THE UNITED REPUBLIC OF TANZANIA

 

 

 

 

 

 

MINISTRY OF FINANCE

 

 

 

 

 

 

BUDGET EXECUTION REPORT

 

 

 

 

BUDGET FOR FISCAL YEAR 2001/02

BUDGET PERFORMANCE

APRIL – JUNE 2002

 

 

 

 

 

 

 

AUGUST 2002                             


BUDGET FOR FISCAL YEAR 2001/02

BUDGET PERFORMANCE

APRIL – JUNE 2002

 

Summary

 

1.                 Overall budgetary execution for the fourth quarter of the fiscal year 2001/02 spanning April – June 2002 remained closely in line with budget estimates. Strong revenue collection coupled with lower than planned expenditure resulted in a favourable government financial position, despite lower than projected external inflows. Details of fiscal performance for the fourth quarter and for the entire fiscal year are presented in Annex A.

 

2.                 Revenue collection for the quarter April – June 2002 was Tsh. 279 billion compared to estimate of Tsh. 271 billion. On cumulative basis, total revenue collection for the fiscal year was Tsh. 1,043 billion compared to estimate of Tsh. 1,025 billion. This over performance of 2 percent is attributable to higher collection on income taxes and VAT on domestic sales. Higher than projected collections from parastatal dividends specifically from the Bank of Tanzania also contributed to the strong revenue performance in 2001/02. Cumulative revenue collection in 2001/02 is 12 percent higher than the corresponding collections in the 2000/01 fiscal year. This implies a real revenue growth of 7 percent considering an average inflation rate of 5 percent in 2001/02.

 

3.                 Total expenditure for the fourth quarter of the fiscal year was Tsh. 412 billion, 6 percent above estimates of Tsh 390 billion, representing a catch up in expenditures from lower than estimated spending in the first half of the fiscal year. However, cumulative expenditure for the fiscal year was Tsh. 1,463 billion, 9 percent below estimate of Tsh. 1,569 billion.

 

4.                 The lower than planned expenditures in the fiscal year was due mainly to i) shortfall in foreign budget support loans and grant and ii) delays in government procurement of goods and services, on account of limited capacity and experience in applying the new Public Procurement Act 2001. Notwithstanding the shortfall in budget support loans and grants, priority sectors received their full fourth quarter allocations (April - March 2002), as per respective cash-flow requirements. In addition, the preparations of the population census, and HIV/AIDS priority interventions through the Tanzania Commission on AIDS (TACAIDS) were fully funded.

 

5.                 During the fiscal year July 2001 – June 2002, the financing position of the government improved with both domestic and foreign creditors. Net domestic financing for the period under consideration was an increase of deposits to the tune of Tsh. 23 billion. This compared favourably with estimates of Tsh. 34 billion borrowing. This was mainly on account of slower execution of expenditures, lower debt service on account of the HIPC Completion Point. However, this favourable financial position end-June 2002 does not take into account the expenditure float i.e. cheques written in 2001/02 that were not presented at the central bank by end June 2002 as well as commitments outstanding at end-June 2002, for which cheques would need to be written in 2002/03. Net foreign financing for the fiscal year was Tsh. 118 billion approximately in line with the projected figure of Tsh. 110 billion.

 

6.                 Figure 1 summarises the fiscal performance for the entire financial year, while figure 2 presents the fiscal performance for the fourth quarter April – June 2002. Performance is compared with estimates and with figures for the same period last year.

 

 

 

Figure 1

 

          Figure 2

 

 

REVENUE BY SOURCE

 

7.                 Revenue collection for the quarter April - June 2002 remained 3 percent over the estimates, in line with the July 2001 - March 2002 quarterly revenue collection performance. Cumulative revenue collection for the fiscal year was Tsh. 1,043 billion compared to budget estimates of Tsh. 1,025 billion, representing an over performance of 2 percent. On a year-on-year basis revenue collection in 2001/02 was 12 percent higher than the revenue collection in 2000/01 implying a real increase in revenues of 7 percent as average inflation rate in 2001/02 was 5 percent. Figure 3 presents revenue performance by source against estimates along with comparative revenue performance over the same period last year. Annex B presents details of revenue collection for 2001/02 along with a year-on-year comparison with 2000/01.

