Budget misses key fiscal targets in Q1

02Jan 2018
The Guardian
Budget misses key fiscal targets in Q1
  • • The other expenses category recorded the lowest performance of 11.2 per cent mainly due to the government’s policy to reduce unnecessary expenditure, especially on seminars, workshops and foreign travels

Execution of the current budget in quarter one (Q1) did not turn out as planned as almost all key spending and revenue collection targets were missed with development expenditure suffering the most, Smart Money has authoritatively established.

Despite this fiscal shortcoming, the performance of the 2017/18 financial plan during July-September was better compared to the corresponding period in 2016/17 although by small margins.


Total revenue in Q1, which increased by one per cent to nearly 4.1trn/- compared to collections during the same period in 2016/17, was 15 per cent less of the estimated 4.79trn/- for the quarter. Total government spending during the first quarter increased by 2.7 per cent compared to the performance in the previous fiscal year but the expenditure was equivalent to only 62.9 per cent of the estimated 6.59trn/- for the period.


Treasury attributes the below target performance in the first quarter to several factors, including low disbursement in some votes, which was contributed by underperformance in revenue sources especially non-tax revenue, grants and non-concessional borrowing.


“The below target execution of wages and salaries was mainly on account of low recruitment of new employees than anticipated in the first quarter, while the underperformance in other charges was a result of shortfalls of both domestic and external financing sources,” the Ministry of Finance and Planning notes in a new report.


Development Budget

According to the Budget Execution Report for the First Quarter of 2017/18 (July – September, 2017), financing of the development budget was met by less than 30 per cent.


Briefing journalists in Dar es Salaam on Friday on the state of the economy and budget execution, Treasury chief Dr Philip Mpango said the wanting performance in development spending calls for more efforts to mobilize domestic revenue and curtailing donor dependence, which the government has already started doing.


He said external financing of the budget has been cut from 16.8 per cent during 2014/15 to 12.5 per cent in the current financial year. Projections of external concessional resources in the 2017/18 budget books amounted to 3.97trn/-, of which about 941bn/- were for General Budget Support (GBS); 556.1bn/- were for Basket Funds and Projects Funds amounted to about 2.47trn/-.

“As of end September 2017, total disbursement of external resources amounted to 325.9bn/-. The total disbursed amount is equivalent to 62.3 per cent of the quarter estimate of 522.7bn/-. Out of the total disbursements, basket funds amounted to 58.02bn/-, equivalent to 50.6 per cent of the quarter estimate while project funds amounted to 267.9bn/-, equivalent to 65.7 per cent of the period estimates,” reads the report.

As per the cash flow, there was no disbursement expected for GBS during the first quarter.

“Capital investment (Development) expenditure performance in the first quarter of 2017/18 was below the target due to underperformance of External Non Concessional Borrowing (ENCB) and Development Partners’ delays in disbursements,” it adds.

The total development expenditure was 492.7bn/- equivalent to 27 per cent of the first quarter estimate of about 1.82trn/- of which, local component was 441.9bn/- and foreign component was only 50.8bn/-. Treasury notes that the below par performance in development budget execution calls for more efforts in mobilization of both concessional and non-concessional borrowing as well as increasing domestic revenue collection so as to fill the gap.


Revenue Collection

Total revenue for the first quarter of 2017/18 increased to about 4.06trn/- compared to around 4.03trn/- collected in the corresponding period in 2016/17. Collection for the first quarter of 2017/18 amounted to 85 per cent of the period estimate of nearly 4.8trn/-.


Tax revenue collection was about 3.56trn/- equivalent to 86 per cent of estimates and three per cent increase when compared to the same period in 2016/17. Non-tax revenue was 378.7bn/- against the estimates of 445.9bn/-, equivalent to 85 per cent.


“The government will continue to undertake various policy and administrative measures in order to strengthen and simplify revenue collection. The measures among others will include: strengthen revenue collection systems by applying electronic systems so as to curb revenue leakages and to officially identify informal small businesses and those operating in informal places,” reads the budget execution report.


“The government will continue to designate areas for small vendors to operate thereby will be registered as a way of formalizing their activities. LGA are also encouraged to register petty business traders in their locality so as to capture them in the tax net,” it adds.


Domestic Financing & External Commercial Borrowing

In the 2017/18 budget, the government envisages to borrow about 6.16trn/- from domestic markets through treasury bills and bonds. Out of that, about 4.94trn/- is for rollover of maturing government securities and 1.22trn/- being new loans for financing development expenditure.


During the first quarter of 2017/18, the government raised about 1.65trn/- from the domestic market which was 96.6 per cent of the target of around 1.71trn/-. Out of that, 1.1trn/- was used to rollover matured Government securities and 548.2bn/- were new loans for financing development projects.


The government planned to borrow close to 1.6trn/- in 2017/18 from external non-concessional sources to finance development projects. Up to September 2017, a total of 224.6bn/- was raised from Credit Suisse.


Dr Mpango said the trend of availability of domestic loans in the first quarter was satisfactory and promising compared to the corresponding period last year. He also said that negotiations with other external financiers for funding development projects were ongoing well.


Expenditure Policies and Performance

Expenditure policies during the quarter under review focused on aligning expenditure with the quarter revenue targets, strengthening the control and management of public expenditure through: enforcement of the Budget Act No. 11 of 2015. The Act, whose implementation started during the 2015/16 fiscal year, clarifies roles and responsibilities of key stakeholders in the budget process and strengthens collaboration in the whole process of budget management.


According to the budget execution report, total government spending for the first quarter of 2017/18 increased by 2.7 per cent to about 4.14trn/- from about 4.03trn/- recorded in the corresponding quarter in 2016/17. Out of the total spending during the quarter, about 3.65trn/- was recurrent expenditure which is equivalent to 76.6 per cent of the first quarter recurrent expenditure estimate of almost 4.77trn/-.


During the period, 1.55trn/- spending on wages and salaries missed the expenditure target by 5.7 per cent while other charges (OC) cost 266.6bn/-, equivalent to 48.1 per cent of the quarter target of 554.8bn/-. Expenditure on debt service was about 1.81trn/-equivalent to 89.1 per cent of the first quarter estimate on public debt service of 2.03trn/-.


“First quarter expenditure by economic classification analysis reveals that debt repayment recorded the highest execution rate of 86 per cent followed by interest payment which recorded an execution rate of 81.7 percent,” Treasury notes in the report.


“On the other hand, compensation of employees, grants, use of goods and services and social security benefits followed with performance rate of 68.9 per cent, 53.1 per cent 50.1 per cent and 47.4 per cent respectively. However, the other expenses category recorded the lowest performance of 11.2 percent mainly due to the Government’s policy to reduce unnecessary expenditure, especially on seminars, workshops and foreign travels,” it adds.