THE UNITED REPUBLIC OF TANZANIA

Transcription

1 THE UNITED REPUBLIC OF TANZANIA MINISTRY OF FINANCE AND PLANNING GUIDELINES FOR PREPARATION OF PLANS AND BUDGETS 2019/ /22 DECEMBER, 2018

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3 PART I MEDIUM TERM POLICY AND BUDGET FRAMEWORK iii

4 TABLE OF CONTENTS PART I... iii MEDIUM TERM POLICY AND BUDGET FRAMEWORK... iii LIST OF ACRONYMS... vii CHAPTER ONE... 1 REVIEW OF THE BUDGET IMPLEMENTATION FOR 2017/ Introduction Budget Performance for 2017/ Domestic Revenue Expenditure Deficit Financing Review of Budget Performance for Selected Sectors and Strategic Projects... 3 CHAPTER TWO... 8 MEDIUM TERM MACROECONOMIC REVIEW AND PROJECTIONS Introduction Recent Economic Developments GDP Rebasing from 2007 to GDP Growth Inflation Developments Inflation in East African Community Monetary and Credit Developments Exchange Rate Developments Banking Sector Performance National Debt External Sector Performance Medium Term Macroeconomic Outlook and Projections Global Economic Growth and Outlook Medium Term GDP Growth Projections Sectoral Growth Outlook Medium Term Inflation Projections Monetary Outlook External Sector Outlook CHAPTER THREE MEDIUM-TERM BUDGET FRAMEWORK iv

5 3.1. Introduction Revenue Policy and Projections Domestic Revenue Policies Domestic Revenue Projections Medium Term Expenditure Policy and Projections Expenditure Policies Expenditure Projections Expenditure Projection by Economic Classification (2019/ /22) Expenditure Projection by Classification of Functions of Government (CoFoG) (2019/ /22) Grants and Financing Domestic Sources External Sources Financing Projections Medium Term Priorities Fostering Economic Growth and Industrialization Human Development Improving the Business and Investment Environment Enhancing FYDP II Implementation Effectiveness CHAPTER FOUR MEDIUM TERM FISCAL RISKS Introduction Risk Related Factors Risk Mitigation Measures Annex I:Overview of Expenditure by Divisions and Groups of CoFoG Annex II:NON-TAX REVENUE COLLECTIONS FOR 2017/ Annex III:BUDGET EXECUTION BY VOTES IN 2017/ PART II GUIDELINES FOR PREPARATION OF PLANS AND BUDGETS 2019/ / CHAPTER ONE... 1 GUIDELINES FOR PREPARATION OF PLANS AND BUDGETS FOR 2019/ / Resource Envelope and Expenditure Framework... 1 v

6 Resource Envelope Expenditure Framework Preparation of Plans and Budgets Budget Committees Roadmap for Plans and Budgets Preparation Budget Scrutinization Consolidation of Government Budget Estimates Public Private Partnership (PPP) Data Entry into the Centralized Budget Management System (CBMS) and Planning and Reporting System (PlanRep) Other Issues to be Considered During Plans and Budgets Preparation Specific Instructions for RSs & LGAs Specific Instructions for RSs Specific Instructions for LGAs Monitoring, Evaluation and Performance Reporting Monitoring, Evaluation Performance Reporting Conclusion CHAPTER TWO PLANNING AND BUDGETING, IMPLEMENTATION AND REPORTING FORMS Introduction Plan and Budget Preparation Budget Implementation Performance Reporting vi

7 LIST OF ACRONYMS ADP AIDS ARVs ASDP ATCL BOT CBMS CBR CDR CFR CFS CHF CoFoG DART DCF DPs DPOs DSA EAC EFD EFDMS ENCB EOI EU FFARS FYDP GePG GBS GDP GFS GPSA HIV ICT IDRAS IFMS IMF JNIA KIA LGAs M3 MDAs MoFP MTEF Annual Development Plan Acquired Immune Deficiency Syndrome Antiretrovirals Agricultural Sector Development Programme Air Tanzania Company Limited Bank of Tanzania Centralized Budget Management System Central Bank Rate Council Development Reporting Council Financial Reporting Consolidated Fund Services Community Health Fund Classification of Functions of Government Dar es Salaam Rapid Transit Development Cooperation Framework Development Partners Development Policy Operations Debt Sustainability Analysis East Africa Community Electronic Fiscal Device Electronic Fiscal Device Management System External Non-Concessional Borrowing Exchange of Information European Union Facility Financial Accounting and Reporting System Five Year Development Plan Government electronic Payment Gateway General Budget Support Gross Domestic Product Government Finance Statistics Government Procurement Services Agency Human Immunodeficiency Virus Information Communication Technology Integrated Domestic Revenue Administration System Integrated Financial Management Systems International Monetary Fund Julius Nyerere International Airport Kilimanjaro International Airport Local Government Authorities Extended Broad Money Supply Ministries, Independent Departments and Agencies Ministry of Finance and Planning Medium Term Expenditure Framework vii

8 MW NACSAP NBS NFRA NHIF NPLs O&OD OC OPEC OTR PE PIM-OM PISCs PlanRep PMG PMO PO-PSMGG PO-RALG PPRA PPP PV REA RSs SADC SAGCOT SDGs SIDO SME SRGP SSA TANESCO TAZARA TEA TDV TMX TRA TRL TTCL USD VAT VICOBA WEO Mega Watts National Anti-Corruption Strategy and Action Plan National Bureau of Statistics National Food Reserve Agency National Health Insurance Fund Non-Performing Loans Opportunities and Obstacles to Development Other Charges Organisation of Petroleum Exporting Countries Office of the Treasury Registrar Personnel Emoluments Public Investment Management Operational Manual Public Institutions and Statutory Corporations Planning and Reporting Database Paymaster General Prime Minister s Office President s Office, Public Service Management and Good Governance President s Office Regional Administration and Local Government Public Procurement Regulatory Authority Public Private Partnership Present Value Rural Electrification Agency Regional Secretariats Southern Africa Development Community Southern Agriculture Growth Corridor of Tanzania Sustainable Development Goals Small Industries Development Organisation Small and Medium Enterprise Strategic Revenue Generating Projects Sub Saharan Africa Tanzania Electric Supply Company Limited Tanzania Zambia Railways Authority Tanzania Education Authority Tanzania Development Vision Tanzania Mercantile Exchange Tanzania Revenue Authority Tanzania Railways Limited Tanzania Telecommunications Company Limited United States Dollar Value Added Tax Village Community Banks World Economic Outlook viii

