Nchemba’s ambitions, risks in the 2024/25 budget

DODOMA: MINISTER for Finance Dr Mwigulu Nchemba on Thursday presented the 2024/25 budget, themed “Sustainable Economic Transformation through Fiscal Consolidation and Investment in Climate Change Mitigation and Adaptation for Improved Livelihoods,” aligning it with Tanzania’s Development Vision 2025 and global commitments.

It emphasises long-term development goals with ambitious macroeconomic targets to enhance economic stability and foster growth.

The budget targets a GDP growth of 5.4 per cent for 2024, up from 5.1 per cent in 2023, driven by anticipated improvements in both domestic and global economic conditions.

It supports this growth with a rise in domestic revenue to 15.8 per cent of GDP and an increase in tax revenue to 12.9 per cent of GDP aimed at enhancing tax compliance and expanding the tax base.

Key financial strategies, as outlined by Dr Nchemba, include maintaining inflation within a 3.0 – 5.0 per cent range, capping the deficit at 3.0 per cent of GDP, and ensuring that foreign exchange reserves cover at least four months of imports.

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These measures are intended to serve as a robust safety net against external shocks.

The 2024/25 budget strategically emphasises capital expenditure, allocating 14.755tri/- of the total 49.35tri/- for infrastructure and industrialisation projects essential for sustainable growth and productivity.

This focus on capital over recurrent spending demonstrates the government’s commitment to operational efficiency. With a targeted deficit of 2.9 per cent of GDP, the budget ensures sustainable debt management and economic stability.

Additionally, it diversifies investments into critical sectors like railways, roads, and water, with significant support for the Rural Energy Agency (REA).

These allocations aim to reduce vulnerabilities to sector-specific shocks and foster consistent economic growth, underscoring the government’s dedication to sustainable development and resilience.

The budget, while ambitious, carries potential risks. Its optimistic GDP growth target of 5.4 per cent relies heavily on substantial increases in domestic and tax revenue, which may not be achieved if tax compliance and base expansion efforts falter.

The focus on capital expenditures also poses a risk of underfunding essential services such as healthcare and education. Moreover, a strict deficit cap of 2.9 per cent of GDP could restrict fiscal flexibility, potentially leading to unplanned borrowing or cuts in critical services during economic shifts.

Reflecting on last year’s fiscal management strategies, it’s clear that significant improvements are essential for boosting Tanzania’s economic health. Enhancing tax compliance and administration is critical to preventing evasion and expanding the tax base, thereby securing a robust revenue stream.

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There is also an urgent need for the effective and timely use of funds allocated to infrastructure, healthcare, and education to maximize the impact of these investments.

The government must maintain strict controls over borrowing and debt service to ensure transparency and sustainability, while strengthening economic resilience through diversification to mitigate the effects of external shocks.

Furthermore, increasing transparency and enhancing stakeholder engagement are vital to promoting participatory governance and building public trust.

However, the current budget’s focus on specific sectors like railways and roads risks neglecting other crucial areas, potentially hampering balanced economic development. The lack of detailed diversification plans also leaves the economy vulnerable to external shocks.

Dr Nchemba, representing the government, should tackle these challenges by enhancing transparency and stakeholder engagement. These efforts are critical for building public trust and ensuring effective policy implementation, key factors in sustaining economic growth and promoting stability as Tanzania moves forward.

Kelvin Msangi is an Operation Director at Tanzania Music Rights Society. He is reached through email; kelvinmsangi@protonmail. com, mobile; 0655963224

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