Joseph Isangura
The Bank of Tanzania (BoT) has affirmed that the Bank of Tanzania Act of 2006, Chapter 197, authorizes the government to secure short-term loans up to 18% of its revenue through its accounts held at the central bank. This mechanism is invoked during emergencies to address fiscal deficits, ensuring the borrowed funds are repaid within 180 days.
Agathon Kipandula, BoT’s Director of Banking Services, explained that this practice is standard among central banks worldwide to support government budgetary needs while revenue collection is ongoing. He emphasized that such loans are critical for maintaining government operations during periods of revenue shortfall, allowing the state to meet its financial obligations without disruption.
Recently, Finance Minister Dr. Mwigulu Nchemba reiterated via X (formerly Twitter) that borrowing from the central bank is a routine measure, sanctioned annually under BoT’s legal provisions, to bridge budgetary gaps pending revenue accrual. He clarified that the process is transparent and regulated, ensuring fiscal responsibility and adherence to the stipulated repayment period.
For the fiscal year 2022/2023, the government was eligible to borrow up to TZS 4.5 trillion from BoT under this framework. This significant amount underscores the provision’s importance in stabilizing government finances during interim periods of revenue collection. The practice is not unique to Tanzania; many countries adopt similar strategies to manage their fiscal policies effectively.
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The BoT’s role in providing these short-term loans is crucial for the government’s ability to function smoothly. During times of unexpected expenses or delays in revenue collection, the availability of these funds prevents potential financial crises. It ensures that essential services and projects continue without interruption, maintaining public confidence in the government’s financial management.
Kipandula highlighted that the central bank closely monitors the use of these loans to prevent misuse and ensure they are repaid on time. The BoT collaborates with the Ministry of Finance to align the borrowing with the national budget and economic policies, maintaining a balance between immediate financial needs and long-term economic stability.
Moreover, this borrowing mechanism allows the government to respond quickly to urgent financial needs without resorting to external borrowing, which can be more time-consuming and expensive. It provides a flexible tool for managing the state’s cash flow efficiently, particularly in developing countries where revenue streams can be unpredictable.
The transparency and accountability in this process are vital. Regular audits and public disclosures of the borrowed amounts and their usage are part of the regulatory framework to maintain trust in the system. The government and BoT’s commitment to these principles ensures that the short-term loans are a reliable and sustainable solution for fiscal management.
