When Lawrence Mafuru was the Registrar of Treasury, he was quoted as saying that the government had decided to invest in mega projects that would pay later.
“If we decide to acquire aircrafts from Canada, it means the money will go to Canada, if we contract a Chinese firm to construct a standard gauge railway this means the money will not circulate here and will go to China…This means that you take this money out of circulation which would pay later. In this case the cash crunch is inevitable.”
Mr Mafuru was sacked a few days later.
But in November, President John Magufuli said that the cash crunch was not real and those who were complaining were used to earning dirty money.
The government has allocated Tsh500 billion ($225 million) to acquire new planes for the national carrier and the standard gauge railway that will connect Tanzania to Rwanda.
It however appears, the former Registrar of Treasury’s concerns have come to pass. According to Bank of Tanzania (BoT) data, Tanzania population is cash-strapped. Businesses, have had to close due to lack of customers.
The cash crunch is not only forcing inflation down, but also shrinking spending. A Mwanza high-end hotel, JB Belmont has closed business on account of defaulting from its rent payment obligations.
In Dar es Salaam, Land Mark hotel has been turned into a university hostel for lack of customers and Tamal hotel was auctioned for failure to pay up a bank loan.
Banks are lamenting over declining deposits.
The government in June added salt to the wound after it directed all ministries, agencies and departments to withdraw money from commercial banks and deposit it at the central bank instead. The total amount of Tsh500 billion had been deposited in over 54 commercial banks. The withdrawals sparked fears that they would affect the banks’ lending ability.
Prime Minister Kasim Majaliwa said that the cash would soon be available after money that has been saved from unnecessary expenditure is directed to development projects.
According to Mr Majaliwa, as of October a total of Tsh177billion ($79.5 million) had been allocated to all district councils in the country, with Arusha region receiving Tsh54billion ($24 million).
However, the Magufuli administration is not keen on doing business with the private sector. This, apart from hurting the private enterprise, also puts public-private partnerships in a limbo.
The Ministry of Finance and Planning has instructed all central and local government authorities, public institution and agencies to embark on government – to – government (public institutions) dealings in procuring goods and services. These include Internet, insurance, courier, telephone, media and transport.
This has affected many businesses including flight booking agencies, hotel services and transport.
In January, the overall average lending rate in banks increased from 15.69 per cent a year earlier to 16.28 per cent.
The interest rate spread between 12-month deposit and lending rates widened to 3.33 percentage points in January this year, up from 3.06 percentage points the preceding month, making it difficult for businesses to get cash for operations in 2016.
In January, BoT reported that transactions in the inter-bank cash market amounted to Tsh1,166.7 billion ($536 million), compared with Tsh709.6 billion ($326 million) the preceding month. Overnight transactions accounted for 79.4 per cent of the total transactions, which was lower than the share of 99.7 per cent recorded in the preceding month.
The overall inter-bank cash market rate rose to 12.02 per cent from 7.29 per cent in December 2015, while the overnight rate increased to 11.9 per cent from 7.1 per cent. Money was slightly more costly to access in January.
In April last year, BoT increased the minimum commercial banks reserve ratio from 8 per cent to 10 per cent. This was calculated to reduce liquidity in the market.
On June 8, Tanzania’s Minister of Finance Dr Philip Mpango presenting the 2016/17 said the government revenue estimates for 2016/17 would be Tsh29.53 trillion ($13.6 billion) of which Tsh18.46 trillion ($8.47 billion) would be internally sourced through taxes and non-tax revenue, representing 62.3 per cent of the GDP. This meant 37.7 per cent would be sourced from elsewhere.
The International Monetary Fund in a report said that Tanzania’s “primary fiscal deficit has been a major contributor to public debt accumulation”.
In June, Dr Mpango told the National Assembly in Dodoma that the national debt stock stood at $20.94 billion as of March 2016 compared with $19.69 billion in June 2015, representing an increase of 6.34 per cent.