Retrospective overview of budget implementation

TANZANIA: THE government planned to spend 44.39tri/- in the 2023/24 budget marking a seven per cent growth from the previous year.

Approximately 83 per cent (four years high) of the budget was to be funded by domestic sources. According to the budget framework speech presented in the National Assembly earlier this year by Finance Minister Dr Mwigulu Nchemba, approximately 29 per cent of domestic revenue was to be sourced from domestic borrowings which amounted to 5.44tri/-, down from 5.78tri/- in 2022/23 fiscal year.

Approximately 3.54tri/- of domestic borrowings was to be used for rollovers while 1.9tri/- would be the net debt for development activities. Until 12th June 2024, the Bank of Tanzania (BoT) had conducted 26 Treasury bonds auctions since the beginning of the fiscal year, collecting 2.68tri/-.

The central bank used two different issuance calendars during the fiscal year, following a restructuring of tenors in February 2024.

The initial calendar highly focused on short-term and medium-term tenors as the central bank slightly lifted Treasury yields to combat pending inflation pressures and support the value of the shilling.

The issuance calendar was restructured in February 2024, following the under- performance of the medium- term notes as investors prefer the long-term tenors.

Until January 2024, the aggregate collection from Treasury bonds was approximately 55 per cent of the total value of auction targets by BoT.

This prompted a re- structuring of the issuance calendar, and a re-opening programme which focused on Treasury bonds that were initially issued before the changing of coupon rates.

The restructured calendar was more successful in soliciting investors, lifting the collection to target ratio to 74.8 per cent as of mid-June 2024.

The calendar mostly prioritized the re-opening of 20 and 25-years tenors with 15.49 per cent and 15.95 per cent coupon rates.

While one auction of the 25-years remains to be conducted on 19th June 2024, all of the long-term bonds in the new calendar were significantly oversubscribed.

The overall offer size is- sued by BoT during the fiscal year 2023/24 amounted to 3.51tri/-, which is 65.8 per cent of the total budgeted domestic borrowings.

We expect for not more than 140bn/- in the 19th June 2024 25-years auction, which makes central banks Treasury bonds auctions target less than 70 per cent of the domestic budgeted domestic borrowings for the fiscal year.

The total tender size from the public amounted to 4.74tri/- which is 87 per cent of the domestic borrowings budget, and marking an overall subscription rate of 132 per cent. Demonstrating dominance of the long-term tenors in investment appetite, approximately 74 per cent of the total tender size from the public originated from the 20-years and 25-years tenors.

The 5-years tenor accounted for the least due to low number of auctions.

The auctions received a total of 8,119 bids during the fiscal year, while BoT accepted 4,895 bids, representing 60 per cent of the total tendered.

Approximately 89 per cent of total bids were sub- mitted for the 20-years and 25-years tenors. The value of accepted bids was 2.68tri/- which is 56.6 per cent of the total value of bids.

The collected amount is 49 per cent of the budgeted domestic borrowing. While the budget high- lighted 3.54tri/- of domestic borrowings up for rollover of past debt principal payment, only 944.64bn/- worth of Treasury bonds matured during the fiscal year 2023/24.

The two-year tenor ac- counted for majority (43 per cent) of the total matured Treasury bonds during the year followed by the seven-years tenor (26 per cent) which was not included in the 2023/24 issuance calendar due to significant underperformance in the previous year.

Therefore, the net debt addition from Treasury bonds in the fiscal year 2023/24 was 1.74tri/-.

Given the initial objective of the issuance calendar in the 2023/24 fiscal year focused on slight increase in yields to combat inflation as the central bank implemented a less accommodative policy, yields rose gently between July 2023 and January 2024, before a significant shift upward after the restructuring of the issuance calendar.

The 25-years yield rose from 13.6 per cent in June 2023 to 14.4 per cent in December 2024 before jumping to 16.8 per cent in March 2024 following the restructured calendar.

The yield slightly slowed down to 16.13 per cent in April and expected to further fall in the June auction.

The market awaits the budgeted domestic borrowing in the national budget 2024/25 and the issuance calendar for the same fiscal year to gauge the direction of yields which are currently being somewhat tightened by the central bank.

We expect yields to balance between financing budgetary operations and promoting private sector financing.

Moreover, deposits mobilization in the banking sector has been slow relative to the demand for credit. A rise in yields would affect banks’ efforts to mobilise deposits and source alternative financing through corporate bonds in capital markets.

• Imani Muhingo is Head of Research and Financial Analytics at Alpha Capital