9 CHAPTER ONE REVIEW OF THE BUDGET IMPLEMENTATION FOR 2017/ Introduction 1. This chapter highlights performance on Government revenue, expenditure and financing component for 2017/18. The assessment is made by comparing actual performance against the corresponding targets during the period. Further, review is made on specific selected ongoing projects and other Government initiatives in terms of actual expenditure against estimates and achievements recorded during the period Budget Performance for 2017/18 2. In 2017/18, the Government took various policy and administrative measures to enhance domestic revenues. Measures taken include: strengthening tax administration; control leakages of revenue from existing tax sources; widening the tax base; enhancing use of ICT in tax administration; and strengthening the use of Government electronic Payment Gateway (GePG). On the other hand, Expenditure Policies focused on aligning revenue with expenditure priorities and management of public expenditure through enforcement of Budget Act, CAP 439. The budget performance is narrated in subsequent subsections below Domestic Revenue 3. In 2017/18, the Government collected Shillings 17,944.9 billion, equivalent to 90 percent of the annual domestic revenue target of Shillings 19,977.0 billion. Out of the amount collected, tax revenue was Shillings 15,191.0 billion, equivalent to 89 percent of the estimates of Shillings 17,106.3 billion, non-tax revenue was Shillings 2,212.4 billion, equivalent to 101 percent of estimates of Shillings 2,183.4 billion and LGAs own source was Shillings billion, equivalent to 79 percent of estimates of Shillings billion. The domestic revenue collected in 2017/18 increased by 7 percent compared to Shillings 16,639.8 billion collected in 2016/17. The increase is a result of the efforts taken by the Fifth Phase Government to enforce revenue collection measures Expenditure 4. In 2017/18, Government expenditure amounted to Shillings 25,321.7 billion which is 80 percent of estimates of Shillings 31,711.9 billion. Out of that, Shillings 18,778.5 billion were Recurrent Expenditure equivalent to 93 percent of estimates of Shillings 20,279.3 billion and Shillings 6,543.2 billion were Development Expenditure equivalent to 57 percent of estimates of Shillings 11,432.7 billion. 1

10 (a) Recurrent Expenditure 5. The recurrent expenditure comprises of Personal Emoluments (PE), Debt Service and Other Charges (OC). In 2017/18, Recurrent Expenditure was Shillings 18,778.5 billion, equivalent to 92.6 percent of estimates. Out of that, PE was Shillings 6,338.1 billion, equivalent to 88 percent of the annual estimate of Shillings 7,205.8 billion, expenditure on Debt Service was Shillings 8,133.1 billion, equivalent to 99.9 percent of estimates of Shillings 8,140.4 billion and OC was Shillings 4,307.3 billion which is 92 percent of estimates. (b) Development Expenditure 6. The development expenditure for 2017/18 was Shillings 6,543.2 billion which accounts for 57 percent of estimates of Shillings 11,432.7 billion. Out of the total development expenditure, Shillings 5,068.8 billion were locally financed which is 62 percent of estimates of Shillings 8,179.1 billion and Shillings 1,474.4 billion were externally financed equivalent to 49 percent of estimates of Shillings 3,029.8 billion. The foreign financed development expenditure does not include some of funds from Development Partners (DPs) which were directly disbursed to the projects outside the exchequer system. The funds will be accounted for when the accounting procedures are completed Deficit Financing (a) Concession Loans and Grants 7. In 2017/18, actual disbursements were Shillings 2,466.0 billion, equivalent to 62 percent of the total external resources commitments (Shillings 3,971.1 billion). GBS disbursements amounted to Shillings billion (equivalent to 26 percent of estimates of Shillings billion), Basket Funds were Shillings billion (equivalent to 34 percent of estimates of Shillings billion) and project funds amounted to Shillings 2,030.5 billion (equivalent to 82 percent of estimates of Shillings 2,473.8 billion). The underperformance of General Budget Support and Basket Funds was due to delayed submission of Programme implementation report regarding Development Policy Operations (DPOs) which prolonged negotiations and signing of new GBS programme. In addition, it took more time than expected for negotiations and reaching consensus on disbursements triggers for energy sector between World Bank and Government. 8. In order to improve partnership between Government and Development Partners, the Government adopted the Development Cooperation Framework (DCF) and its Action Plan (API-DCF). The DCF aims at having a dialogue that improves mobilization of foreign funds. The framework further emphasizes on respecting the 2

11 foundations of partnership, one of them being predictability of commitments for General Budget Support. These measures are aimed at restoring sustainability of the budget and ensuring predictability of resources in the medium term. (b) Non-Concessional Borrowing 9. During 2017/18, the Government managed to borrow Shillings 7,055.8 billion (equivalent to 90.9 percent) of the target of Shillings 7,763.9 billion. Out of that, Shillings 1,351.5 billion was from external non-concessional sources and Shillings 5,704.4 billion was from domestic market. Out of total domestic borrowing, Shillings 4,835.2 billion was for financing rollover of matured treasury bills and bonds and Shillings billion was new loans for financing development budget Review of Budget Performance for Selected Sectors and Strategic Projects 10. This section narrates on-going strategic projects and Government initiatives as identified under National Five-Year Development Plan, 2016/ /21, that focus on nurturing industrialization for economic transformation and human development. The earmarked projects are implemented in the following sectors: Agriculture, Transport, Health, Education, Water and Energy. 11. Agriculture, Livestock and Fisheries: In recognizing the contribution of agriculture sector in poverty reduction, Government intervention focused on: improvement of agricultural produce, livestock, and fisheries; value addition and modernization of agricultural activities through training, provision of inputs and extension services. The recorded achievements in this sector for 2017/18 were: (i) Launching of Agricultural Sector Development Program Phase Two (ASDP II): aimed at transforming the agricultural sector (crops, livestock & fisheries) through raising productivity, commercialization level and smallholder farmer income for an improved livelihood, food security and nutrition; (ii) Improvement on the Accessibility of Agricultural Input: access to improved seeds increased to 51, tons in 2017/18 from 36,482 tons in 2015/16, while 435,178 tons of fertilizers were purchased and distributed in 2017/18 compared to 302,450 tons purchased in 2015/16; (iii) Strengthening Cooperatives and Agricultural Marketing: the Government continued to strengthen marketing systems including the Cooperatives Societies by also extending the application of the system to cover five strategic crops (i.e. cashew nuts, tobacco, coffee, tea and cotton). As a result, the number of Cooperatives Societies increased from 7,888 in 2015 to 10,990 in Further, the Government efforts to strengthen Warehousing Receipt System has increased produce prices (Cashew nuts from Shillings 2,500 per kilogram in 2016/17 to Shillings 4,100 in 2017/18, Tea leaves from 251 to 314 3

