The far-reaching cost-cutting measures announced by President John Magufuli's administration since coming into office in November last year have become widely blamed for causing a liquidity squeeze in the economy that appears to be getting tighter by the day.
This has in turn had a ripple effect on the private sector - the engine of the country’s economic growth - leading to a decline in revenues and profits for various small, medium and large-scale businesses across several industries and sectors, according to analysts.
But the extent of the public spending cuts have now been exposed by the latest economic bulletin report issued by the Bank of Tanzania (BoT) yesterday for the third quarter of the year (Q3 2016).
"During the quarter ending September 2016, the resource envelope — revenue and grants — amounted to 4.058 trillion shillings, while expenditure amounted to 3.856 trillion shillings. Therefore, a surplus of 326.2 billion shillings was realised," said the BoT report.
A budget surplus occurs in government when there is either an increase in income through an increase in tax collection or a decrease in government expenditure - or both.
While some economists say such a surplus is an indication that the government is being effectively managed, other analysts warn that it may be the result of over-zealous public spending cuts, and could hurt the economy as a whole in the long run.
According to the BoT report, the government used the cash windfall to repay domestic and foreign obligations amounting to 212.8bn/- and 113.4bn/-, respectively.
While the government ran a budget surplus in Q3 2016, it recorded fiscal deficits in both the first and second quarters of the year, which were financed through both domestic and foreign loan sources.
The central bank says while government budgetary operations during the quarter ending March 2016 ran a deficit of 95.5bn/-, this drastically increased to a staggering 1.175 trillion/- deficit in the second quarter (April-June).
Although the government expects the economy to grow by 7.2 per cent this year from 7 per cent last year, there are several warning signs that all is not well.
The fifth phase government kicked off with an all-out campaign to cut wasteful government spending, crack down aggressively on tax evasion, step up the fight against high-level corruption, and withdraw hundreds of billions of shillings of public funds 'parked' in commercial banks.
But one year down the line, the indications are steadily growing that the nation’s entire economy could be either in a deep state of anxiety or on the cusp of a slowdown, according to analysts.
Commercial banks have recently reported high levels of non-performing loans (NPLs) at unprecedented levels as individual and company borrowers find it more and more difficult to repay their loans against a backdrop of subdued consumer demand and purchasing power across several sectors.
An increasing number of businesses are reporting declining revenues with some companies resorting to downsizing and laying off employees.
Although official figures are hard to come by, some business leaders claim there have been job cuts and slower rises in the creation of new jobs over the past year, while the ordinary man and woman on the street complains that the amount of money circulating out there has become drastically curtailed.
Some analysts say the raft of severe cost-cutting initiatives embraced by President Magufuli's administration now resemble outright austerity measures, with the economy suffering from a 'paradox of thrift.'
The paradox of thrift refers to an increase in saving which leads to a decrease in aggregate demand, and thus a decrease in gross output which will in turn lower total saving.
The International Monetary Fund (IMF) warned the government in October about the ongoing liquidity tightness and noted that the state was actually spending less money than it collected, hence resulting in a general business slowdown.
“We are almost halfway through the 2016/17 financial year, but very little development expenditure budget has been released,” Razack Lokina, professor of economics at the University of Dar es Salaam (UDSM), told The Guardian in an interview.
“Usually, the major driver of economic growth is government expenditure itself... so to stimulate the economy, the government should increase spending,” Lokina added.
Analysts have advised the government to ‘prime the pump’ and stimulate an economy through increased public spending and tax reductions.
Prof Lokina said one way to stimulate the economy would be for the government to settle its mounting domestic debts which topped 10 trillion/- at the end of September; a move that would allow businesses to settle their obligations with commercial banks.
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