Tanzania May Delay Development Projects as Donors Withhold Aid

Prime Minister Mizengo Pinda.

Tanzania may postpone some development projects after foreign donors cut aid because of a corruption scandal, Prime Minister Mizengo Pinda said.

The government may “have no option but to put aside some of the good projects and wait for another financial year,” Pinda said in an interview with Bloomberg TV Africa in London yesterday, without saying which projects might be delayed.

East Africa’s largest economy after Kenya is expanding and building new ports, constructing power plants and laying roads under a 42.9 trillion-shilling ($25.2 billion), five-year development plan to help it become a middle-income economy by 2025.

Foreign donors including the U.K., Japan, Germany and the World Bank announced earlier this month they will withhold about four-fifths of the $558 million pledged to support the country’s 2014-15 budget. The suspension comes as Tanzania prepares for a general election next year in which voters will elect a successor to President Jakaya Kikwete, who is serving his second and final five-year term in office.

The aid has been suspended pending an investigation into how payments were made to Pan Africa Power Solutions Tanzania Ltd., a closely held company that acquired Independent Power Tanzania Ltd., an electricity producer, the Dar es Salaam-based Citizen newspaper reported on Oct. 8. Pinda said the anti-corruption bureau and government auditor are leading an investigation into the issue.

Finance Ministry Permanent Secretary Servacius Likwelile said in an Oct. 25 interview that the government may consider increasing borrowing to fund the budget.

The cut to donor aid may result in some banks declining loans to Tanzania, said Pinda, who criticized the suspension as “almost like suffocating somebody.”

Tanzanian Finance Minister Saada Mkuya Salum in June unveiled a 19.6 trillion-shilling ($11.6 billion) budget with plans to borrow 2.96 trillion shillings from the domestic market and about $800 million from external markets to help finance development projects.

Companies including Statoil ASA (STL) and its partner Exxon Mobil Corp. (XOM), and BG Group Plc (BG/) working with Ophir Energy Plc (OPHR) have found gas reserves estimated at 50.5 trillion cubic feet in Tanzania. The government expects to enact legislation for the gas industry next year, and sees development in 2020 to 2025, according to Pinda.

By David Malingha Doya and Ijeoma Ndukwe