THE UNITED REPUBLIC OF TANZANIA BUDGET FOR FISCAL YEAR 2009/10 APRIL JUNE 2010 AND FULL YEAR BUDGET PERFORMANCE

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1 THE UNITED REPUBLIC OF TANZANIA BUDGET FOR FISCAL YEAR 2009/10 APRIL JUNE 2010 AND FULL YEAR BUDGET PERFORMANCE MINISTRY OF FINANCE AND ECONOMIC AFFAIRS AUGUST, 2010

2 EXECUTIVE SUMMARY The preliminary results from quarterly GDP for the first three quarters of 2009/10 indicate that the target of 6.5 percent for the year to June 2010 is achievable. Headline inflation declined to 7.2 percent in June 2010 compared to 8.0 percent projected, primarily due to notable decline in food inflation. Overall Government budgetary operations for the fiscal year 2009/10 were satisfactory, despite the observed shortfall in domestic revenue collections against the estimates. Annex A presents the summary of budget performance for the fourth quarter of the year as well as full year budgetary performance. DOMESTIC REVENUE Government domestic revenue collections for the fiscal year 2009/10 amounted to TShs 4,661.5 billion equivalent to 91.2 percent of estimates and 9 percent above collections in the previous fiscal year. This was partly contributed by significant shortfall in excise duty collection due to the decline in production of excisable products and non-tax revenue. EXPENDITURE During the year, the Government budget continued to operate on Cash Budgeting for the release of funds on monthly basis. Total expenditure for the year registered at TShs. 8,173.7 billion, being 92 percent of budgetary estimates for the year. Recurrent expenditure excluding CFS stood at 94 percent of budget, while development expenditure was 92 percent of budget estimates. GRANTS AND FINANCING During the year 2009/10, there was a shortfall in programme assistance including baskets whereby total disbursements recorded at TShs. 1,676.2 billion compared to TShs. 1,766.8 billion estimated. On the other hand, General Budget Support amounted to TShs. 1,224.1 billion or 2.5 percent higher than budgeted amount of TShs. 1,193.9 billion. Foreign funds for development projects stood at TShs. 1,606.8 billion, being 87 percent of the budget for the year. The overall Government net domestic financing for fiscal year 2009/10 was TShs billion compared to TShs billion budgeted. Considering the shortfall in total programme assistance during the year, this performance is considered to be well within the adjusted position. 1

3 RECENT ECONOMIC DEVELOPMENT 1. The Government has made a stride in maintaining macroeconomic stability during the fiscal year 2009/10. The preliminary results from quarterly GDP for the first three quarters of the fiscal year 2009/10 indicate that the target set for 2009/10 is achievable, with the GDP growth of 6.5 percent. There was a notable decline in headline inflation to reach 7.2 percent in June 2010 compared to the initial projections of 8.0 percent, primarily due to decline in food inflation which constitutes the largest share of consumer basket. The average annual headline inflation declined to 10.5 percent in June 2010 from 11.8 percent recorded in the year ending June Annual non-food inflation also maintained a declining trend reaching 7.4 percent in June 2010 compared to 8.6 percent in April On the other hand, the annual food inflation declined from 9.8 percent in April to 7.1 percent in June 2010, being the lowest rate recorded over the past four years. The decline in inflation is due to the improvement in food supply within the country and the neighbouring countries following good harvest. Percentage Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Annual Inflation Rate, June June 2010 Food inflation Headline inflation Non-food inflation

4 The Status of Implementation of the Global Economic Crisis Rescue Package 2. In response to the global financial and economic crisis, the Government prepared a rescue package in 2009/10 amounting to TShs. 1,692.5 billion to mitigate the adverse impact of the crisis on the Tanzanian economy. As of end June 2010, total amount disbursed for rescue purposes was TShs. 1,468.7 billions, equivalent to 86.8 percent of the approved amount as detailed below. Compensation for losses 3. A total of 35 cotton buyer firms requesting to be compensated for a loss of TShs billion were scrutinized. After review, the eligible amount for compensation was TShs billion. The Government allocated TShs billion for that purpose and a total of TShs billion was disbursed to compensate losses incurred, consisting of TShs. 9.3 billion and TShs. 9.9 billion for cotton traders and coffee traders respectively. Guarantee for loan rescheduling 4. A total of TShs billion was disbursed to the Bank of Tanzania as loan rescheduling guarantee during the fiscal year 2009/10. The guarantee aimed at enabling borrowers to access loans from commercial banks to finance their economic activities, especially buying crops from farmers during 2009/10 season. Price subsidization 5. The Government disbursed TShs. 20 billion to the Ministry of Agriculture, Food Security and Cooperatives for stabilization of cotton price. Under this arrangement, cotton farmers, through the Tanzania Cotton Board, received TShs. 80 per kilogram as a top up of the domestic market price during 2009/10 season. The subsidy was intended to provide incentives to cotton farmers whose price declined from TShs. 440 per kilogram before the crisis to TShs. 360 per kilogram after the crisis. 3