 

Figure 3

 

 

 

Year on Year Performance

 

8.                 Total revenue collection as explained above was 12 percent higher than the same period last year. Table 1 shows the revenue items with the largest year-on-year changes. For the fiscal year, the most significant over-performers remained withholding taxes (Tsh. 21 billion), PAYE (Tsh. 16 billion), domestic VAT (Tsh. 12 billion) and parastatal dividends (Tsh. 5 billion). The most significant shortfalls occurred in VAT on imports of non-petroleum goods (shortfall Tsh. 40 billion). The shortfall on VAT on imports is principally on account of the over estimation of VAT collection from government purchases of vatable goods, in view of the withdrawal of VAT exemption for government from July 2001. In addition collection of VAT on imports was also negatively effected due to the slow expenditure execution rate on account of the needed adjustment to the new public procurement regulations

 

Table 1         Revenue Items with the largest year-on-year changes

Revenue source
Change
Percentage change

VAT on non-petroleum imports

Tsh 25 billion increase

20 percent increase

VAT on domestic goods

Tsh 24 billion increase

20 percent increase

PAYE

Tsh 24 billion increase

26 percent increase

Excise on petroleum

Tsh 17 billion increase

20 percent increase

Ministries and Regions

Tsh 17 billion increase

32 percent increase

Corporate taxes

Tsh 9 billion increase

20 percent increase

Fuel levy

Tsh 7 billion increase

15 percent increase

 

Parastatal dividends

Tsh 8 billion decrease

33 percent decrease

Import duties

Tsh 7 billion decrease

  7 percent decrease

 

All other revenue

Tsh 9 billion increase

  4 percent increase

 

Total Revenue

Tsh 113 billion increase

12 percent increase

Taxes on Imports

 

9.                 Taxes on imports consist of VAT on imports, excise and import duty and taxes on petroleum imports. Cumulative collections from import taxes were 91 percent of estimates. Figure 4 presents the actual revenue collection by import tax category vis-à-vis estimates along with a year-on-year comparison.

 

          Figure 4

 

10.             The low performance on VAT on non-petroleum imports is entirely due to lower than estimated government payment of VAT; particularly on imports. This is partly due to slow pace of government purchases owing to new procurement law, and partly due to overestimation of the value of vatable imports which the exemption elimination would impact.

 

11.             Taxes on petroleum imports performed at 99 percent of full year estimates and represent a growth rate of 13 percent year-on-year. The positive performance of taxes on petroleum products earlier in the fiscal year was somewhat weaker in the last quarter of the fiscal year, with both VAT and excise performing slightly less than in the first three quarters.

 

12.             Cumulatively excise duty on petroleum products for the fiscal year was 96 percent of estimates, although when compared to the corresponding period last year, revenue collection on excise duty on petroleum registered an increase of 15 percent. 

 

13.             Excise duty collection on imports of non-petroleum products was 74 percent of estimates this quarter. However, the substantial high performance of previous quarters showed through in the year to date collections, registering an overall performance of 154 percent of estimates. High imports of motor vehicles was a factor in the previous quarters. Collection of import duties improved this quarter. Import duties were 4 percent higher in the fourth quarter, and performed at 98 percent of estimates cumulatively.  The cumulative slight shortfall can be explained by the under estimation of revenue loss due to the tariff band adjustment carried out in July 2001.

 

Taxes on Domestic Sales

 

14.             In the quarter April – June 2002, taxes on domestic sales were 9 percent above estimates, contributing in a cumulative over performance of 3 percent for the fiscal year. However, analysis of the individual components of taxes on domestic sales point towards lower than estimated revenue collection on domestic excise taxes. This underperformance was however offset by strong revenue collection from VAT on domestic transactions.