12 Shillings per kilogram, Sisal fibre from Shillings 2.2 million per ton in 2015/16 to Shillings 3.3 million in 2017/18, Sesame from Shillings 1,200 per kilograms in 2015/16 to 3,770 Shillings in 2017/18); (iv) Construction of two charcoal dams at Olyapasei (Kiteto) and Kwamaliga (Kilindi) as well as Masusu dam in Ngorongoro District; (v) Production and distribution of 28,427,100 doses of Newcastle vaccine, 882,100 doses of Anthrax vaccine, 128,600 doses of Contagious Bovine Pleuropneumonia vaccine and 625 doses of brucellosis vaccine; and (vi) Food Storage: in 2017/18, the Government through the National Food Reserve Agency (NFRA) purchased 26,038.6 tons of maize to ensure food availability. Further, during the period, the Government completed the rehabilitation of 105 warehouses capable of storing 31,500 tons. 12. Construction of Standard Gauge Railway Line: the implementation of phase one of the project from Dar es Salaam to Morogoro (300 km) has reached 24 percent. The activities carried out include construction of project access roads (for mobility of people, machines and equipment); design of station and other buildings; construction of sleepers; topographic surveying; and construction of bridges and track foundation. The total amount released during the period under review was Shillings billion which is 100 percent of the budgeted amount. Phase two which involves a section of Morogoro to Makutupora-Dodoma (422 km) is in progress. The ongoing activities include land acquisition, site establishment and mobilization and design. 13. Construction of 2,100 MW Rufiji Hydro Power Project: in 2017/18, the Government continued with implementation of preliminary works to facilitate the commencement of construction of 2,100 MW Rufiji Hydro Power Project. On-going activities include construction of a 33 kv transmission line from Dakawa (Morogoro) to the project area and procurement of contractor for implementation of the project. 14. Expediting Rural Electrification: a total of Shillings billion was spent in 2017/18 which is equivalent to 81 percent of estimates of Shillings billion. Consequently, a total of 557 villages were electrified through implementation of rural electrification projects under REA Phase III. This programme has enabled 903 Institutions, 1,983 schools, 1,743 business areas and 19 medical laboratories to access reliable electricity up to August, Construction of Julius Nyerere International Airport Terminal III: the actual expenditure in 2017/18 was Shillings billion and the project implementation reached 78 percent and is expected to be completed in May The activities 4

13 accomplished during the year under review include; Construction of apron and tax ways (227,000 SQM) with capacity to accommodate 30 planes at once; installation of nine (9) escalators, two (2) travellators and 13 passengers boarding bridges; construction of car parking area with a capacity of 2,075 cars at once; construction of 1.8 km entry and exit pass ways; construction of security fence and safe water and sewage systems. Other completed activities include: construction of water tank with the capacity of 2.26 million litres; construction of power stations (33 kv substation); elevation of 14 lifts and seven (7) standby generators (2,000 kva each); construction of air fuel hydrants system and installation of safety and security systems. 16. Strengthening Air Tanzania Company Limited (ATCL): the Government continued to strengthen the national carrier in order to improve domestic and international air transport services. In 2017/18, one Bombardier Q400 Aircrafts with the capacity of carrying 76 passengers and one Boeing Dreamliner with capacity of carrying 262 passengers were procured and commenced operations. This will increase efficiency in the operations of ATCL and enable provision of reliable and affordable domestic air transport services. In addition, direct international flights will lower the travel costs and increase the number of tourist arrivals, hence raising the contribution of tourism sector to economic growth. 17. Water: in 2017/18, Shillings billion were disbursed through National Water Investment Fund, equivalent to 95 percent of estimates of Shillings billion for implementation of urban and rural water projects in 59 District Councils, 19 Water Authorities, and 24 projects overseen by the Ministry of Water and Irrigation in the regions. As of June 2018, a total of 1,493 rural water projects were completed and 21,321,500 people benefited countrywide. 18. Minerals: review of mining acts so as to enable the country to maximize benefits from its mineral resource; construction of a wall with a perimeter of 24.5 km around the Mirerani Tanzanite mines; increased non tax revenues in minerals to Shillings billion in 2017/18 as compared to the target of Shillings billion; completion of Rwamgasa centre of excellence in Geita region for training of small scale miners; ongoing construction of seven (7) centres of excellence in Bariadi, Musoma, Bukoba, Mpanda, Chunya, Songea and Handeni for training of small scale miners; and establishing procedures for mining licence holders to use goods and services produced locally so as to increase employment opportunities to the people. 19. Fee - Free Basic Education: the Government continued to implement Fee Free Basic Education Policy whereby Shillings billion were released in 2017/18. This led to increased enrolment of Standard One pupils from 1,568,378 pupils in 2015 to 5

14 2,078,379 pupils in In addition, enrolment of form one students in secondary education increased from 448,826 students in 2015 to 562,695 students in The increased enrolment went hand in hand with the increased number of primary schools from 17,174 in 2016 to 17,596 in 2017 and secondary schools from 4,759 in 2016 to 5,196 in Higher Education Students Loans: in 2017/18, the number of students who benefited from Higher Education Students Loans were 122,623 compared to 116,205 students in 2016/17. Expenditure in 2017/18 amounted to Shillings billion compared to Shillings billion in 2016/17. The decrease in expenditure was on account of improved controls in the criteria for enrolment and issuance of students loans, deregistration of some of Higher Learning institutions, deletion of some courses and reviewing of new criteria for accessing students loans. 21. Construction and Rehabilitation of Old Secondary Schools and Houses for Education Workers: in 2017/18 Tanzania Education Authority (TEA) implemented various projects including: rehabilitation of 10 old Government secondary school (Shillings 18.7 billion); construction of 70 houses for education workers for schools located in hard to reach and marginal areas (Shillings 4.2 billion); and strategic support to higher learning institutions and secondary schools to improve availability of learning and teaching materials as well as infrastructure focusing on dissemination and maintaining equity in education (Shillings 3.1 billion). 22. Health: achievements realised in improving health services are as follows: (i) Increase in budget for medicines from Shillings 31 billion in 2015/16 to Shillings 270 billion in 2018/19 and thus increase availability of essential medicines in health facilities from 35 percent in 2015 to 89.6 percent in 2018/19. In addition, the Government has strengthened distribution system of medicines from Medical Stores Department to health facilities by procuring 181 distribution trucks; (ii) Strengthening specialized treatment services by improving health facilities, procurement of modern medical equipment, and therefore reducing the number of referrals for patients seeking treatment abroad from 553 patients in 2015 to 103 patients in Further, from July 2017 to October 2018, a total of 28 patients underwent kidney transplant and therefore reducing the cost from an average of Shillings 100 million to Shillings 20 million per patient if the patients were sent abroad for treatment. In addition, a total of 11 children had Cochlear Implant and therefore saving Shillings 64 million per child if they had received similar treatment abroad; (iii) Strengthened specialized high-tech heart services at Jakaya Kikwete Cardiac 6