5 ECGS/SME Guarantee Schemes 6. The Government disbursed TShs. 3.0 billion to expand the fund facility of Export Credit Guarantee Scheme (ECGS) and TShs. 5.0 billion to expand access to loans through the SME guarantee scheme during 2009/10. Loan to ARTUMAS 7. The Government provided TShs.10 billion to Tanzania Investment Bank to on-lend to ARTUMAS Company. The loan was intended to finance investment in energy sector in the southern regions. Net Domestic Financing 8. In June 2009, the Government borrowed TShs. 323 billion from the domestic market, equivalent to 1.2 percent of GDP to finance revenue shortfall in 2008/09. Further, Tshs billion was the actual net domestic financing for fiscal year 2009/10. Balance of Payment Support 9. The Government received USD million, equivalent to TShs billion as loan from IMF, through the Exogenous Shocks Facility (ESF). The funds were used to compensate a shortfall in foreign exchange earnings. Food Security 10. During 2009/10, the Government disbursed funds to enable eligible farmers to purchase seeds and fertilizers, providing training to the village voucher committees, stimulating access to finance and strengthening national seed system. To this end, TShs. 20 billion was released to National Food Reserve Agency (NFRA) to boost the national food reserve and TShs billion was disbursed for the purpose of enhancing food production and productivity. In addition, TShs billion and TShs billion were disbursed to support TASAF and ASDP activities. 4

6 DOMESTIC REVENUE 11. During the implementation of budget for fiscal year 2009/10, there was a shortfall in domestic revenue collections against targets. In this regard, domestic revenue collections amounted to TShs. 4,645.2 billion, being 91.2 percent of the estimated TShs. 5,096.0 billion. Nonetheless, the actual collection was 9 percent higher than collections in the fiscal year 2008/09. Tax revenue collection was 91.5 percent of estimates while non tax revenue was 85.2 percent of estimates, partly due to the impact of the global financial crisis and postponement of the implementation of some revenue measures announced in the budget. Tax revenue grew by 10 percent while the growth in non tax revenue was 11 percent compared to the levels in 2008/09. The collection during the fourth quarter of the year was broadly in line with the full year trend, exhibiting a shortfall against estimates for both tax and non tax revenues. Taxes on Imports 12. The fiscal year 2009/10 saw a shortfall in revenue collection from import taxes, registering at TShs. 1,670.2 billion, or 94 percent of the estimated TShs. 1,769.6 billion. Year on year comparison indicates that the collections under this category grew by 12 percent from the levels reached in 2008/09. The observed shortfall in collection was due to the significant increase in importation of intermediate goods, which do not attract taxes. Taxes on Domestic sales 13. Revenue collections from domestic sale of goods and services amounted to TShs. 1,032.9 billion, equivalent to 85 percent of estimates for the year. The collections during the fourth quarter stood at TShs billion or 79 percent of estimates for the period. Year on year comparison indicates a growth of 13 percent for the quarter and 5 percent for full year from the levels attained in the respective periods of 2008/09. The observed shortfall was 5

7 mainly a result of significant decline in the production of taxable goods, particularly beers, cigarettes and soft drinks on account of slower than expected growth in domestic demand for such products during the year. Income Tax 14. Collections from income tax remained broadly in line with estimates during the quarter to June 2010 and the fiscal year in general. The collections stood at TShs billion and TShs. 1,388.8 billion for fourth quarter and full fiscal year respectively. There was a growth of 10 percent for both, the quarter and the year when compared to the respective periods of 2008/09. There was a notable shortfall in pay as you earn (PAYE) and corporate income taxes against the estimates which reflects less than projected increase in salaries as well as slower growth in production activities in the economy, partly emanated from the impacts of the global financial crisis. Other Taxes 15. Other taxes category underperformed during the fourth quarter with collections registering at TShs billion equivalent to 89 percent of estimated TShs billion. Further, total collections reached TShs billion being 90 percent of estimates for the year. Year on year comparison indicated growth rate of 3 percent for the quarter while full year collections were 8 percent higher than the levels reached in the corresponding period of 2008/08. This performance was mainly a result of shortfall in collections from Fuel Levy, Treasury Voucher Cheques (TVC) as well as Skills Development Levy. Non Tax Revenue 16. Non tax revenue collections during the fourth quarter picked up to reach 3 percent above their estimates mainly as a result of increase in collections from parastatal dividends. The collections from this category reached TShs billion as of end June 2010, representing a performance of 85 percent compared to estimates of TShs billion. The observed 6