 

 

 

 

Taxes on Income

 

15.             Total income taxes continued to remain very buoyant during the quarter April - June 2002 and exceeded targets by 18 percent. Cumulative income tax collection was 24 percent higher than estimates for 2001/02 and 18 percent higher than income tax collection for 2000/01. Figure 5 presents the performance of income taxes for the fiscal year 2001/02 in comparison with the corresponding period last fiscal year.

 

16.             Cumulative PAYE continued to perform exceptionally well though a little less than in previous quarters.  Individual taxes have shown some growth, of 9 percent over last year, and significantly over performed estimates by 143 percent.  This performance is however a little less than in previous quarters.  Individual income taxes were positively influenced by higher tax returns by sole proprietor and small businesses.

 

17.             Cumulative collection from withholding taxes also continued to exceed targets, on account of lower than expected loss from abolishing withholding tax on goods and services for TIN registered taxpayers. Withholding tax on interest, royalties, management fees and dividends performed significantly better than estimates. Corporate tax collection improved during the quarter ended June 2002, reaching 110 percent of estimates compared to 91 percent of estimates in the first three quarters of the fiscal year, bringing the year to-date performance to 95 percent. Compared to the corresponding period last year, corporate taxes have shown growth of 20 percent.

 

 

 

 

 

          Figure 5

 

Non Tax Revenues

 

18.             Cumulative non-tax revenue collection was 105 percent of estimates the fiscal year. This over performance is mainly on account of higher than projected dividends from parastatal organizations. Non-tax revenue collection by ministries and regions remained satisfactory.

 

 

 

 

 

 

 

 

 

 

EXPENDITURE BY CATEGORY

 

19.             Total expenditure for the quarter ended June 2002 was Tsh. 412 billion, 6 percent above estimates, reflecting a catch up in expenditures from the first half of the fiscal year. Total expenditure for the fiscal year was Tsh. 1,463 billion, 9 percent below the estimates of Tsh. 1,569 billion. Year on year, actual expenditure for July 2001 – March 2002 increased by 12 percent in comparison with the same period last year. Annex C presents a quarterly detailed breakdown of expenditures by category.

 

20.             Recurrent expenditures for April – June 2002 were Tsh. 341 billion, which is 12 above estimates. For the entire fiscal year, actual recurrent expenditure was 91 percent of estimates. Year on year recurrent expenditures were 10 percent higher. The slightly lower than estimated expenditure for the fiscal year is explained mainly by shortfall in foreign budget support loans and grants and delays experienced by spending agencies on account of new procurement procedures, and certain contingent expenditures that remained below estimates. Figure 6 depicts the expenditure performance for major expenditure categories.

 

21.             For major expenditure categories, as shown in Annex C, actual expenditures have been broadly in line with estimates, with majority of under spending in non-priority expenditures. As the commitment control module in the Integrated Financial Management System (IFMS) was implemented and checks on further arrears accumulation put in place, the government decided to extend the arrear clearance exercise, from arrears accumulated between July 1998 to June 2000, to arrears accumulated till end June 2001. By end-June 2002 the government had committed adequate funds to clear all verified budgetary arrears.

 

22.             Development expenditure for April – June 2002 was Tsh. 71 billion, which is 17 percent below estimate of Tsh. 86 billion. The cumulative development expenditure for 2001/02 was Tsh. 345 billion, which is 1 percent above estimate of Tsh. 342 billion. The cumulative over performance in development expenditure is on account of higher than projected project loans by donor agencies, while project grants registered at lower than projected levels, mainly on account of capturing development grant funds in the exchequer.

 

23.             Total priority sector expenditure for April - June 2002 was Tsh 67 billion, 12 percent lower than estimate. This is principally on account of higher than projected inflows of basket funds from donors, these basket funds are included as social sector expenditures. During the fiscal year, total priority sector expenditure was Tsh.248 billion, 3 percent higher than estimate of Tsh. 241 billion. Year on year actual priority expenditure increased by 47 percent, with highest increase being in the other social service category which saw an increase of Tsh. 39 billion, mainly from disbursements of basket funds which were previously recorded under development grants, now being recorded in this expenditure item.

