Tanzania’s balancing act: Infrastructure, fiscal discipline

TANZANIA: TANZANIA stands at a crossroads, grappling with the dual imperatives of stimulating economic growth and maintaining fiscal stability.

The nation has embarked on an ambitious infrastructure development agenda, aiming to modernise the economy and improve the lives of the people.

However, this pursuit of progress comes with significant financial implications. Balancing the need for substantial investments in roads, railways, energy and other critical infrastructure with the imperative of prudent fiscal management is a complex challenge.

On the one hand, infrastructure development is a catalyst for job creation, increased productivity and trade facilitation.

On the other hand, the substantial capital outlays required for these projects can strain government finances, potentially leading to higher debt levels and inflationary pressures.

The government’s strategy to navigate this complex landscape involves a delicate balancing act between investing in growth-enhancing projects and maintaining fiscal stability.

Infrastructure investment: A double-edged sword Tanzania’s mega-infrastructure projects, including the Standard Gauge Railway (SGR), Julius Nyerere Hydropower Plant (JNHPP) and the development of Dodoma as the capital, are central to the nation’s economic transformation.

These initiatives are expected to catalyse growth, create jobs and improve connectivity. However, they also necessitate significant public expenditure, exerting pressure on the budget.

To date, approximately 10.7tri/- has been invested in the SGR, with the Dar es Salaam to Dodoma leg nearing completion.

The 6.5tri/- Julius Nyerere hydroelectric power project, financed domestically, is also nearing its operational phase, promising to bolster energy supply and industrialisation.

Another flagship project is the Mtwara Mbambabay , SGR railway, which includes spurs to Liganga and Mchuchuma, with an estimated cost 12.765tri/-.

Additionally, the government is revitalising Air Tanzania Company Limited (ATCL) with a fleet expansion plan involving 14 new aircraft by June 2024, including four Dash 8-Q400s, two Airbus A220-300s, two Boeing 787-8 Dreamliners, one cargo aircraft, Boeing 767-300Fs, and two Boeing 737 MAX 9s.

Tanzania is set to receive another new plane, Boeing B787-8 Dreamliner today with a capacity of 262 passengers, an addition to its fleet that could see the national flag carrier Air Tanzania Company Limited (ATCL) expand its route network.

The aircraft will be received by Zanzibar President Dr Hussein Mwinyi at the Abeid Amani Karume International Airport in the isles.

Significant investments have also been made in bridges, such as the Kigongo–Busisi Bridge (Mwanza Gulf Bridge), which cost 716.3bn/- and will be the longest bridge in Eastern and Central Africa.

The Tanzanite Bridge, stretching 5.5 kilometres along the Coco Beach coastline in Dar es Salaam, cost 243bn/-. Fiscal discipline amidst investment .

Despite the substantial infrastructure spending, Tanzania has made strides in fiscal consolidation. In the fiscal year 2020/21, the deficit stood at 2.5 per cent of GDP, which was relatively moderate.

However, by 2021/22, the deficit widened to 3.6 per cent of GDP, highlighting the economic pressures faced during that period. Despite this increase, efforts to manage the deficit have shown some promise. The deficit slightly improved to 3.5 per cent of GDP in 2022/23.

Looking ahead, projections are optimistic, with the deficit narrowing to 3.0 per cent of GDP in 2023/24 and projected to further decrease to 2.9 per cent in 2024/25.

This trend suggests a gradual but steady progress towards fiscal consolidation, supported by a favourable global economic outlook, including declining inflation, easing financial conditions and stable commodity prices.

Domestically, anticipated favourable weather for agriculture, improved power supply, and advancements in infrastructure are expected to further bolster the economy.

Tanzania’s efforts to balance infrastructure investment with fiscal prudence have garnered international recognition.

The International Monetary Fund has commended the country’s “growth-friendly fiscal consolidation,” noting its progress in reducing the fiscal deficit while supporting economic growth.

The government has made significant strides in enhancing tax revenue collection, a crucial component of its fiscal consolidation strategy.

It has prioritised increasing tax revenue by broadening the tax base and integrating the informal sector and conducted taxpayer education programmes to promote compliance.

The adoption of technology, such as electronic fiscal devices (EFDs) and digital tax administration systems, has streamlined processes, improved compliance and increased revenue collection. As a result of these initiatives, tax revenue has seen substantial growth.

It increased from 17.624tri/- in 2020/21 to 20.93tri/- in 2021/22, 22.61tri/- in 2022/23 and reached 26.725tri/- in 2023/24.

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This growth reflects the effectiveness of the government’s strategies in enhancing tax revenue collection and improving fiscal health.

Balancing Act for the Future Analysts say maintaining this delicate equilibrium between investment and fiscal discipline will be crucial for Tanzania’s sustained economic growth.

The government will need to continue exploring innovative financing mechanisms, such as public-private partnerships, to fund infrastructure projects while safeguarding fiscal stability.

Moreover, optimising the benefits of infrastructure investments through effective policy implementation and complementary reforms will be essential to maximise their impact on the economy and the population.

Tanzania’s commitment to infrastructure development, coupled with its fiscal discipline,positions the country for longterm growth and prosperity.

By carefully managing its financial resources and maximising the returns on infrastructure investments, Tanzania can navigate the challenges of the future and achieve its development goals.