15 (iv) (v) (vi) (vii) (viii) (ix) Institute (JKCI), whereby in 2017/18, 770 patients underwent cardiac catheterization compared to 276 patients in 2016/17. Further, 275 patients underwent cardiovascular surgery compared to 130 patients in 2015/16; Continued improvement of specialized cancer treatments whereby Ocean Road Cancer Institute procured two (2) radiation therapy machines. This has contributed to reduce waiting time for new patients starting radiation therapy from 6 to 2 weeks. In addition, availability of anti-cancer medicines at the institute has improved from 4 percent in 2015 to 85 percent in July 2018; Improvement of infrastructure in 210 health centres by constructing theatres, maternity wards, laboratories and staff houses so as to reduced maternal mortality. This has enabled increase in the number of health facilities providing quality Maternal, New born and Child Health services from 117 centres in 2015 o 327 centre in 2018; Continue implementing the HIV/AIDS prevention strategy. Mother to child transmission of HIV has reduced from 7.6 percent in 2015 to 4.8 percent in 2018; From 2015/16 to 2017/18 Malaria infections decreased from 14 to 7 percent. Further, in preventing and controlling malaria infections, the Government distributed 31,916,335 free insecticide-treated nets countrywide; Establishment of 72 new treatment centres for chronic tuberculosis from the only Kibong'oto hospital in 2015 and therefore improving services to the people. In addition, 209 Gene Expert Machines with ability to provided TB results in 2 hours compared to CT Scan machines that give results after 48 hours were purchased and distributed; and Increased number of health workers by 10,405 from 2016/17 to 2017/18. In addition, 612 health workers were sponsored for bachelors and master s trainings within the country and abroad. 7

16 CHAPTER TWO MEDIUM TERM MACROECONOMIC REVIEW AND PROJECTIONS 2.1. Introduction 23. In 2018, the National Bureau of Statistics (NBS) conducted a GDP rebasing exercise by reviewing the nominal GDP value from base year 2007 to The rebasing of the national accounts series implies replacement of the old base year used for compiling the constant price estimates to a new and more recent base year. This exercise is in line with the United Nations Statistical Commission, which advises the member states to conduct GDP rebasing once in every five years. 24. Generally, the rebasing exercise did not result into drastic changes in the structure of the economy with agriculture, trade and construction remaining the top GDP contributors. In the first half of 2018, macroeconomic performance of various indicators has been favourable suggesting growth in economic activities. This chapter dwells in recent macroeconomic performance and gives out an outlook of the medium-term projections Recent Economic Developments GDP Rebasing from 2007 to The result of the rebasing exercise shows that, the nominal GDP value for the new base year 2015 was revised upward by 6.3% to Shillings 96,537.3 billion from Shillings 90,854.2 billion in 2007 base year. Generally, there were no drastic changes in the structure of the economy with agriculture, trade and construction remaining the top GDP contributors GDP Growth 26. Over the past five years ( ), the economic performance remained buoyant with real GDP growing by an average of 6.9 percent. In 2017, GDP continued to record the highest growth in the region by 7.1 percent compared to 7.0 percent in 2016 followed by Rwanda (6.1 percent); Kenya (4.8 percent); Uganda (4.5 percent); and Burundi (0.0 percent). The economic activities which recorded highest growth in 2017 include: Construction (15.1 percent); Communications (12.5 percent); Public Administration (9.5 percent); and Water Supply (8.5 percent). Agriculture which constitutes the largest share of GDP picked up from 5.6 percent in 2016 to 7.1 percent in 2017 as a result of Government s efforts on: increasing supply of agricultural inputs; equipment; construction of strategic warehouses; expansion of irrigation infrastructure as well as improved weather conditions. 8

17 27. Real GDP grew by 8.4 percent in the first quarter of 2018 compared to 5.7 percent recorded in the corresponding quarter of The growth was supported mainly by increased crop production and stability in transport services. Economic activities which recorded highest growth include: construction (20 percent); information and communication (18.3 percent); public administration and defence (15.5 percent); and professional, scientific and technical activities (11.3 percent). The agricultural activities grew by 7.1 percent. 28. The assessment of leading indicators to growth has signalled a higher GDP performance in the first half of 2018 compared to similar period in The indicators include; credit to private sector, monetary aggregates, value of imported industrial raw materials, and production and consumption-based tax revenue. In addition, the World Economic Outlook (WEO) update report of July 2018 revealed that the global output grew by 3.7 percent in 2017 and is projected to grow by 3.9 percent both in 2018 and 2019 owing to continued improvements in global investments and trade Inflation Developments 29. Headline inflation has continued to be low, and below 5 percent for most of the months of 2017/18, supported by: improved food supply in domestic markets and neighbouring countries; oil price stability in the world market; as well as prudent implementation of the monetary and fiscal policies. In 2017/18, headline inflation eased to an average of 4.3 percent from 5.3 percent recorded in 2016/17. Food inflation averaged at 6.7 percent during the review period lower than 8.5 percent recorded in the corresponding period in 2017 (Chart 2.1). In August 2018, headline inflation recorded the lowest rate of 3.3 percent which has never attained since

