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| BoT Governor Prof Ndulu |
The government is increasingly
borrowing from commercial banks to foot various expenditures, crowding
out investments, which impact negatively on economic growth.
On annual basis, domestic debt stock
increased by 15.5 per cent or 711bn/- to 4.57tr/- as at the end of
August from 3.86tr/- recorded in the corresponding period last year.
The Bank of Tanzania (BoT) said the
increase was mainly on account of issuance of new Treasury bonds that
outweighed maturing obligations.
The increase, according to central
bank, was a result of issuance of new Treasury bonds compared to
maturing obligations. Economists urge that increasing government
borrowing leads to crowding out investment as commercial banks tends to
direct their lending to relatively risk-free government papers.
A University of Dar es Salaam Senior
Lecturer (Economics), Dr Jehovanness Aikael, said government increase in
borrowing from banks reduces the funds supposed to be lent to private
sector.
“The trend is not healthy especially if we believe that private
sector is the engine of growth,” Dr Aikael told the ‘Daily News’.
The economist said should the private
sector lending decrease while credit to government increases this means
there is a crowding out of investment, a phenomenon that contracted GDP
growth.
The BoT announced a sharp year-to-year
decline of lending to private sector to 16.8 per cent in August this
year from 27.5 per cent of the same month last year.
“… a number of
economic activities recorded slow growth rates in credit in the year
ending August 2012, except for transport and communication, agriculture,
manufacturing, and personal activities,” BoT indicates.
The government borrowing from private
sector was necessitated by the fact that revenue collections are not
tallying with total expenditures. At the end of August, total resources,
on cheques issued basis, amounted to 645.2bn/- while total expenditure
was 769.2bn/-, resulting in an overall budget deficit of 258.1bn/- after
grants and adjustment to cash.
“The deficit was financed through both
domestic and foreign sources,” BoT said on its September’s Monthly
Economic Review. The central bank reported further that revenues,
excluding Local Government Authorities (LGAs) own sources were 558.6bn/-
representing 16.3 per cent below the target for August.
Government budgetary operation for the
first two months of this fiscal year resulted in an overall deficit of
359.2bn/- after adjustment to cash: “This was financed by net foreign
loans of 100.7bn/- and a net domestic borrowing of 258.4bn/-’’, BoT
said.
Source: The Daily News,http://www.dailynews.co.tz, reported by Abduel Elinaza in Dar es Salaam
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