Opening curtain on Samia’s first 2022-2023 fiscal year budget

Opening curtain on Samia’s first 2022-2023 fiscal year budget


Finance and Planning Minister, Dr Miguel Nchemba, Tuesday tabled President Samia Suluhu Hassan’s first national budget for Financial Year 2022/2023. Daily News reporter, ABDUEL ELINAZA, interviewed Dr HILDEBRAND SHAYO, a banker-cum-investment analyst on what the 41.063tri/- read budget means for the sixth phase government.


Question: The 2022/23 budget is being presented at the time the International Monetary Fund (IMF)’s projections of a Gross Domestic Product (GDP) growth for Tanzania reached 5.1 per cent in 2022, and 6.0 per cent in 2026 based on an anticipated increase in economic activities in selected. Do you think this growth is achievable?

Answer: It can be achieved only on the ground that the confidence brought by Tanzania membership in international agreements and membership especially in trade dispute resolutions is adhered to. Nevertheless, recent damage from the disruption of the on-going war between Russia and Ukraine is setting pressure on prices especially on fuel that in my opinion may adversely affect the GDP growth projections. High cost of living is likely to call for policy change on fiscal measures and monetary measures, and these could hit in a different way the economic sector.

Question: The budget has underlined completion of major ongoing strategic infrastructure projects as some of the contributors to the projected GDP growth. Are these sectors- the new economic frontiers? What opportunity does the financial institution especially Development Finance Institutions (DFIs) see in those sectors given inflation of May 2022 was at 4.0 per cent compared to 3.3 per cent for May 2021?

Answer: Categorically, high cost of living was in the spotlight when the government unveiled 2021/23 budget. Looking at bigger picture, I can see an opportunity to diversify export proceeds and bolster the foreign exchange reserves position that might increase, resulting from the Royal Tour documentary that has in a way opened Tanzania to the world.

Additionally, lately we have seen some positive strides with regards to improving the country’s capacity to better manage its natural endowments. For instance, the Bank of Tanzania (BoT) has started examining measures they could take to increase credit to the private sector believed to be the engine of the economy.

Recently there has been also special mining licence issued. One thing is that Tanzania has long suffered trade deficits due to lack of productive capacities. What we are seeing in the mining sector is an encouraging indicator that there is an opportunity to create jobs and partner with the investors for the benefit of Tanzania.

What is sad though, in all strategic projects such as the recently signed Liquefied Natural Gas (LNG) agreement, I am not seeing much of local content financing from our national banks. Using outside finances to fully finance major developmental impact projects could deny local banks any opportunity to participate in such projects and its effects is wider than what one might think.

Question: The 2022/23 budget has an estimated 41.063tri/- cap needed, which is seen to be relatively higher compared to last year’s 2021/22 budget. How will this year’s budget likely to reach and increase credit to affect private sector?

Answer:  We expect that this should increase funds available to lend the private sector and over time it may reduce cost of funds, although this may take material reduction in domestic borrowing. Where the market fully dictates prices, level of interest rates should reflect the status of determinants of interest rates.

Thus, as much as the economic goals we have set around infrastructure development, food security and others would be best delivered in a low interest rate setting, it is detrimental to force the market to give low interest rates whilst the determinants are off track.

Question: What do you think needs to be done to soothe the local currency and restock forex reserves?

Answer: The budget recognizes foreign exchange supply constraints that are affecting the country and improving that is key to getting to the desired national outcome. Looking at the whole national budget, it intends to encourage import substitution partly through the establishment of distinct economic zones and given that this year’s budget is expected to go to agriculture, infrastructure and provision of water services as the sectors, which touch the majority of the citizen.

It is also encouraging speedy execution of partners funded projects to realize the foreign exchange flows attached to that. Tanzania, however, needs critical and impactful actions to address current shortages and do believe the 2022/23 budget is setting that tone.

Further to the provisions in the budget, we can do more to diversify the export base through the production of high-value export crops, supporting the production of goods for export.  Reinstating partner's confidence, being done by President Samia and getting an IMF low-cost loan fully back on track will be critical in obtaining stability in the markets and timely completion of strategic projects.

Question: How do higher interest rates likely to continue impacting on the economy supposed to be incentivised by the 2022/23 fiscal budget?

Answer: The dilemma facing policymakers when confronted with the excessively high cost of living is that, however they react, they will have to hurt some sectors. Altering the price changes the behaviour of individuals and industry. When exerting monetary powers, I am certain the Central Bank will have an idea of the direction of the outcome but, like investors, will often be stunned by the real-world response.

We, economists have traditionally taken the view that interest rates need to be at around 5 per cent to achieve price increases of around 2.0 per cent. Since the global financial crisis, the view has been that interest rates at a peak of 2.0 per cent would be enough to control inflation. This is an area that can well be managed by our central bank.

This time around, the working assumption is that the world is now different and so the market assumes that 2.0 per cent rates would be enough to get inflation back on track.

This assumption can be challenged in several ways, predominantly regarding the current dynamics of the world labour market upset by the effects of the pandemic and the ongoing war between Russia and Ukraine. The BoT in my view must develop a new understanding of the drivers that gear our economy amidst the emerging high cost of living and imported inflation. The current hot economy will continue to be a challenge for monetary policy execution and for the central bank and the bond market.

To conclude, it is important to be aware that the typical economic cycle occurs in four stages namely recovery, expansion, downturn, and recession.

Rational policymakers need to aim to cut rates and keep them low at the start of the cycle, to stimulate economic growth.


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