8 shortfall was partly due to the impact of global financial crisis and delays in the implementation of some revenue measures announced in the budget for 2009/10. The postponement in implementation of new charges on residence permits, visas and immigration fees as well as fire service charges, contributed to the observed shortfall. In addition, the global economic crisis continued to impact on non-tax revenue collections through decline in arrivals. Figure 1: Revenue Performance July June 2010 TSh. Billion 1,800 1,600 1,400 1,200 1, Taxes on Imports Taxes on Domestic Sales Income Tax Other taxes Non tax revenue Estimates Actual 2008/09 Actual 7

9 EXPENDITURE 17. Total expenditure for the quarter ended June 2010 was TShs 2,492.8 billion, 16 percent above the estimate for the quarter. Total expenditure for the year to June 2010 amounted to TShs 8,173.7 billion, or 92 percent of the budget estimates of TShs 8,881.3 billion. Given the relatively low cumulative execution in the first three quarters of the year, this trend shows a significant catch up of expenditure in the fourth quarter with all major categories of recurrent expenditure and the local development expenditure closing at levels significantly higher than their estimates. On an actual expenditure basis, year-on-year expenditure increased by 20 percent. Annex C presents a breakdown of expenditures by category for the fourth quarter and the full year. Recurrent expenditures 18. Recurrent expenditures, excluding CFS, for April to June 2010 were TShs 1,645.1 billion or 122 percent of estimates. For the full fiscal year, actual recurrent expenditure excluding CFS was 94 percent of budget estimate of TShs 5,205.2 billion, and year-on-year recurrent expenditures were 21 percent higher. All recurrent expenditure categories recorded a year-on-year increase except the expenditure in relation to Treasury Voucher System which closed at a lower than the previous year by 8 percent. It is worth noting that the underperformance of retention scheme category of expenditure mimics the shortfall in collections from non tax revenues by ministries and regions. Figure 2 below shows the expenditure performance for major recurrent expenditure categories for the year. 8

10 Figure 2: Recurrent Expenditure by category July June ,000 5,000 Tsh billion 4,000 3,000 2,000 1,000 - Wages and salaries Transfer to Zanzibar Institutional Transfers MDAs/Regions&LGAs Total Recurrent exc CFS Estimates Actual Expenditure Expenditure 2008/ Expenditure on wages and salaries during April to June 2010 was TShs billion, in line with the estimates. This trend continued from previous quarters, thus bringing the full fiscal year expenditure to TShs 1,723.4 billion slightly below the budget estimate by 2 percent. Year-on-year comparison indicated a 7 percent growth rate from 2008/ Interest payment for the fourth quarter was TShs 62.2 billion and TShs billion for domestic and foreign interest respectively. This outturn is equivalent to 53 percent and 89 percent of the estimates respectively. For the whole year, total interest payment was TShs billion, being 61 percent of estimates. The underperformance was due to decline in the market interest rate and as well as the delays in the submission of demand notes by creditors. Year-on-year comparison indicated that interest payment increased by 3 percent compared to the levels in 2008/09. 9

11 Development expenditures 21. Total development expenditure for April to June 2010 was TShs billion, which is 108 percent of the estimate of TShs billion. On a full year basis, development expenditure in 2009/10 amounted to TShs 2,611.3 billion, equivalent to 92 percent of the budget estimate. 22. For locally financed development expenditures, TShs 1,004.5 billion was recorded for the full year, equivalent to 104 percent of estimate and 11 percent higher than that in the preceding fiscal year. On the other hand, foreign development expenditure registered at TShs 1,606.8 billion end June 2010, which was 87 percent of estimates, mainly explained by delays in the disbursement of project grants and basket loans as well as delays in reporting of D-Funds by MDAs and Development Partners. 10

