By Aisia Rweyemamu
World Bank
The report also urges the government to take measures to deal with government arrears and debt, oil, gas and electricity processing, noting that the factors could generate major economic setbacks in the next fiscal year.
The report released in Dar es Salaam says, in particular, significant fluctuations in commodity prices of gold and oil may affect the trade balance.
“The magnitude and timing of Foreign Domestic Investment (FDI) inflows resulting from the development and exploitation of natural gas resources will also impact the local economy, especially in geographical areas were related activities will take place,” the reported revealed.
The value of new investment related to these resources is expected to be in the region of $5 billion per year. The World Bank warned that this potential impact will have to be carefully managed by the authority.
The report added that the appropriate management of growing fiscal risk is of paramount importance, “while the government appears to be committed to the necessary fiscal adjustment, there may be a temptation to delay the implementation due to political pressure related to the forthcoming general election scheduled to take place November 2015.”
According to the report, recent history shows that public expenditure is generally higher in the month preceding election.
The prospects of significant future gas revenue might also encourage the authorities to borrow excessively, despite the uncertainty regarding the timing and magnitude of these revenues.
The first short-term risk to the fiscal stance relate to shortfalls in the revenue collection together with the implementation of action plans related to the Big Results Now (BRN) initiative.
The report says the 2013/14 budget is predicted on the new system of tax measure, which although necessary, may be somewhat ambitious. Furthermore the implementation of BRT initiative action plans may require the relocation of funds and development of new source of revenue.
Financial distress within the energy sector, particularly related to Tanesco’s financial difficulties, presents a second short-term risk to the financial stance.
In addressing theses difficulties there are two inherent doubts - first decisive action will need to close Tanesco’s projected financial gap, which will grow by approximately $260 million in 2013.
The required action may involve politically contentious measures such as tariff increase or budget reallocations involving significant expenditure cuts in other area.
A combination of bad luck and delay in the implementation of the Tanesco action plan would add significant risks to the government fiscal account, the report added.
The third short-term risk to the fiscal stance relates to accumulation of arrears by the government. The risks relate to the pension sector and the management of the dependent liabilities from the parastatol.
The overall values of government arrears grow substantially during 2012/13 reaching Sh 650 billion at the end of December 2012. Arrears from the Public Serving Pension Fund (PSPF) showed that unpaid pension liabilities will add to the stock of public debt.
The World Bank report state that the latest Public Expenditure and Financial Accountability (PEFA) Assessment underscore the fiscal risk to budget posed by some public enterprise.
The forth risk is linked to the ventral government’s level of debt , the value of which stood at the equivalent of more than 40 per cent of Gross Domestic Product (GDP) by the end of 2013.
The report recommended that, as a measure towards addressing this government must act to consolidate financial accounts including those of the main parastatol.
SOURCE: THE GUARDIAN
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