THE BUDGET – AND THE DEBT PROBLEM
The main headline in the Daily News on June 8, 1990, which covered the 1990/91 Budget read ‘TAXES DOWN’. Taxation on salary income was reduced from between 10% and 50% to between 7.5% and 40% minimum taxable income moved up from Shs 1,900 to Shs 2,250 (the current exchange rate is about Shs 330 to £1); the minimum wage was raised by Shs 425 to Shs 2,500; the maximum salary for executives in the super scale category was raised to Shs 22,930 per month.
And so there was some reason for satisfaction amongst taxpayers. People had expected something worse.
But the new Minister- for Finance, Mr Stephen Kibona, made many other changes in his budget designed to create new sources of government revenue, ease tax collection and entice people to use bank accounts and save or invest in the economy. The Bulletin has space for only a summary of the many changes made.
The Minister began his speech with good news on the economic recovery programmes. The increase in production in key sectors of the economy which had been recorded since 1986 had been maintained in 1989 and consumer goods were still available throughout the country. The GDP had grown by 3.9% in 1987, 4.1% in 1988 and was projected to grow by 4.4% in 1989. This compared with an average GDP growth of 1.5% in the years preceding the economic recovery programme.
But, the Minister said, the objective of improving foreign exchange earnings had not made significant headway and the goal of providing drugs and medicines for hospitals and dispensaries, education and water for the people had been only partially achieved. Major problems existed in crop processing and transportation and in management in the cooperative unions and parastatals; there was a lack of accountability and a need to reduce red tape.
THE EXTENT OF TANZANIA’S DEBT
Mr Kibona went on to say that Tanzania had continued to experience serious problems in servicing external debt. Roger Carter has been looking into this problem in some detail and reports that, while Brazi1’s and Mexico’s debts are from private sources, over 931% of Tanzania’s foreign debts are of official origin ie: from governments or inter-governmental bodies. In 1988 Tanzania’s long-term debt amounted to US$ 4,091 million and by December 1989, according to the budget speech, had reached US$ 5,090 million. In 1988 earnings from exports and services were barely a third of the cost of imports and, of those earnings, near1y 18% was paid out for interest and repayments. In 1970 the debt burden had amounted to 20% of the GDP. But by 1988 it had reached 165% or the equivalent of the total wealth created over a period of almost 20 months.
The Minister stated that negotiations with creditor countries to reschedule or cancel debt obligations had proved very useful. Debt amounting to US$ 51 million had been cancelled and US$1,102 million had been rescheduled during the First Economic Recovery Programme (1986/89). During the Second Phase of Economic recovery (1989/92) some US$ 175 million had been cancelled and US$ 270 million was being rescheduled. As Roger Carter points out, Britain and the Scandinavian countries have been converting loans into grants for some years. Multilateral debts, which account for 35% of total long-term debt, consist mainly of World Bank loans incurred in the optimistic late sixties, they carry interest charges of around 8%; IDA (an affiliate of the World Bank) credits charge no interest and there 1s a grace period for repayments of ten years. A scheme has now been evolved for the use of IDA credits for the repayment of capital to the World Bank and in the financial years 1988/89 to 1990/91 about US$ 48 million of IDA money was made available. This met about 70% of the capital repayments due to the Bank during that period. Sweden and Norway have granted US$ 33 million since April 1989 towards the interest element in World Bank debt servicing.
Nevertheless, Tanzania’s debt burden seems likely to increase. Grace periods for IDA repayments will end and completion of earlier repayments for IDA credits still lies some years ahead. On the other hand, repayment of Bank loans will be completed in the next few years. On balance, the servicing of multilateral debts is expected to grow only slightly. Bilateral and private debt servicing however, is expected to increase by something like 35% between 1990 and 1993, yielding by 1993 a total obligation of some US$ 585 million, a figure in excess of Tanzania’s total current export earnings.
OTHER BUDGET HIGHLIGHTS
– to encourage the use of sources of energy other than firewood and charcoal, taxes on electric and kerosene cookers and solar heaters abolished;
– the obligation for visitors to change US$ 50 at airports abolished;
– road tolls abolished except at border posts; extra Shs 2.0 per litre on petrol and diesel;
– customs duty highest rate down from 100% to 60%;
– no change on beer, spirits, soft drinks, cigarettes, sugar;
– to encourage people to use banks, minimum taxable bank interest income raised from Shs 20,000 to Shs 250,000 per year;
– airport service charge for residents increased from Shs 500 to Shs 800; no change for visitors (US$ 20); vehicle registration up from Shs 2,000 to Shs 8,000;
– a new ‘instant’ lottery introduced.
INFLATION
The Minister of State (Planning), Prof Kighoma Malima, told the National Assembly on Budget Day that the rate of price increases for most consumer goods was slowing down. For most towns it was 23.8% in 1989. This meant that the inflation rate had slowed down by 4.5% compared with 1988 and was now the lowest since 1980. However, the rate was above the Economic Recovery target; it had been hoped that the rate of inflation would have been reduced to less than 10% by 1989.
CDC PLANS BIG INVESTMENTS
The Commonwealth Development Corporation (CDC) plans to invest in joint ventures in Tanzania in 1990 in such sectors as agriculture, forestry and tourism according to the CDC Representative in Dar es Salaan The Corporation intended to provide US$ 50 million to rehabilitate the Kagera sugar factory. £ 8.5 million to rehabilitate the coffee industry in the Kilimanjaro and Arusha regions and probably, depending on the result of studies underway, further funds would be made available for tea plantations in Njombe, the improvement of the Kilimanjaro Hotel, and in wildlife lodges in the northern tourist circuit – Daily News