12 GRANTS AND FINANCING Grants 23. The Government budget for 2009/10 continued to benefit from foreign assistance in the form of grants and loans. Total grants received in the fourth quarter amounted to TShs billion, equivalent to 23 percent of the estimate and 39 percent lower than the corresponding period in 2008/09. Total grants received for the fiscal year 2009/10 stood at TShs. 1,405.3 billion, equivalent to 67 percent of estimates and 12 percent higher than the corresponding period of the previous year. 24. The grants received during the year consisted of Program support of TShs billion; Project support (including MCC USA) TShs billion; Basket support TShs billion; and MDRI funds TShs 22.4 billion. Disbursements under all categories exhibited a shortfall against their estimates and overall there was a growth of 12 percent compared to the disbursements received in 2008/09. Fiscal Deficit and Financing 25. The overall deficit after grants for the year 2009/10 stood at TShs. 2,106.9 billion compared to estimates of TShs. 1,537.3 billion. This performance is contributed by the catch up in expenditure execution during the fourth quarter of the year as well as the expenditure float. 11

13 Figure 3: Foreign Grants July June 2010 TSh Billion Programme Grants Project Grants Basket Support Grants MDRI MCC - USA Estimates Actuals July- June 2008/ Net foreign financing for the year stood at TShs. 1,379.7 billion, being 33 percent above the estimates of TShs. 1,037.1 billion. The over performance was observed in programme loans on account of the frontloading of programme support which was originally planned for 2010/11. Further, there was over performances in project loans and foreign amortization, while basket supports performed below their estimates. 27. As part of the measures to ease the impact of the global financial and economic crisis, the Government approved domestic borrowing of TShs billion in 2009/10, equivalent to 1.6 percent of GDP. The actual outturn was a net borrowing of TShs billion or 1.9 percent of GDP. This was higher than the projected amount due to the adjustments made to cater for the shortfall in foreign program assistance. Thus, the adjusted position was equivalent to TShs billion implying that the target was achieved. Treasury bills and bonds amounting to TShs billion were sold in the domestic market to amortize debts that matured during that period (Rollover). Figure 4 below presents a summary of financing by components for fiscal year 2009/10 and Annex D indicates grants and financing for the period. 12

14 Figure 4: Foreign Financing July June 2010 TSh Billion Programme Loans Project Loans Basket Support Loans Amortisation foreign Net Domestic Financing Estimates Actuals July- June 2008/09 13

15 S ummary of Central Government Operations J uly J une 2010 Budget Estimate Estimate Actual April - June 2010 Percent of Estimate April -Jun 2008/09 Actual Year on year % change Estimate Actual July - June 2010 Annex A In Billion S hillings Percent July - June of 2008/09 Estimate Actual Year on year % change Domestic Revenue (Incl. LGAs and EPA) 5, , , % 1, % 5, , % 4, % Domestic Revenue (Excl. LGAs and EPA) 5, , , % % 5, , % 4, % Tax Revenue 4, , , % % 4, , % 4, % Taxes on Imports 1, % % 1, , % % Taxes on Domestic Sales 1, % % 1, , % % Income Tax 1, % % 1, , % % Other taxes % % % % Net refunds % % % % Non tax revenue % % % % LGA Own Source % N/A % N/A Drawing from EPA Account % % % Total Expenditure 8, , , % 2, % 8, , % 6, % Recurrent expenditure (Excl. CFS) 5, , , % 1, % 5, , % 4, % Wages & salaries(central & Local Gov't) 1, % % 1, , % 1, % Goods and services and Transfers 3, , % % 3, , % 2, % TRA % % % % Parastatal wages % % % % Retention scheme % % % % Other goods and services 2, , % % , % 1, % Development Expenditure 2, % % 2, , % 2, % Local % % , % % Foreign 1, % % 1, , % 1, % Interest payment % % % % Domestic % % % % Foreign % % % % CFS (Other) % % % % Overall Deficit (before grants) -3, , % -1, % -3, , % -2, % Grants 2, % % 2, , % 1, % Programme % % % % Project % % % % Basket grants % % % % MDRI (IMF) % % % % MCC - USA % % % % Overall Deficit (after grants) -1, , % % -1, , % -1, % Expenditure Float % Overall balance -1, % -1, , % -1, % Financing 1, % % 1, , % 1, % Foreign (net) 1, % % 1, , % % Programme loans % % % Project loans % % % % Basket loans % % % % Amortization % % % % Domestic (net) % % % % Net Domestic Financing % % % % Bank Borrowing % % % % Non-Bank Borrowing % % 1.1 Borrowing/Roll over % N/A % N/A Amortisation of contingent debt % 0.0 Domestic amortisation/rollover % N/A % N/A Privatisation proceeds % % Source: Ministry of Finance and Economic Affairs 1