18 Chart 2.1: Inflation Developments 12 Headline Food Non-food Core 10 8 Percent Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Source: National Bureau of Statistics Inflation in East African Community 30. The average inflation rate in the East African Community (EAC) region continued to be stable, maintaining single digit in 2017/18. During that period, Rwanda recorded the lowest annual headline inflation of 2.3 percent whereas Burundi recorded the highest annual average headline inflation of 7.1 percent (Chart 2.2). Chart 2.2: Inflation Developments in EAC Monetary and Credit Developments 31. In 2017/18, the Bank of Tanzania continued to sustain an accommodative monetary policy stance which had been implemented from the second half of 2016/17. The aim was to increase credit to the private sector in order to stimulate economic activities. Implementation of accommodative monetary policy focused on enhancing stability of the Overnight Interbank Cash Market Rate by closely 10

19 monitoring the level of clearing balances of banks within a specific range, consistent with its seasonal demand. During that period, the Bank reduced the Discount Rate from 12.0 percent in August 2017 to 9.0 percent and continued to inject liquidity into the economy through different financial instruments in order to meet market liquidity requirements. In addition, with effect from August 2018 the Bank further reduced the Discount Rate to 7 percent. 32. Measures taken by Bank of Tanzania improved liquidity conditions in the money markets, which resulted in the reduction of Overnight Interbank Cash Market Rate to an average rate of 1.69 percent in June 2018 from 4.08 percent in June Similarly, interest rates on Treasury Bills eased to an average rate of 5.59 percent in June 2018 from 7.64 percent in June 2017 (Chart 2.3). 33. Despite the monetary policy measures adopted by the Bank resulted in decline of financial market rates, Commercial Banks lending rates to private sector remained higher while deposit rates declined. Higher lending rates to private sector were largely associated with the rise in risk premium mainly contributed by high level of non-performing loans. Overall deposit rate declined to an average rate of 9.29 percent in 2017/18 compared to an average of 9.61 percent registered in 2016/17. Similarly, twelve-month deposits rate averaged percent compared to percent recorded in 2016/17. During the period, the overall lending rate increased from percent in 2016/17 to percent in 2017/18, while the oneyear lending rate averaged at percent compared to percent recorded in 2016/17. As a result, the spread between one-year deposit and lending rates increased to 7.98 percentage points in 2017/18 from 3.83 percentage points recorded in 2016/17. The higher lending rates were mainly contributed by the commercial banks decision to increase the risk premium to compensate for the higher level of non-performing loans, which could increase the cost of lending by private sector and affect investment in key economic activities. 34. Consistent with accommodative monetary policy stance, Extended Broad Money Supply (M3) recorded an annual growth rate of 7.0 percent in 2017/18, compared to 4.5 percent in 2016/17. This growth was largely driven by sustained moderate growth of credit to the private sector (Chart 2.3). However, the growth rate remained below the period projection of 12.0 percent. 11

20 Chart 2.3: Developments in Monetary Aggregates 30 Extended broad money (M3) Broad money (M2) Credit to the private sector Percent Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Source: Bank of Tanzania 35. In 2017/18, credit to private sector continued to pick-up as a result of implementation of accommodative monetary policy stance and efforts by Commercial Banks to reduce Non-Performing Loans following the Bank of Tanzania directives. The observed recovery in credit was exhibited in personal activities; hotels and restaurants and building and construction which recorded the highest growth rates compared to the similar period in the preceding year (Chart 2.4). The largest share of credit to the private sector was directed to personal activities followed by trade (Chart 2.5). 36. Annual growth of credit to the private sector remained positive at an average rate of 1.2 percent in 2017/18, compared to 7.3 percent in 2016/17. Despite the low average annual growth, credit to the private sector continued to recover slowly reaching year-on-year growth rate of 4.0 percent at the end of June 2018 compared to 1.3 percent registered end of June The highest growth rates were recorded in personal activities, trade and manufacturing. 12

21 Chart 2.4: Annual Average Growth of Banks Credit to Major Economic Activities (Percent) 2016/ /18 Overall credit to private sector* Mining and Quarrying Trade Personal Hotels and Restaurants Manufacturing Building and Construction Agriculture Transport and Communication Source: Bank of Tanzania Note: * Annual percentage change Chart 2.5: Sectoral Distribution of Credit to Major Economic Activities (Percent) 2016/ / Hotels and Restaurants Building and Construction Source: Bank of Tanzania Transport and Communication Agriculture Manufacturing Personal Trade Exchange Rate Developments 37. The value of Tanzanian Shilling against the US Dollar (USD) remained broadly stable throughout 2017/18. This result was consistent with prudent fiscal and monetary policy measures. The Shilling exchange rate fluctuated within a range of Shillings 2, to Shillings 2, per US Dollar in 2017/18 compared to a range of Shillings 2,171.0 to Shillings 2,230.1 per US Dollar recorded in 2016/17. However, for the period of March to May 2018, Tanzanian Shilling experienced a slight depreciation against US Dollar, associated with commencement of low season for traditional exports proceeds and tourism receipts (Chart 2.6). 13

22 Chart 2.6: Nominal Exchange Rate Movements (Shillings/USD) 2300 Exchange rate-period Average TZS/USD Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Source: Bank of Tanzania Banking Sector Performance 38. In 2017/18, the banking sector remained sound and stable with levels of capital and liquidity generally above the legal and regulatory requirements (Table 2.1). During the period, the ratio of core capital to total risk weighted assets and offbalance sheet exposures were 18.2 percent. This was above the minimum legal requirement of 10.0 percent but slightly below the 18.3 percent recorded at the end of 2016/17. In the same period, the ratio of liquid assets to demand liabilities stood at 37.6 percent above the minimum regulatory limit of 20 percent, but slightly below the 38.1 percent recorded at the end of June The quality of the banking sector s assets improved as reflected by the ratio of Non-Performing Loans (NPLs) to gross loans, which declined to 10.2 percent at the end of June 2018 compared to 10.6 percent recorded at the end of 2016/17. Improvement in the ratio of NPLs is partly explained by directives of the BOT to banks with high NPLs ratio to formulate and implement strategies to bring the ratio to at most 5.0 percent. The measures include: improvement of credit issuance; management and recovery of loans; and mandatory usage of credit reference bureau reports during loan appraisal process. 40. In January 2018, the Bank revoked Banking Business Licenses of undercapitalized banks which failed to raise capital to conform to the legal minimum requirement after the lapse of the five-year moratorium. These were Covenant Bank for Women (Tanzania) Limited, Efatha Bank Limited, Njombe Community Bank Limited, Kagera Farmers Cooperative Bank Limited, and Meru Community Bank Limited. In addition, in May 2018, Twiga Bancorp Ltd was merged with TPB Bank in order to address undercapitalization problem of the former. 14

