$3b State payout to ease liquidity in Tanzania

Saturday July 15 2017

The Bank of Tanzania headquarters in Dar es

The Bank of Tanzania headquarters in Dar es Salaam. PHOTO | FILE 

By The EastAfrican
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The government’s decision to settle Tsh7 trillion ($3.1 billion) worth of suppliers’ bills this month is expected to boost the economy.

A corruption purge ordered by President John Magufuli led to extra scrutiny before paying suppliers’ claims, given the large number of irregular claims. Some claims were forwarded for approval by the President’s Office, slowing the operations of some private businesses that offer services to the government.

“We have finished the verification of those that deserve to be paid and found a few that do not have the documentation to warrant payment. All ministries, departments, agencies and other organs must now submit a list of their creditors to the Ministry of Finance for payments to be effected, starting this month,” Prime Minister Kassim Majaliwa said.

Domestic arrears

The World Bank said in its recent Tanzania Economic Update that the arrears raised credibility issues as there was a marked increase in monies owed by state-owned enterprises.

“The government needs to clear these arrears urgently in order to restore budget credibility and the confidence of suppliers and potential investors, especially in infrastructure,” said the Bank.

Arrears to contractors and other suppliers, pension funds, and state-owned enterprises comprised 6.3 per cent of GDP (equivalent to Tsh6.5 trillion or $2.9 billion) at the end of June 2016, compared with 6.5 per cent in June 2015.

Arrears to pension funds remained at 3.3 per cent of GDP, pending government issuance of non-cash bonds to clear claims after their authenticity is verified.

According to the World Bank, the accumulation of domestic arrears is a “symptom of dysfunctional budget implementation with sustained arrears undermine the trust of private sector suppliers, pension funds and potential investors considering partnering with the government.”

Kickstarting economic activities

In January, the International Monetary Fund warned the Tanzanian government that the projected growth rate would suffer if the country’s monetary policy were not addressed.

An economics professor at the University of Dar es Salaam, Humphrey Moshi told The EastAfrican that the decision by the government to start paying domestic bills was welcome, as there has been a liquidity squeeze in the market and paying debts would kickstart other activities of the economy that had stalled.

“At buildings where construction had stalled, it will resume and the effects will trickle down to suppliers of building materials and pay labourers,” he said.

Prof Moshi said that the government should correct past wrongs by strengthening the Tanzania Investment Bank’s capacity.

“Most of those that the government owes have borrowed from commercial banks and they are obliged to service their loans. I believe the president is bold enough to correct these wrongs so that banks can offer credit,” said Prof Moshi.

He said that even though the IMF and the World Bank have expressed concern over the arrears, “it is their (intervention) that got us where we are and we should, perhaps) reject their advice.”

Another economics professor at Mzumbe University, Honest Prosper Ngowi said: “Financial institutions will be pleased when the government pays up.”