Experts urge reduced reliance on foreign aid


What you need to know:

  • While Tanzania strives for economic resilience, reducing dependency on external funding remains crucial for long-term stability and growth.

Dar es Salaam. Budget stakeholders have urged the government to minimise reliance on foreign aid in funding the national budget to enhance the country’s economic stability during critical times such as global conflicts and disease outbreaks.

They said global conflicts such as ongoing Russia-Ukraine as well as Israel and Hamas coupled with disease outbreaks as witnessed during Covid-19 could lead to an unprecedented shift of priorities among development partners.

Ernst and Young senior manager, Mr Fredy Rugangila, issued the advice on Friday, June 14, 2024, when presenting the institution’s budget analysis.

He said despite ongoing efforts to boost domestic revenue collections, such as improving tax laws to enhance compliance, the government significantly relies on external funding.

 “There are ongoing initiatives to expand local revenue streams, including empowering local councils to seek additional sources of income. However, diversifying the revenue base and reducing dependence on foreign aid should be a priority,” he said.

 Furthermore, he said recent crises involving Russia-Ukraine and the situation in Gaza have led European countries to shift their economic priorities to those areas, hence adversely affecting stability and aid remittance to developing countries, including Tanzania.

The government on Thursday, June 14, 2024, tabled in Parliament its Sh49.35 trillion budget for the 2024/25 fiscal year.

The budget shows that 30 percent of the total budget was expected to be funded through grants and loans.

According to the document, 67 percent of the total budget would be financed from domestic revenue collections, while three additional percent was expected to come from local government authorities.

Mr Rugangila emphasised the government's need to achieve budgetary self-sufficiency in funding critical infrastructure projects like the Standard Gauge Railway (SGR) and Julius Nyerere Hydropower Project (JNHPP).

However, he acknowledged the country’s dependence on foreign aid and strategic loans due to insufficient domestic revenue sources, noting that ongoing efforts should expand local revenue streams and reduce reliance on foreign aid.

Initiatives that include empowering local councils to generate more income and broaden the tax base through increased voluntary compliance should be promoted.

“These measures are part of a broader strategy to achieve economic stability and reduce vulnerability to global economic fluctuations,” he said.

Ernst and Young country managing partner Joseph Sheffu said efforts to streamline tax collection through Electronic Fiscal Devices (EFD) and penalise negligence-related incidents underscore the government's commitment to fiscal discipline and public safety.

“As Tanzania navigates these economic challenges, the main thing remains to reduce dependency on external funding for sustainable growth and stability,” he said.

He said the national budget, which was scaled up to Sh49.35 trillion, reflects a 10 percent increase to stabilise the economy post-Covid-19 and global conflicts, targeting 5.4 percent growth by 2025.

He said while Tanzania strives for economic resilience, reducing dependency on external funding remains crucial for long-term stability and growth.

Meanwhile, Oasis Financial Services Limited has advised the government to avoid increasing tax on motor vehicles that use compressed natural gas (CNG) to attract more users.

During a budget analysis meeting held on Friday, June 14, 2024, Oasis Financial Services Limited, chief executive officer, Mr Stambuli Myovela, said rushing for a tax increase on motor vehicles using CNG would discourage the transition.

“The government shouldn’t rush for tax collection from this new source of revenue because of the low number of motor vehicles using the new and cleaner energy,” he said.

The observation comes following the government’s proposal to amend the Road and Fuels Tolls Act CAP 220 to charge Sh382 per kilogram of CNG used by motor vehicles.

Tabling the Sh49.35 trillion 2024/25 budget, Finance Minister Dr Mwigulu Nchemba said the measure is intended to increase government revenue to be used for road repair and maintenance.

“This measure also aims at creating equity with vehicles using petroleum products that make significant contributions in the maintenance and repair of roads through fuel levy,” he said.

He said the arrangement is expected to be managed by a special committee, which will be formulated by the minister responsible for energy in collaboration with his finance counterpart.

The duo will propose an amount to be set aside based on the average market price at that particular time, therefore increasing the government’s revenue available for road construction, repair, and maintenance.

Oasis tax manager, Mr Frederick Kachira, said the 2024/25 budget is encouraging, noting that it was an opportunity for local manufacturers to increase production of goods.