 

24.             The cash management system continued to make quarterly cash allocations for priority sectors based on respective cash flow plans submitted to the Ministry of Finance. However, actual expenditures for some priority sectors remained below estimates on account of the delays in procurement by spending agencies following the enactment of the new Procurement Act of 2001. In addition to quarterly allocations for priority sectors, preparations of the population census and HIV/AIDS priority interventions received their quarterly allocations.

 

 

 

 

 

 

Figure 6

 

25.             Wages and salaries were below estimates on account of lower recruitment than planned. Interest payment, transfers to the Tanzania Revenue Authority, and the Capital Markets and Securities Authority (subventions) remained as per their respective estimates. Non priority expenditures were below estimates, mainly on account of the shortfalls in budget support loans and grants and slow expenditure execution rate on account of the needed adjustment to the new public procurement regulations.

 

FINANCING BY COMPONENT

 

26.             Annex D provides detailed developments in financing while figure 7 presents a summary of financing for the entire fiscal year. There was significant shortfall in budget support loans due to non finalisation of trigger conditionalities by end-June 2002. Project inflows were approximately as per estimates. The shortfall in privatisation proceeds continued for the whole fiscal year on account of delays in finalisation of modalities that would allow the government to reduce its shareholding in previously privatised parastatal enterprises. The shortfall in foreign programme inflows was cushioned by lower than estimated amortisation of external debt, mainly due to the debt relief obtained from Paris Club VII which was over and above that committed at the HIPC Completion Point in November 2001.

 


Figure 7

 

 

 

 

 

 

 

 

 

 

 

 

27.             For the fiscal year 2001/02 programme grants were lower than estimated by Tsh 47 billion principally on account of lower than pledged disbursements from the UK, Ireland and the European Union.  Project grants remained below estimates reflecting a problem in capturing project grant disbursements through the exchequer. HIPC relief from multilateral financial institutions for the fiscal year remained in line with estimates. For the entire fiscal year, there was a shortfall of Tsh. 131 billion in budget support loans from IDA PSAC I and ADB SAL II. These shortfalls were due to the delays experienced in finalising the trigger conditionalities of these loans.

 

28.              Amortisation of debt for the fiscal year was below estimates principally on account of relief provided to Tanzania by creditors at the Paris Club VII after the HIPC Completion Point. Estimates included certain commitments that were written off at the HIPC Completion Point, representing a financial relief to the budget. This relief has helped cushion the fiscal impact of lower than estimated programme loans.

 

29.             Privatisation proceeds for the fiscal year were estimated at Tsh. 20 billion but no proceeds were realised for the entire fiscal year. This shortfall was on account of delays in finalisation of modalities that would allow the government to reduce its shareholding in previously privatised parastatal enterprises, particularly Tanzania Telecommunication Company Limited. The fiscal plan for 2001/02 had envisaged a borrowing of up to Tsh. 34 billion from domestic sources. In contrast the government increased its deposits by Tsh. 22 billion. However, in anticipation of programme inflows, the government had authorized budgeted expenditures for Ministries, Departments and Agencies in the fourth quarter. Expenditure commitments were made against these authorizations and a number of cheques written by June 2002 that had not cleared at the Bank of Tanzania by the end of the fiscal year. This means that the increase in government deposits of Tsh. 22 billion by end-June does not present an accurate picture of government operations in 2001/02. It is expected that in 2002/03 the commitments made by end-June 2002 and cheques written in 2001/02 but not cleared at the Bank of Tanzania, will impact negatively on the government financial position and will pose a significant challenge to budgetary execution in 2002/03.

 

30.             Notwithstanding the shortfalls in foreign budget support loans and grants the cash management system allowed for fully funding statutory and priority sector activities. Lower expenditures due to slow procurement process, coupled with strong revenue performance, meant that lower than estimated foreign inflows did not translate into domestic borrowing in 2001/02, and the fiscal situation continued to remain stable.  

 

Annex