Tanzania’s 25-year push to wean public entities off government subsidies

DAR ES SALAAM: OVER the next 25 years, Tanzania plans to gradually reduce the dependence of public entities on government subsidies, in what officials describe as a major shift aimed at strengthening efficiency, improving accountability and easing pressure on public finances.

The strategy, outlined in the Office of the Treasury Registrar’s (OTR) Long-Term Perspective Plan (LTPP), targets Public and Statutory Corporations (PSCs) that have for years relied heavily on state funding to sustain operations and investment While the government says essential public service institutions will continue receiving targeted support, commercial PSCs are expected to transition toward full financial self-reliance by the end of the reform period.

The Treasury Registrar, Nehemiah Mchechu, said recently that the long-term objective is to build public institutions capable of operating competitively and contributing more effectively to national development without continuous dependence on Treasury support.

“The intention is to create stronger and more sustainable public entities that are able to finance their operations, improve service delivery and contribute meaningfully to economic growth,” Mr Mchechu said.

The scale of the challenge is considerable An analysis of 227 PSCs shows that government subventions remain the primary source of financing for most public entities.

Over the past three financial years, support from the Treasury has increased by an average of about 15 per cent annually, with much of the funding directed toward development expenditure.

For many PSCs, government support currently finances not only day-to-day operational costs, but also major investment programmes and infrastructure expansion.

Despite this continued support, nearly 82 per cent of PSCs still depend on government financing, while fewer than 20 per cent operate on a financially self-sustaining basis.

For policymakers, the figures raise concerns not only about institutional efficiency, but also about the long-term sustainability of public finances.

As subsidy requirements continue to rise, governments face increasing pressure to balance support for PSCs with other competing priorities such as healthcare, education, infrastructure and social services.

Economic analysts say that while subsidies can protect strategic sectors and support public welfare objectives, prolonged dependence can also weaken incentives for efficiency, innovation and financial discipline.

In many cases, institutions that rely heavily on recurrent government support struggle to modernise operations, improve productivity or generate sufficient internal revenues.

Over time, this can create organisations that survive primarily because of Treasury support rather than operational competitiveness.

Economists warn that prolonged subsidy dependence can also slow long-term economic growth by diverting public resources away from productive investment while weakening incentives for innovation and operational efficiency within state-owned institutions.

Speaking to the Treasury Registrar Corner, Economist from Mzumbe University, Dr Daudi Ndaki cautiously welcomed the plan to reduce or eliminate PSCs’ dependence on government subsidies.

He observed that public entities should strike a balance between service delivery and revenue generation in order to gradually reduce reliance on government support.

“For this to be realised, public entities need to embrace revenue enhancement strategies,” underscored Dr Ndaki.

On that basis, he advised the entities to become more innovative by initiating projects that can serve as sustainable sources of revenue.

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However, he cautioned that for projects implemented through Public-Private Partnerships (PPPs), PSCs must first conduct thorough revenue capacity analyses.

“Public institutions need to ensure that they invest in ventures capable of generating returns,” he emphasised.

The government’s longterm reform plan therefore seeks to fundamentally reshape how PSCs operate. Under the proposed framework, commercial PSCs are expected to eventually operate with zero dependence on the government budget.

Other sectors, however, will follow differentiated subsidy ceilings designed to reflect the nature of their public service mandates and fiscal realities.

Water utilities, for instance, are expected to maintain a dependency ceiling of 25 per cent, while higher learning institutions and health institutions would operate within ceilings of 60 per cent and 40 per cent respectively.

Officials argue that the differentiated approach recognises the reality that some public institutions provide services that cannot be fully commercialised without affecting accessibility and affordability.

Hospitals, universities and water authorities, for example, often operate in sectors where social obligations outweigh purely commercial considerations.

The government therefore intends to preserve targeted support for non-commercial entities that deliver essential public services even as broader reforms advance.

Even so, the reform agenda signals a clear departure from the long-standing model where many commercial public entities rely routinely on government financing to sustain operations.

According to Mr Mchechu, the transition will require broad structural reforms across the public sector.

These include improving operational performance, strengthening corporate governance, recapitalising viable institutions, and removing legal and regulatory barriers that limit efficiency and commercial competitiveness.

The government estimates that recapitalisation needs for PSCs could reach nearly 1tri/- over the long term. One of the central proposals involves converting development subventions into equity injections rather than continuing recurrent operational support.

The idea, officials say, is to ensure government funding functions as productive investment capital capable of generating returns, instead of serving as permanent fiscal support.

For commercial PSCs in particular, the reforms are expected to encourage greater financial discipline, stronger balance sheets and improved accountability in the use of public resources.

Analysts say such reforms are increasingly common globally as governments seek to reduce the financial burden posed by state-owned enterprises while improving their contribution to economic growth.

Reducing dependence on subsidies, economists argue, is now widely viewed as an important component of broader economic reform programmes aimed at increasing efficiency and creating fiscal space.

Persistent subsidies frequently place strain on public budgets, limiting the government’s ability to allocate resources to other national priorities.

Reforming or gradually phasing out excessive dependence can therefore create additional room for investment in critical sectors of the economy.

Countries pursuing similar reforms often aim to transform public corporations into commercially viable institutions capable of competing effectively, attracting investment and operating with greater accountability.

Still, the transition carries risks Some PSCs operate in sectors with low profit margins, ageing infrastructure and politically sensitive pricing structures.

Others face longstanding governance weaknesses, high debt burdens or limited managerial capacity.

Economists caution that withdrawing subsidies too aggressively could disrupt essential services, particularly in sectors where public access remains a priority.

The success of the reforms, they argue, will depend on whether institutions are simultaneously equipped to operate more independently through better management systems, stronger revenue collection, modern technology and improved oversight.

Mr Mchechu maintains that the reforms are ultimately intended to strengthen, rather than weaken, public institutions.

“Public entities should increasingly become drivers of productivity, investment and national development,” he said.

“The goal is to ensure that they operate efficiently, create value and reduce unnecessary pressure on the national budget.”

For Tanzania, the reform agenda reflects a broader ambition to build a more resilient and financially sustainable public sector over the coming quarter century.

The challenge now lies in whether public corporations can successfully evolve from subsidy-dependent institutions into self-sustaining engines of economic transformation.