Mkulo, Zitto lock horns on inflation(via The Citizen)
By Alawi Masare
The Citizen Reporter
Dar es Salaam. Finance and Economic Affairs minister Mustafa Mkulo has countered the recent assertion by his parliamentary shadow counterpart, Mr Zitto Kabwe, that the spiralling inflation that had persisted over the past six months had caused a six per cent budget deficit.Mr Mkulo argues that there is no significant relationship between the two variables, but in a quick rejoinder, Mr Kabwe (Chadema-Kigoma North) expressed amazement at the minister’s reaction.Speaking to this paper yesterday from Kigoma where he is on end-of-the-year holidays, he remarked that “the ministry is out of touch with the basics of the economy”.
Mr Mkulo’s reaction was in response to comments made by Mr Kabwe last week, against the backdrop of the inflation rate chalking 19.2 per cent in November.Mr Kabwe, who also doubles as deputy leader of the official opposition in the Parliament, said the government’s capacity to pay for goods and services had been diminished by six per cent by the growing inflation.He warned that the deficit (equivalent to Sh780 billion) would affect the economy seriously if it was not contained immediately.
However, Mr Mkulo told The Citizen on Monday that the said deficit didn’t feature in the budget which he tabled in the Parliament in June this year.Brushing aside Mr Kabwe’s comments, he was emphatic that the government would proceed with implementation of its budget as planned.He accused Mr Kabwe of misleading the public on the issue, characterising his sentiments as political gimmickry associated with his being in the opposition camp.
Mr Mkulo remarked in a telephone interview: “I am the minister who supervises the data body (National Bureau of Statistics-NBS) and the central bank, but so far, no such information has been brought to my notice. Where did he get it?”
Generally, the government may run a budget deficit when its expenditure exceeds total tax revenue in a given year. And one of the factors which might diminish the government’s purchasing power is spiralling inflation, according to economists.
As part of a verbal ping-pong, Mr Kabwe wondered who, between him and Mr Mkulo, was politicising the matter.
“Any economist you would talk to would tell you that increasing inflation is not healthy for the budget.”
“He has demoted our country from a stable economy to the current situation in which even macro economy fundamentals are starting to become unstable; it is high time he vacated the office,” Mr Kabwe furiously remarked.
Mr Kabwe said if Mr Mkulo could not fathom the impact of increasing inflation on the national budget, then “he is out of touch with economic fundamentals and is not supposed to handle such a high portfolio in the government.”
When the budget was endorsed in July, the inflation rate was recorded at 13 per cent and by last month it had jumped to 19.2 per cent.
According to Mr Kabwe, the trend means that the government’s capacity to pay for goods and services has been reduced by about six per cent, equivalent to Sh780 billion evaporating from the budget within four months of its implementation.According to the Bank of Tanzania (BoT)’s September monthly economic review, during August 2011, government budgetary operations on cheques issued, registered a deficit of Sh112.1 billion after adjustment to cash.
Economists fear that the government would either jump into borrowing or cutting expenditure, hence increasing debts or sometimes denying the public of vital services.
“If the government is running a budget deficit, it has to borrow this money through the issue of government debt such as Treasury Bills and long-term government bonds,” commented Dr Honest Ngowi of the Mzumbe University Business School.He added: “Sometimes it may decide to cut expenditure, which I think is a bad option because by so doing it will not implement some important projects planned earlier.”
He also warned that the second half of the financial year may require more expenditure following the increase in allowances for MPs and widen the deficit.“The recent floods in Dar es Salaam and some other parts of the country are also increasing government spending,” he noted.
Source: The Citizen Newspaper