16 Domestic Revenues Performance July June 2010 Domestic Revenue (Incl. LGAs and EPA) 5, , , % 1, % 5, , % 4, % Domestic Revenue (Excl. LGAs and EPA) 5, , , % 1, % 5, , % 4, % Tax Revenue 4, , , % % 4, , % 4, % Taxes on Imports 1, % % 1, , % 1, % Import Duty % % % % Petroleum % % % % Excise % % % % Others % % % % Excise % % % % Value Added Tax (VAT) % % % % Taxes on Domestic Sales 1, % % 1, , % % Excise % % % % Value Added Tax (VAT) % % % % Income Tax 1, % % 1, , % 1, % PAYE % % % % Corporate and Parastatals % % % % Individuals % % % % Withholding Taxes % % % % Rental Tax % % % % Other Income % % % % Other Taxes % % % % Business Skill Development Levy % % % % Fuel Levy and transit fee % % % % Stamp Duty % % % % Departure Service Charges % % % % Motor vehicle taxes % % % % Treasury Voucher Cheque % % % % Livestock Development Levy % % % % Refunds % % % % Refunds - VAT % % % % Refunds - other % % % % Non Tax Revenue % % % % Parastatal Dividends % % % % Treasury % % % % Ministries and Regions % % % % TRA Customs % 2.6-2% % % LGAs Own Sources % N/A % N/A Drawings from EPA A/C % % Source: Ministry of Finance and Economic Affairs Budget Estimates Estimates Actual April - June 2010 Percent of estimate Apr-June 2008/09 Actual Year on year % change Estimates Actual July - June 2010 Percent of estimate July-June 2008/09 Actual Annex B In Billion Shillings Year on year % change

17 Expenditure by Category July June 2010 Budget Estimate April - June 2010 Percent Apr-June Estimate Actual of Estimate 2008/09 Actual Year on Year % Change July - June 2010 Percent Jul-June Estimate Actual of Estimate 2008/09 Actual Annex C In Billion Shillings Year on Year % Change Total Expendjture 8, , , % 2, % 8, , % 6, % Recurrent Expendjture (Excl. CFS) 5, , , % 1, % 5, , % 4, % Wages and salaries 1, % % 1, , % 1, % Goods, services and transfers 3, , % % 3, , % 2, % TRA % % % % Fuel Levy % % % % Parastatal wages % % % % Retention scheme % % % % Other goods and services 2, , % % 2, , % 1, % Transfer to Zanzibar % % % TANESCO (IPTL) % % % Treasury Voucher Scheme % 7.7-6% % % Other charges 2, , % % 2, , % 1, % Development Expenditure 2, % % 2, , % 2, % Domestic % % , % % Foreign 1, % % 1, , % 1, % o/w basket grants % % % % o/w basket loans % % % % o/w MCC - USA % 5.1 0% % % Interest % % % % Domestic % % % % Foreign % % % % CFS others % % % % Source: Ministry of Finance and Economic Affairs

18 Foreign Grants and Financing July June 2010 Budget Estimates Estimate Actual April - June 2010 Percent of estimate Apr - Jun 2008/09 Actual Year on year % change Estimate Actual July - June 2010 Percent of estimate Jul - June 2008/09 Actual Annex D In Billion Shillings Year on year % change Overall deficit before grants -3, , % -1, % -3, , % -2, % Grants 2, % % 2, , % 1, % Programme % % % Project % % % % Basket Support % % % % MDRI (IMF) % % % % MCC - USA % % % Overall deficit after grants -1, , % % -1, , % -1, % Expenditure Float % % Overall Balance -1, % % -1, , % -1, % Financing 1, % % 1, , % 1, % Foreign (net) 1, % % 1, , % % Programme Loans % % % Project Loans % % % % Basket Support % % % % Amortisation Foreign % % % % Domestic (net) % % % % Net Domestic Financing % % % % Bank Borrowing % % % % Non-Bank Borrowing % % 1.1 Borrowing/Roll over % N/A % N/A Amortisation of contingent debt % 0.0 Domestic amortisation/rollover % N/A % N/A Privatisation proceeds % 45-79% Source: Ministry of Finance and Economic Affairs