US embassy cable - 05DARESSALAAM1205

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 001205 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958:N/A 
TAGS: ECON, PGOV, TZ 
SUBJECT: NO SURPRISES IN TANZANIAN BUDGET SPEECH 
 
 
Sensitive but unclassified (SBU).  Please protect 
accordingly. 
 
1. (SBU) Summary: Finance Minister Basil Mramba delivered 
the annual Budget Speech before the national Parliament June 
8 in Dodoma.  The speech outlines the economic progress 
during the 2004/05 fiscal year (which ends June 2005) as 
well as the targets for economic growth in the coming 
2005/06 fiscal year.  Announcing very few significant 
changes in this year's budget, Mramba focused the speech on 
"the achievements of the Third Phase Parliament and its 
Government," meaning the last ten years under President 
Mkapa's leadership.  The budget reflects a commitment to the 
status quo, but local businessmen are disappointed in the 
lack of continued economic reforms.  Any significant new 
direction will be left up to the new administration next 
year.  End summary. 
 
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Economic Performance in 2004/05 
------------------------------- 
 
2. (U) Minister Mramba began his speech by outlining the 
"profound achievements" of the "Third Phase Government under 
the leadership of President Benjamin William Mkapa."  He 
focused on Tanzania's steady GDP growth, low inflation, 
improved revenue collection, and an attractive investment 
climate.  Mramba reported that the Tanzanian economy grew by 
6.7 percent in 2005, compared with 5.6 percent in 2004 and 
that it surpassed the target of 6.5 percent set in last 
year's budget speech.  He reported that inflation decreased 
from 4.8 percent in March 2004 to 4.1 percent at the end of 
March 2005, noting that food inflation in particular had 
decreased.  Mramba also noted that improved revenue 
collection (13 percent of GDP this fiscal year) has helped 
the government exceed its revenue targets.  Still, 41 
percent of the annual budget was supported by foreign aid 
(compared to 45 percent in the previous year). 
 
3. (U) Tanzania's economic growth was driven largely by the 
modest growth (4.8 percent) in agriculture.  Mining was the 
fastest growing sector, at 15 percent growth, but its 
contribution to total GDP growth was only 0.3 percent. 
Construction and manufacturing also led with double digit 
growth in the last year. 
 
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Goals and Targets for 2005/06 
----------------------------- 
 
4. (U) Mramba stated that the thrust of the budget for 
2005/06 is to implement the National Strategy for Growth and 
Reduction of Poverty.  The main economic targets include: 
 
--Attain a real GDP growth rate of 6.9 percent in 2005 and 
7.2 percent in 2006. (Note: The government has stated that 
with a 3 percent population growth rate, GDP growth must 
approach 10 percent in order to achieve its poverty 
reduction goals by 2025.) 
 
--Domestic revenue is targeted to reach 14.3 percent of GDP 
in 2005 and 14.5 percent in of GDP in 2006. 
 
--An inflation rate of 4 percent by the end of June 2005 and 
thereafter a rate consistent with that of major trading 
partners. 
 
--Maintain gross international reserves at a level above 
seven months of imports of goods and services. 
 
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The Status Quo Budget 
--------------------- 
 
5.  (SBU) Changes announced in Mramba's speech include 
uncontroversial changes in the minimum wage (to adjust for 
inflation) and in a few specific tax provisions.  No 
significant new policies or programs were announced. 
Notably absent from Mramba's speech was mention of the East 
African Customs Union, any of its controversial tariff rates 
under review, or how Tanzania plans to use the five-year 
adjustment period to develop its industrial base. 
 
6. (SBU) Private sector analysis of the 2005/06 budget has 
characterized it as "status quo" or "no-win no-loss."  One 
analyst said, "At least we know what to expect - not much!" 
While appreciating the importance of stability in economic 
policy, many business people feel the government should do 
more to facilitate economic growth, including stepping up 
economic reforms.  In particular, the private sector has 
complained that the government has not done enough to 
develop transport, water, and power infrastructure; provide 
access to affordable credit; or to stem corruption and 
bureaucratic intransigence.  (Note: A credit guarantee 
scheme for small and medium enterprises was an important 
focus of last year's budget speech.  No mention was made of 
its success or failure.) 
 
7.  (SBU) World Bank Country Director Judy O'Connor spoke at 
a private sector gathering after the budget speech. 
Positive about the new budget and Tanzania's economy in 
general, O'Connor praised the focus on poverty reduction and 
the on sustaining a predictable economic policy.  She said 
that Tanzania's macroeconomic stability is just beginning to 
show microeconomic effects.  She said that the small 
reduction of poverty and Tanzania's growth demonstrate that 
its economic policies are really working.  She urged the GOT 
to do more to improve social services and to ensure that 
growth is "shared equitably to ensure prosperity." 
 
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Bottom Line 
----------- 
 
8. (U) The details of the budget continue to be revealed 
throughout the Parliamentary Budget Session this month as 
each ministry presents its part of the budget.  The bottom 
line, according to Mramba's speech, is that the GOT plans to 
spend Tsh 4.176 trillion in 2005/06, funded by Tsh 2.067 
trillion in domestic revenue and Tsh 2.109 trillion in 
external grants and loans, domestic borrowing, and the sale 
of parastatal shares. 
 
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COMMENT 
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9. (SBU) Comment:  Minister Mramba's speech reflects the 
position of Mkapa's now lame duck administration, focused on 
legacy rather than future vision.  Indeed, the 
administration can be proud of the dramatic economic reforms 
of the last decade and its increasing ability to attract 
foreign aid.  However, much progress remains to be made in 
creating a vibrant market economy and reducing poverty. 
Tanzania's aid-dependency is not sustainable, as domestic 
revenue cannot even cover the GOT's recurrent expenditures, 
let alone its development expenditures.  As one analyst put 
it, Tanzania is borrowing to consume and that cannot last 
forever.  Mramba has left it up to the new administration to 
figure out how to move Tanzania from aid-dependency to a 
reasonable level of self-sufficiency.  End comment. 
 
OWEN