subsidy programme, additional recruitments in the health and education sector and the recent increases in the wages and salaries of civil servants.

The government launched a 150bn/- fertiliser subsidy programme during the 2022/23 financial year, to cushion farmers from the impacts of soaring prices of fertilisers.

It extended the programme for two other seasons (2023/2024/2025) as part of its reform policy to boost productivity and income on the farms.

“While the fertiliser subsidy programme, additional hiring in the education and health sectors and recent increase in the wages and salaries of civil servants are expected to keep recurrent expenditures elevated, rebounding economic activity and enhanced revenue mobilisation are expected to improve the fiscal outlook over the medium term.”

According to the update, the expected completion of large hydropower projects will help moderate capital spending and aid the consolidation effort. The central government’s overall deficit is projected to narrow by 1 percentage point of GDP by end of 2025.

Growth and fiscal consolidation are expected to reduce the public debt stock from 43.8 per cent of GDP in 2022 to 41.9 per cent in the near term and about 38 per cent in the medium term.

However, outstanding VAT refunds and domestic expenditure arrears were estimated at about 3-4 per cent of GDP at end-2022 and implementing the recently approved Arrears Management Strategy will remain critical to strengthen fiscal management.

The government raised expenditure by 7.0 per cent to 44.39tri/- in the 2023/24 financial year up from 41.48 in the preceding year to shore up the economy against the fallout of the war in Ukraine and the continued aftermath of the coronavirus pandemic.

The lion’s share of the budget is expected to be financed by domestic revenue projected to reach 31.38tri/- or about 70.7 per cent of the total budget. Other sources will be grants and concessional loans from development partners estimated to reach about 5.47tri/- or 12.3 per cent of the total budget.

The government also expects to borrow 2.10tri/- from non-concessional sources to accelerate implementation of development projects.

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