Economic Analysis - Capital Spending And Weaker Mining Revenues Will Widen Deficit - JAN 2018

BMI View: Tanzania ' s budget deficit is set to widen in the coming quarters due to growing capital expenditure, despite government efforts to collect more tax. While the government is likely to undershoot concessional lending targets, meaning more domestic lending from banks is likely, we expect levels of debt to remain sustainable.

We expect Tanzania's budget deficit to widen in the coming fiscal years. Owing to a weakening business environment, particularly for mining firms, revenue collection is set to underperform expectations despite the government's tax crackdown on large companies. In the meantime, higher capital expenditure by the government will see growth in total spending outgrow that of revenues. As such, we forecast deficits worth 4.6% and 4.2% of GDP in fiscal year (FY) 2017/18 and FY 2018/19 respectively, up from an estimated 1.8% in FY2016/17. We note that while the government has secured some concessional loans to finance the deficit, targets will likely continue to be undershot and the remainder will likely be financed by domestic loans. Though this will see the debt burden and debt servicing costs rise, we do not foresee a significant decline in sovereign creditworthiness.

Slower GDP Growth Will Hamper Revenue Collection

Weak Business Environment Will Slow Revenue Growth
Tanzania - Budget Balance
f = BMI forecast. Source: BoT, BMI

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