Tanzania risks further aid cuts as development partners continue to pressure the government to implement parliamentary recommendations for President Jakaya Kikwete to sack senior government officials implicated in the Tegeta Escrow scandal.

As President Kikwete promised to make a decision next week, the shilling reached its lowest level in months against major currencies.

Economists warned that the Millennium Challenge Corporation’s decision to hold up to $700 million in funding, together with the previous decision in May by development partners to hold budget support worth $558 million in the financial year 2014/15 over the scandal, would reverse the good economic performance of the country.

US ambassador to Tanzania Mark Childress announced on Thursday that the MCC board had put on hold the signing of the pact pending the government’s decision on the scandal.

“Progress in combating corruption is essential to a new MCC compact, as well as to an improved business climate in Tanzania,” Mr Childress said in a statement.

READ: US says Tanzania aid grant depends on anti-graft action

Honest Ngowi, an economist and lecturer at Mzumbe University, said the government is likely to face further budget deficits and be unable to implement many development projects that rely heavily on foreign donors. Dr Ngowi said the delay in funding could lead to inflation, and affect the country’s plan to float a $700 million Eurobond next year.

“Good governance is becoming a big concern for foreign investors. Eurobond rating agencies consider good governance a key issue and the country is likely to get a poor rating. Citizens will start questioning why they should pay taxes if the government is embezzling the money. This could lead to weak tax revenues,” he said.

Zitto Kabwe, the chairman of the Parliamentary Accounts Committee that presented the report on the scandal, said there were indications that President Kikwete would make cosmetic changes rather than implement the decisions reached in parliament last month that those implicated in the scandal be sacked.

Mr Kabwe said the president’s directive this week that the Controller and Auditor General (CAG) report should be published in the media to allow people to read it is tantamount to undermining the decision made by his party and the parliament.

“The CAG report doesn’t implicate anybody, rather it identifies shortcomings and proposes what should be done. Parliament plays the oversight role of holding public leaders to account,” Mr Kabwe said.

Prof Mwesiga Baregu, a senior lecturer at St Augustine University, said the scandal had affected the government’s image.

Last month, parliament passed a resolution asking the president to discipline four top officials implicated in the scandal — Minister for Lands Anna Tibaijuka, Attorney General Fredrick Werema, Energy Minister Sospeter Muhongo and Energy Permanent Secretary Eliakim Maswi.

VIP Engineering and Marketing Ltd, which was a shareholder in IPTL before selling its shares to PAP, has written to Prime Minister Mizengo Pinda faulting PAC’s contention that all the money in the Tegeta Escrow account belonged to the public.

The letter, dated December 4, claims that the PAC report did not reflect what was in the CAG report regarding ownership of the escrow money and called for further investigations.