DAR ES SALAAM (Reuters) - Donors have slashed funding pledges for Tanzania’s 2010/11 (July-June) budget by nearly a quarter of a billion dollars to $534 million due to concerns about the slow pace of reforms in the country.
The east African nation of 40 million people is among the continent’s biggest per capita aid recipients. Foreign assistance made up 33 percent of Tanzania’s 2009/10 budget and hard currency donor inflows help support the currency.
“This commitment is $220 million less than ... financial year 2009/10 and raises concerns of GBS (general budget support) decreasing to the lower levels disbursed in 2005 and 2006,” a group of donors said in a statement seen by Reuters on Friday.
Commercial banks quoted the Tanzanian shilling at 1,410-1,415 against the dollar on Friday, down from 1,405-1,410 on Thursday and the weakest since January 23, 2009.
“Up to 49 percent of the dollars in the market come from donors, said Hamis Mwakibete, head of trading at Commercial Bank of Africa Tanzania. “The reduction of donor funds will increase pressure on the shilling. The central bank has been intervening for very selective banks to provide U.S. dollars.”
The donors that provide general budget support include the African Development Bank, Canada, Denmark, the European Commission, Finland, Germany, Ireland, Japan, the Netherlands, Norway, Sweden, Switzerland, Britain and the World Bank.
Donors said the aid reduction was partly due to concerns about the slow pace of reform in areas critical to boosting the country’s economic growth.
“These include the expected speed of reform in the public financial management system ... improvement in the business and investment climate, and the need for more equitable delivery of public services,” the donors’ statement said.
Analysts said the move would hurt investment in badly-needed infrastructure projects, all at a time the country is facing a presidential election, probably in the fourth quarter.
“Since this is an election year, the expected budget deficit means that the government will have a huge burden. This will cause a lot of complications in the country,” said Honest Ngowi, an economist at Mzumbe University.
“Most of the projects in the country, such as infrastructure development, are donor funded. The economy will potentially suffer as a result of this situation,” Ngowi told Reuters.
Donors said rising concern over the government’s weak governance, economic policies and failure to stick to agreements could affect future aid disbursements.
They say said they were waiting for a promised cut in the cess tax — a local government levy — to 3 percent from 5 percent, better agricultural marketing for the private sector and more jobs in persistently understaffed areas.
The donors said some of the conditions for future aid disbursement included submitting a bill to parliament that would pave the way for private business and the government to conduct joint projects, and actions to improve the business environment.
Last year, donors warned that weak accountability and rising corruption and may jeopardised its 2010/11 aid.