by Dr Hildebrand Shayo
2023/2024 budget amid thorny audit report
Tanzania’s national 2023/2024 budget debate is gaining thrust at a time when numerous flaws have been exposed by the 2021/22 report of the Controller and Auditors General (CAG), in addition to the global economic outlook that remains thought-provoking, flimsy, and unclear. The Russian vs Ukraine situation that is impacting other major economies might make this year’s 2023/2024 budget tricky.
The 2023/2024 national budget debate likewise is taking place at a time when capital markets are not functioning efficiently, and unemployment continues to persist as a major concern both at the national and global levels, but nationally at the time when the sixth phase government has been more transparent and embarrassing openness something which led to exposing the number of losses in government expenditure and revenue collection.
In these circumstances, advanced economies and important emerging nations such as Tanzania will be facing difficult policy choices, to strike a balance between the imperative of fiscal consolidation and the need for sustainable economic recovery and growth.
For emerging and rising economies, the road to a sustained recovery will continue to be challenged by several key concerns comprising capital inflows volatility, risks of domestic credit and asset price bubbles, commodity price instability, especially fuel and food prices, and inadequate resources. This will be coupled with limited fiscal space and large development needs, containing the need to achieve the MDGs.
Evaluation of economic trends and performance signals that the global economy will continue to struggle financially. Despite the realisation of unprecedented macroeconomic policy responses, including monetary and fiscal measures undertaken, uncertainties will continue regarding the path to economic recovery partly coping with the effects of Covid and the ongoing war between Russia and Ukraine.
All is happening when the global economy continues to grapple with financial market fluctuations and macroeconomic imbalances, that is leading to increasing vulnerabilities in global economic recovery and weakening employment prospects across many economic sectors.
Against this setting, world output growth is projected to decelerate from an estimated 3.0% recorded in 2022 to 1.9% in 2023, indicating the world will have one of the lowest growth rates in recent decades. This makes the world economic situation and projection for the remaining 2023 present a gloomy and uncertain economic outlook.
Similarly, growth in cutting-edge economies has already declined from 5% recorded in 2021 to 3.8% in 2022 and 2.3% projected in 2023 a pace that, while moderating, will be satisfactory to restore output and investment to cope with the post-pandemic trend and impact of the on-going war in Russia and Ukraine.
Economic output in the US is expected to slow early this year in response to last year’s sharp rise in interest rates. Nonetheless, the output is expected to start growing again during the second half of 2023 as falling inflation might permit the Federal Reserve to cut interest rates, which would likely cause a rebound in sectors of the economy that are sensitive to interest rates. Further, US domestic consumption, the major driver of economic growth, is still sluggish as the foreign inflow starts to decline wary of emerging market uncertainty after the failure of three banks in the US during the last month of March 2023.
In Europe, the weak banking sector limits credit supply and hampers the pace of economic recovery. Households and firms across the euro area are currently feeling the effects of higher inflation and weaker economic activity, amid the ongoing energy crisis prompted by the war in Ukraine.
According to the European Central Bank’s November 2022 financial stability review, the deterioration in economic and financial conditions has increased the risks to euro area financial stability and how this might negatively affect emerging markets and developing countries through trade and financial channels thus adding to domestic weaknesses.
GDP growth in Germany, the largest economy in Europe, has increased by 1.8% in 2022. Notwithstanding high inflation, growth has been supported by the boost in demand that followed the post-pandemic reopening of the economy, and in particular, services although by the third quarter of 2022, investment and private consumption had not yet reached their pre-pandemic levels that led to a decreased in the fourth quarter with real GDP contracting by 0.2%. The weak private demand is the main factor behind this weak performance and the prolonged output gap.
On average, the BRICS group of five major emerging economies-Brazil, Russia, India, China, and South Africa has grown strongly since its inception in 2006. Accounting for 23% of the global economy, 18% of trade in goods and 25% of foreign investment, BRICS nations have formed an important force that cannot be ignored in the world economy. BRICS economies imply that the irresistible rise of emerging markets and developing countries has injected strong impetus to the reform of the global economic governance system that will have a considerable impact on other nations’ planning.
Tanzania’s 2023/2024 national budget partly relies on development partners’ support, which is of course affected by global dynamics. And in addition, the recent CAG’s report has recommended serious action to be taken since currently, global economic growth is slowing amid a gloomy and more uncertain outlook.
Tanzania’s parliament will debate budgeting issues of respective sectors for a few months when the world’s three largest economies are stalling, with important consequences for the global outlook with inflation remaining a major concern.
Inflationary risks will remain high due to both external and domestic influences. The external risks will be associated with the possibility that the international financial crisis may persist, while the domestic risks will be associated with a context of slower demand due to the slow growth in private sector activities and low-capacity utilisation in many sectors.
All in all, higher-than-expected, although global inflation has been revised in part due to rising food and energy prices, especially in the United States and major European economies, will continue to trigger a tightening of global financial conditions and this will have further negative spill-overs from the war in Ukraine and as a result, global output will be affected enormously.
This year, inflation is anticipated to reach 6.6% in advanced economies and 9.5% in emerging and developing economies. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labour markets. These issues are critical to Tanzania as honourable MPs debate national budget for 2023/2024.