Selected perspectives on the 2012/13 budget plan

Dr Ngowi
By Dr Honest Ngowi
 
The first quarter of the calendar year in Tanzania is normally time for national budget planning for the financial year that starts in the second half of the year. Reports released by various media houses this week give outlines and plans for the 2012/13 fiscal year budget. The budgeting process is extremely important because its outputs have many and far-reaching implications to everyone.

Therefore, critical and constructive inputs into the budgeting excise cannot be overemphasized. Without giving inputs into the making of the budget, it may not be a fair play to complain on the outcome of the same. It is in that spirit, inter alia that some selected perspectives on the 2012/13 budget plan are outlined in what follows.

Reduced real budget?
The Citizen (Wednesday, April 4) informs that the 2012/13 budget will be to the tune of Sh13.4 trillion. Compared to the Sh13.5 trillion for 2011/12, it means that there will be an absolute reduction of a whole Sh0.1 trillion this time around.

If this is the case, then there will be serious problems in delivering of public goods and services in general and the 2010 electoral promises in particular. Firstly, although it is not the amount of money that matter as such, more and not less money is needed in the Tanzanian-type of economy.

There are so many unfunded essential activities that one would expect more real and new money in the budget to fund these activities let alone adding new ones.

Real not nominal budget matters
It is also important to note that Sh13.4 trillion cannot fund as many baskets of goods and services in 2012/13 as it did in 2011/12.

Inflationary pressures that have been on increase from the 2011/12 fiscal year imply that the purchasing power of the shilling in 2012/13 is lower than that of 2012/13. What matters for budgetary outcomes is the real and not the nominal budget.

It is the actual quantity and quality of baskets of goods and services that can be bought by the budgeted money that counts. In an inflation-ridden economy, reducing instead of increasing the nominal budget has many and far-reaching negative implications in the real budgetary outcomes.

Issues around tax revenues
It is forecasted in the budget plan that a total Sh7,466 billion will come from taxes and non-tax sources. Taxes are traditional sources of funding public expenditure. It is unfortunate that in Tanzania tax revenues are still relatively low.

This source of revenue is about 17 per cent of the country’s gross domestic product (GDP). In some comparable economies the proportion goes as high as 25 per cent. Given the many challenges confronting the Tanzanian ‘tax man’, it may be a very tall order to make sure that the government gets its dues to its coffers.

The challenges include but are not limited to the very narrow tax base, wide-spread tax planning that lead to the legal tax avoidance and illegal tax evasion practices as transfer pricing, capital flight and related ones.

Also in this long litany of challenges that constrain efforts to increase domestic resources mobilization in Tanzania include inadequate tax education, inadequate collection capacities as well as inadequate prudent public financial management including embezzlement.

Debates on donor funds
The 2012/13 budget plan figures show that a whole Sh3,397 billion is expected to come from the development partners in forms of grants and loans.

In such times as these of gloomy economic outlook in general and in the Euro zone in particular, some words of caution are important. The lessons of the 2008 global financial and economic crisis question the willingness and ability of the donor community to keep on giving in aid even for a ‘donor darling’ country like Tanzania.

Also in the debates menu in this context are issues of local ownership of the development process, new aid architecture as stipulated in the Accra and Paris Declarations notwithstanding. Dambiso Moyo’s critical cum controversial but educative volume on Dead Aid would surely add more dynamics on such debates.

Borrowing for budget
The government plans to borrow some Sh2,292 billion. These will be borrowed from domestic and foreign commercial financial institutions. When faced with a rock on one side and a hard place on the other it may be a lesser and necessary evil to borrow so as to finance the budget.

The challenges of borrowing from commercial banks – as opposed from doing so from development ones – include the relatively higher interest rates and short-term repayment time for the former compared to the latter.

It also contributes into the swelling of the national debt whose payment triggers inter-generational issues. Part of the debts will be paid by the future generation who might not benefit from current expenditure if recurrent rather than development expenditures dominate today.

It has been noted in this column time and again that domestic borrowing by the government poses the risk of crowding out the rather young and emerging local private sector that is still taking shape.

Expenditure priorities
Of the Sh13.4 trillion, a whole Sh9.3 trillion (69.4 per cent) is planned to go to recurrent expenditure and Sh4.1 trillion (30.6 per cent) will go to development expenditure.

This is a typical poor man’s budgetary allocation where the marginal propensity (tendency) to consume is bigger than the marginal propensity to save and by extension to invest for development. While understood, devoting more instead of less into recurrent instead of development expenditure remains to be bad economics.

So what?
As we plan for the 2012/13 budget therefore, these and related issues should be factored-in so as to avoid surprises when goals are not achieved.

A budget that does not consider inflation as well as exchange rate movements will be as surprising as the one that does not consider the rather gloomy global economic outlook in general and in the troubled Euro zone in particular where the sovereign debt crisis may translate into a global double deep recession.

Source: the Citizen. The author is a senior lecturer, researcher and consultant in Economics and Business at Mzumbe University Dar es Salaam Business School

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