23 Table 2.1: Banking Sector Financial Soundness Indicators (Percent) Indicator Regulatory limit Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Capital adequacy Core capital to total risk weighted assets and off-balance sheet exposures Minimum Liquidity Liquid assets to demand liabilities Minimum Total loans to customer deposits N/A Earnings and profitability Return on assets N/A Return on equity N/A Asset quality Non-performing loans to gross Loans N/A Source: Bank of Tanzania National Debt 41. As of end June 2018, national debt stock stood at USD 27, million compared to USD 25, million recorded as of end June 2017 equivalent to an increase of 9.6 percent. Out of national debt, public debt stock was USD 23, million and private external debt stock was USD 4, million. The increase in public debt stock was mainly due to new disbursement of external debt for financing development projects as well as issuance of Government Securities for financing budget deficit. (a) National Debt Sustainability 42. The Government Loans, Guarantees and Grants Act, CAP 134, requires the Government to conduct an annual Debt Sustainability Analysis (DSA) which among other things, indicate the trend of various debt sustainability indicators including description of economic situation in different scenarios and recommend measures for maintaining sustainable level of debt. The DSA conducted in November 2017 was assessed using base year GDP 2007 and the results indicated that, all debt burden indicators were below threshold, reflecting that the country s debt level outlook in the short, medium and long term is sustainable. The DSA results are summarized in Table

24 Table 2.2: Debt Sustainability Indicators External DSA Threshold 2017/ / / / / / /38 PV of debt-to GDP ratio PV of debt-to-exports ratio PV of debt-to-revenue ratio Debt service-to-exports ratio Debt service-to-revenue ratio Fiscal DSA PV of Debt-to-GDP Ratio PV of Debt-to-Revenue Ratio N/A Debt Service-to-Revenue Ratio N/A Source: Ministry of Finance and Planning NB: The statistics used are in accordance with Base Year External Sector Performance 43. During the period under review, current account deficit widened by 23.7 percent to USD 1,778.0 million compared to USD 1,437.8 million in 2016/17. This was largely explained by an increase in value of imports of goods and services that offset the improvements in exports of goods and services coupled with a surge in payments in primary income account particularly interest payments. 44. Gross official reserves amounted to USD 5,483.9 million at the end of June 2018 compared to USD 5,000.4 million at end of June 2017, sufficient to cover about 5.6 months of projected import of goods and services. 45. Export value of goods and services increased by 2.8 percent in 2017/18 compared to the value of exports recorded in 2016/17. This development was mainly on account of increase in export value of cashew nuts, cloves, tobacco, tea and sisal by 33.0 percent. The increase in value of exports was also driven by good harvest explained by good weather condition, free and timely supply of farm inputs and other Government initiatives coupled with increased commodity prices in the world market. However, during the period, export values of coffee and cotton declined mainly on account of low export volumes (Table 2.3). 46. During the period under review, exports of gold and manufactured goods increased consistent with the improved commodity prices in the world market. Export of manufactured goods increased to USD million compared to USD million in 2016/17 which is an increase of 8.2 percent. This performance was mainly explained by increase in exports of soap, plastics and paper products. 16

25 47. The value of import of goods and services increased by 4.7 percent from USD 9,701.1 million recorded in 2016/17. The increase emanated from the imports of consumer goods, which went up by 5.7 percent, followed by intermediate goods and industrial raw materials. Table 2.3: Current Account Millions of USD Item 2016/ /18 P Percentage change Good account -2, , Exports f.o.b. 4, , Imports f.o.b. 7, , Services account 1, , Receipts 3, , Payments 1, , Goods and Services , Exports of goods and services 8, , Imports of goods and services 9, , Primary Income account , Receipts Payments , Secondary Income account Receipts o\w: Official inflows Payments Current account balance -1, , Source: Bank of Tanzania 2.3. Medium Term Macroeconomic Outlook and Projections 48. In achieving the desired Government targets, some of the key assumptions essential for macroeconomic projections and policy targets in the medium term (2019/ /22) include: peace, unity, political stability and tranquillity within the country and across the region will be maintained; macroeconomic stability and social economic gains will continue to be improved and sustained, including GDP growth, domestic revenue collection and inflation; stability in the global economy; stability in the world oil market prices; and favourable weather conditions in the region Global Economic Growth and Outlook 49. According to the World Economic Outlook (WEO) report of July 2018, Emerging and Developing Economies GDP growth in 2018 is expected to be

26 percent compared to 4.7 percent in 2017 and continue picking up to 5.1 percent in China s economy is expected to grow by 6.6 percent in 2018 down from 6.9 percent in 2017, while India s economy is expected to grow by 7.3 percent in 2018 from 6.7 percent in Sub-Saharan Africa (SSA) countries growth is expected at 3.4 percent in 2018 compared to growth rate of 2.8 percent in It is further projected that, the SSA economies will sustain the growth momentum to 3.9 percent in Among the East African countries, Tanzania and Rwanda are expected to record the highest economic growth rate of 7.2 percent in 2018, followed by Kenya (5.5 percent); Uganda (5.2 percent); and Burundi to gradually recover and grow by 0.4 percent by 2019 (Table 2.4). Table 2.4: World Economic Growth and Outlook (Percent) Actual Projections World Advanced economies Emerging and Developing Economies Developing Asian Countries China India Sub-Saharan Africa Tanzania Kenya Uganda Rwanda Burundi Source: IMF, July Medium Term GDP Growth Projections 51. Based on the assumption of successful implementation of Government policies under the National Five-Year Development Plan 2016/ /21, GDP growth for 2018 has been projected at 7.2 percent and further up in the medium term, averaging at 7.6 percent (Chart 2.8). The medium-term performance is supported by continued Government efforts to increase and stabilize power supply mainly from hydropower; improvement of transport services; investment in real estate; continued implementation of infrastructural projects; and concerted efforts to transform the economy through industrialization drive Sectoral Growth Outlook 52. Construction is expected to grow at an average rate of 15.1 percent in

