Tanzania: Banks able to meet govt, private sector needs

BANKERS have said financing the government budget would not increase borrowing price nor competition with private sector, because commercial banks are sitting on billions of idle funds.

Bankers said loans to private sector on average consume only between 50 and 55 per cent of deposits against a mandatory ceiling of 80 per cent of total deposits.

In his 2011/12 budget speech last Wednesday, Finance Minster Mustafa Mkulo said, the government intends to borrow 1.2trn/-, to bridge the tax revenue short fall to meet its 13.5trn/- budget obligation.

''Out of that 393.4bn/- is for bridging revenue shortfall, while 810.9bn/- is for roll over,'' Mr Mkulo told parliament. This raised fear as banks might abandon the private sector in favour of the government, which is a risk-free portfolio.

But the Tanzania Bankers Association Chairman Lawrence Mafuru told 'Daily News' that ''this is not the first time the government borrows from commercial banks to finance tax deficit.''

''There is a room for lending to everybody, the government and private sectors as well; banks sit on idle funds.''

The bankers' association Chairman who is also Managing Director of National Bank of Commerce, said private sector loans cannot exhaust billions of shillings lying in bank safes.

The move, according to him, has little impact on the lending pattern in the industry, but could have a great implication if the sector lending where in the region of 75 per cent.

Normally government borrowing from commercial banks ranges between 20 and 25 per cent which combined by the private sector lending cannot crossing the deposit-loaning ratio ceiling rate required by Bank of Tanzania (BoT).

''In some years the government borrowing from commercial banks was even higher that this year and private sector did not suffocate, there is a room for everyone,'' Mr Mafuru said.
In the previous budget 2010/11, the government actual planned to borrow 1.4trn/- from commercial banks, but ending up having a loan of 1.1trn/-, up to March.

Government cannot kiss goodbye borrowing from commercial sector as internal revenue collection does not seem to be adequate to meet the needed budgetary financial resources.

''Internal revenue collection targets have been missed for two consecutive years before this one,'' Dr Prosper Ngowi, a senior lecturer with Mzumbe University Dar es Salaam Business School said.

The lecturer said possibilities of continuous revenue target missing are high partly due to high fuel prices and chaotic status of electricity in Tanzania inter alia.

''The tax base remains rather narrow, collection mechanisms are inefficient and tax evasion and avoidance as well as exemptions are many,'' he said.

The Finance Minister Mr Mkulo said he intends to raise not less than 6.77trn/- equivalent too 17.2 per cent of GDP compared to likely outturn of collecting 5.55trn/- or 16 per cent in 2010/11 budget.

''The government will continue to strengthen domestic revenue collection by developing policy and administrative measures on both tax and non-tax revenues,'' Mr Mkulo said when reading the budget last Wednesday.

This year, the government is expected to use the same methods it has traditionally used to raise revenue, namely tax, external and domestic borrowing, grants, and ministerial collections.