27 and 14.4 percent in the medium term, largely driven by on-going major infrastructure projects including construction of the central railway line to Standard Gauge; Ubungo Interchange; expansion of the roads network and bridges; completion of Terminal III at Julius Nyerere International Airport; and expansion of other airports. 53. Manufacturing is projected to grow at 8.0 percent in 2018 and at an average of 7.8 percent in the medium term. The growth is attributed to expected output from various projects including the extensive power supply projects both in rural and urban areas and initiatives by the Government to foster industrial development through creating favourable investment environment to attract Private Sector participation in the industrial development. 54. Mining is expected to grow at 4.0 percent in 2018 and increase to an average of 4.1 percent in the medium term due to expectations of fair revenues on account of improved controls and management of the resource and expectations on stabilization in global gold prices which will increase mining activities. 55. Value addition in Electricity and Gas is projected to be 2.9 percent in 2018 and grow at an average of 3.0 percent in the medium term. This is supported by expected increase in power generation from a mix of energy sources including natural gas, hydro, geothermal, wind and coal as well as stability in distribution in the national grid. Some of the major projects expected to be undertaken include Rufiji Basin Hydropower Project (2,100 MW) and extensive implementation of the Rural Energy Master Plan through Rural Energy Agency (REA) III which is part of the wider Power Sector Master Plan. 56. Transport sub-sector is expected to grow by 6.9 percent in 2018 and an average of 7.1 percent in the medium term. The growth is attributed to expected increase in cargo and passenger transportation through railway, roads and air transport; increase in the capacity and efficiency of the Dar es Salaam, Mtwara and Tanga Ports; and increase in transportation of natural gas through pipeline from Mtwara and Lindi to Dar es Salaam. 57. Hotels and Restaurants is projected to grow at a rate of 2.4 percent in 2018 and pick-up to an average growth of 2.8 percent in the medium term. This is attributed to booming tourism activities evidenced by an increase in the number of international tourists and diversification of tourism products (southern circuit, identification of new areas and heritage tourism); and promotion of local tourism and continued Government efforts to improve tourism supportive infrastructure. 19

28 58. Public Administration is projected to grow at a rate of 9.5 percent in 2018 and thereafter, pick-up to an average of 9.6 percent in the medium term due to expected increase in expenditure on Public Sector Reforms (Public Service Reforms, Local Government Reforms, Legal Sector Reforms, Public Financial Management Reforms, Strengthening Business and Investment Environment and National Anticorruption Strategy and Action Plan), new employments to bridge the existing gap, Government expenditure on the Local Government Elections in 2019 and the General Elections in Chart 2.8: Actual and Projected GDP Source: Ministry of Finance and Planning Medium Term Inflation Projections 59. Inflation is projected to increase to 4.8 percent by end December 2018 following increase in global oil prices as a result of market expectations on declining capacity in Venezuela and United States (US) sanctions against Iran which may impair the planned increase in oil production by OPEC and Non-OPEC countries. Going forward inflation is projected at 5.0 percent through June 2019 and is expected to stabilize at that rate in the medium term on account of: reduction in the production costs due to reliable and affordable power supply; expected stability in global oil prices; prudent fiscal and monetary policies; and favourable weather condition Monetary Outlook 60. In 2018/19, the Bank of Tanzania intends to adopt an Interest Based Monetary 20

29 Policy Framework to safeguard effectiveness and credibility of monetary policy in achieving price stability and sustain high economic growth. In this framework, short-term interest rate will be the operational target rather than quantity of reserve money in monitoring and managing liquidity in the economy. Interest rates will continue to be market determined and the Bank will institute benchmark interest rate (the Central Bank Rate - CBR) which is intended to guide short-term interbank lending rates and thereby influencing the marginal cost of funds for commercial banks. 61. In line with this, the Extended Broad Money Supply (M3) is projected to grow in line with the projected pace of expansion of economic activities and moderate change in velocity of money in circulation. Growth of M3 is expected to pick up to 12.2 percent by June 2019 from 6.0 percent recorded in June 2018, while credit to private sector is projected to grow by about 10.2 percent, up from 4.0 percent. In the medium-term growth of M3 is projected to remain at around 11.5 percent, while credit to the private sector is projected to grow at annual average rate of 9.0 percent External Sector Outlook 62. In 2018/19, the current account balance is projected to record a deficit of 4.3 percent of GDP compared to a deficit of 3.3 percent of GDP in 2017/18. In the medium term, the ratio of current account deficit to GDP is projected at an average of 4.5 percent as growth in imports of goods is projected to be relatively higher compared to exports largely due to an increase in imports relative to exports consistence with expected capital imports for implementation of key infrastructure projects. 63. The ratio of export of goods and services to GDP in 2018/19 is projected at 16.3 percent, which is lower compared to 16.7 percent recorded in the preceding year as GDP growth is expected to outpace the growth of exports. In the medium term, the ratio of export of goods and services to GDP is projected at an average of 12.1 percent. 64. The ratio of import of goods and services to GDP is estimated at 19.6 percent in 2018/19 compare to 18.9 percent recorded in the previous year. The projected increase in imports is consistent with the expansion of economic activities such as implementation of some major investment projects including standard gauge railway, Rufiji Hydropower Project (2,100 MW), and Hoima (Uganda) Tanga Oil Pipeline. In the medium-term, the ratio of import of goods and services to GDP is projected to average about 19.8 percent. 21

30 CHAPTER THREE MEDIUM-TERM BUDGET FRAMEWORK 3.1. Introduction 65. The primary objective of the Government is to formulate and implement sound fiscal policies for taxation and spending that can stimulate investment, economic growth and improve the welfare of the people. In order to achieve the medium-term objectives, fiscal policies will be designed to effectively support implementation of the national development agenda of industrialization and human development. The Government will remain focused on allocation of resources to priority projects that have greater impact on economic growth and revenue generation. In addition, efficient revenue collection, allocation and its management will be supported by Information and Communication Technology (ICT) systems and firm administrative measures Revenue Policy and Projections Domestic Revenue Policies 66. In the medium term, domestic revenue policy objective is to enhance revenue collection by continuing to: (i) Improve business environment in order to encourage investment, growth of small and medium businesses and sustainable economic growth; (ii) Enhance voluntary tax compliance, expansion of the tax base and the adoption of the ICT Systems in Tax Administration; (iii) Strengthen enforcement of tax laws in order to address tax evasion challenges and minimize revenue leakages; (iv) Strengthen non-tax revenue collection by making good use of modern technology and ICT Systems; (v) Streamline multiplicity of levies and fees imposed by various Government Agencies; and (vi) Build capacity through provision of relevant trainings to Ministries, Independent Departments, Agencies and Local Government Authorities officers in order to strengthen their capacity on non-tax revenue collection Domestic Revenue Projections 67. Domestic revenue (including LGAs Own Source) is projected to increase to Shillings 23,206.8 billion in 2019/20 from Shillings 20,894.6 billion in 2018/19 and is projected to increase by an average of 10.1 percent in the medium term to Shillings 28,113.9 billion in 2021/22. The share of domestic revenue to GDP is projected to 22

31 increase from 14.6 percent in 2019/20 to 14.9 percent in 2021/22. Likewise, the share of domestic revenue to total budget is projected to increase from 69.3 percent in 2019/20 to 73.6 percent in 2021/ Tax revenue is estimated to increase by 11.8 percent to Shillings 20,124.1 billion in 2019/20 from Shillings 18,000.2 billion in 2018/19 and thereafter grow by an average of 10.1 percent in the medium term to Shillings 24,385.4 billion in 2021/22. The share of tax revenue to GDP is estimated to increase from 12.7 percent in 2019/20 to 12.9 percent in 2021/ Non-tax revenue (including LGAs own source) is projected to increase to Shillings 3,082.7 billion in 2019/20 from Shillings 2,894.4 billion in 2018/19. Further, it is projected to grow by an average of 10.0 percent to Shillings 3,728.5 billion in 2021/22 with its share to GDP projected at 2.0 percent in the medium term. Chart 3.1: Revenue Projections in the Medium-Term Shillings Billion Source: Ministry of Finance and Planning 70. In order to achieve the projected domestic revenue targets, the Government has designed specific administrative measures that will be implemented in the medium term. The measures include: (i) Implementing an Integrated Domestic Revenue Administration System (IDRAS) so as to enhance efficiency and effectiveness in managing and administering domestic taxes collection; (ii) Expansion of tax base through identification and registration of new tax 23

32 (iii) (iv) (v) (vi) (vii) (viii) payers, reaching out to non-compliant registered taxpayers, coupled with sustained formalization of the informal sector; Upgrading the Electronic Fiscal Device Management System (EFDMS) functionalities to enhance effective management of EFDs usage; Strengthen capacity to curb illicit financial flows by Multinationals through the establishment of the Database for Exchange of Information (EOI); Improving the level of taxpayer service delivery through setting up of Advisory Taxpayer Kiosks in busy business locations; Strengthening the administration of tax exemptions; Strengthening Government electronic Payment Revenue Gateway System (GePG) to ensure efficiency and effectiveness in revenue collections; and Strengthening monitoring mechanisms in Public Entities to ensure timely and appropriate revenue contribution to the Consolidated Fund. Chart 3.2: Composition of the Resource Envelope in the Medium Term (2019/ /22) Shillings Billion Source: Ministry of Finance and Planning 3.3. Medium Term Expenditure Policy and Projections Expenditure Policies 71. The Medium-Term Expenditure Policies will include the following: (i) Ensuring discipline in the public funds spending and continue to reduce 24

33 (ii) (iii) (iv) unnecessary expenditures; Allocation of funds to priority areas in order to stimulate economic growth; Control accumulation of arrears; and Ensuring the budget deficit does not exceed 3.0 percent of GDP Expenditure Projections 72. Government expenditure is projected to grow to Shillings 33,500.2 billion in 2019/20, equivalent to 21.1 percent of GDP from Shillings 32,476.0 billion in 2018/19. Further, it is projected to grow by an average of 6.7 percent to Shillings 38,172.5 billion in 2021/22 equivalent to 20.2 percent of GDP. Chart 3.3: Medium Term Expenditure Trend (2019/ ) (Shs. Billion) Source: Ministry of Finance and Planning 73. Recurrent expenditure is projected to increase by 3.2 percent to Shillings 21,115.8 billion in 2019/20 equivalent to 13.3 percent of GDP and grow by 8.0 percent to Shillings 24,612.6 billion in 2021/22 equivalent to 13.0 percent of GDP. Development expenditure is projected at Shillings 12,384.4 billion in 2019/20 and projected to increase to Shillings 13,559.8 billion in 2021/22. 25

34 Chart 3.4: Medium Term Expenditure Projections by Major Categories (2019/ /22) (Billion Shillings) Source: Ministry of Finance and Planning Expenditure Projection by Economic Classification (2019/ /22) 74. In 2019/20, wages and salaries (including Parastatals Personnel Emoluments) are estimated to be Shillings 7,559.0 billion (equivalent to 33.7 percent of projected Central Government domestic revenue) and projected to increase to Shillings 8,422.7 billion in 2021/22 (equivalent to 31.0 of projected Central Government domestic revenue). Foreign and domestic debt amortization is projected to decrease slightly from Shillings 6,269.7 billion in 2018/19 to Shillings 6,006.4 billion in 2019/20 (equivalent to 3.8 percent of GDP) and projected to increase to Shillings 7,895.0 billion (equivalent to 4.2 percent of GDP) in 2021/ In 2019/20, interest payment is projected to increase to Shillings 2,619.2 billion and increase to Shillings 3,128.7 billion in 2021/22. In the medium term, interest payment is projected to remain at 1.7 percent of GDP. 76. Payment for goods, services and transfers are projected at Shillings 4,931.2 billion in 2019/20 equivalent to 3.1 percent of GDP and increase to Shillings 5,166.1 billion equivalent to 2.7 percent of GDP in 2021/22. 26

35 Chart 3.5: Expenditure Projection by Economic Classification (2019/ /22) (Million Shillings) Source: Ministry of Finance and Planning 77. The drivers of expenditure in the medium term will be the implementation of the on-going strategic projects including: - construction of New Standard Gauge Railway (SGR) line; construction of Rufiji Hydro Power Plant; Revamping of ATCL; operationalization of JNIA Terminal III; Expediting Rural Electrification; Irrigation Schemes, expansion of Dar es Salaam, Mtwara and Tanga Ports; and building of ships and ferries in Great Lakes. Other expenditure drivers will be debt servicing, payment of wages and salaries, implementation of revenue generating projects in LGAs, provision of fee free basic education; Local Government Elections; preparation for the General Elections; construction of Ubungo Interchange; provision of loans to Higher Education Students; and provision of medicines, medical equipment and reagents Expenditure Projection by Classification of Functions of Government (CoFoG) (2019/ /22) 78. CoFoG provides a classification of Government outlays by functions or purpose such as health, education, defence and administration 1. Over the medium 1 According to the United Nations 27