Dar es Salaam. Global economic uncertainties, including trade tensions and geopolitical risks, contributed to more cautious investor sentiment towards frontier markets such as Tanzania in the first half of 2023.

The prices of a 25-year of government bond dropped to an all-time low as the central bank continue to implement a less monetary stance.

The minimum successful prices for longest tenure treasury security floored to 90/03 from 93/53 while weighted average yields went up by 2.7 per cent from 13.23per cent to 13.59per cent.

Alpha Capital Head of Research and Analytics Imani Muhingo told Business Standard that the dropping of prices in the 25 years auction mid-last week was consistent with the current monetary policy.

“The [bond] prices have never been this low,” Mr Muhingo said “but the yields have been at this level before, in late 2021 and early 2022”.

The expectations were the prices to continue declining in line with what has been throughout last year, and in tandem with the monetary policy’s recommendation for less accommodative measures.

“Moreover,” Mr Muhingo said, “the latest monetary policy statement further indicated maintenance of less accommodative measures in the next six months”.

Mid last week, the Bank of Tanzania (BoT) was in the market and sought to raise 180bn/- from the public through the 25-year Treasury bond at a 12.56 per cent coupon rate annually.

However, the auction was subscribed by 185.71per cent and a total of 334.27bn/- worth of bids were received. The central bank accepted 276.79bn/- leaving the rest at the table.

Vertex International Securities, Advisory and Capital Markets Manager, Ahmed Nganya, said one thing to note this bond still attracts high investors’ interest as the subscription level increased by nearly three folds, showing investors’ confidence in the long-term securities.

“We think investors’ appetite is still somewhat balanced between equities and fixed income, especially long maturities,” Mr Nganya said:

“This gives us the confidence of satisfactory market liquidity going forward, albeit eschewed to a small securities segment.”

Zan Securities Advisory and Research Manager Isaac Lubeja said all the 25-year bond auctions in 2022/2023 have been oversubscribed indicating investors’ preference for this maturity.

“Yields have been steadily trending upward underscoring less accommodation by the central bank to keep inflation within the target range,” Mr Lubeja said.

The monetary stance has been adopted by the central bank in different periods against the backdrop of rising inflationary pressures.

The measures paid off as the inflation rate dropped from the peak at 4.9per cent last October to 4.0 per cent recorded in May.

Late last week, the BoT released the Treasury bonds issuance calendar for 2023/24, and there are some substantial changes in the auction frequencies of various tenors.

Mr Muhingo said the central bank omitted the 7-year tenor in the calendar while raising frequencies of short-term tenors including Treasury bills, and reducing the frequency of long-term tenors.

“Probably the most surprising move was to lower the 20 years and 25 years auctions from frequencies of six and seven in the previous calendar respectively, to the current annual frequency of three for each.

“The move somewhat contradicts with the government’s strategy of lengthening the debt maturity profile,” Mr Muhingo said, “The weight has been transferred from the long-term tenors to the medium-term tenors, with the highest frequency weighed on the 10 years tenor”.

The 10 years bond will be auctioned six times in the 2023/24 fiscal year, followed by the 2-year, 5-year, and 15-year tenors which shall all be auctioned five times each.

During the just-ended fiscal year, the 2-year and 10-year bonds were auctioned four times and the 5-year was auctioned three times, while similar to the 15 years was auctioned five times.

“One possible consequence of shifting the weight to the medium-term notes is the flattening of the yield curve,” Mr Muhingo said.

The yield curve is already elevating since mid-year 2022 as the Monetary Policy Committee (MPC) advises for less accommodative measures.

Despite substantial oversubscriptions, the frequency of the 20 years and 25 years auctions played a role in raising their yields in the secondary market due to increased supply of the tenors, and an upward trend on the yield set by the auctioneer, the central bank.

SOME tax, audit and advisory firms said the 2023/24 budget is positive for the economy if implemented accordingly and will significantly advance the business environment.

The firms’ analysed reports showed that the budget’s ambitious revenue collection target seems attainable. However, they pointed at areas of improvement.

The firms – PwC Tanzania, Deloitte Tanzania and Confederation of Tanzania Industries (CTI), termed the budget estimates as ‘pivoting for inclusive growth; promoting the growth of industries and building resilience and driving growth amidst global uncertainty’.

The CTI First Vice-Chairperson, Mr Hussein Sufiani told reporters that the government has taken various reforms in the tax structure, fees levies and amended laws and regulations to improve the business environment.

“The government’s commitment is particularly evident in the budget, with tangible investment and new measures to promote growth of industries, entrepreneurship and job creation,” Mr Sufiani said on Tuesday.

“The proposed tax measures will significantly help domestic industries to reduce the cost of production, improve consumer welfare, promote the use of local materials, enhance competitiveness and stimulate economic growth,” he said.

Minister for Finance and Planning, Dr Mwigulu Nchemba on Thursday last week unveiled a 44.39tri/- national budget for the next fiscal year, up from the 41tri/- budget in the 2022/23 financial year.

In the coming year, domestic revenue is projected to be 31.38tri/- equivalent to 70.7 per cent of the total budget.

Deloitte Tanzania, Tax and Legal Partner, Festo Barthalome said in its budget analysis report that external non-concessional debt financing has been reduced by 31 per cent from last year, a welcome move that will help improve the country’s debt sustainability in these trying times.

“This year’s budget provides the government with an opportunity to enable broad-based solutions that will truly put Tanzania on course towards inclusive growth,” Mr Barthalome said.

To balance between revenue collection and fostering economic growth, he said, the government proposes several reforms to tax laws and regulations such as expanding tax on tobacco products, limiting tax exemptions to 1.0 per cent of GDP and proposing to increase focus on non-tax incentives.

“Tanzania needs loftier goals when it comes to tax reform, which has the potential to simultaneously fix the structural deficit, realign incentives and boost the productive capacity of the economy,” Mr Barthalome said

The areas of focus on non-tax incentives are land, water, infrastructure, and energy, increase consumption taxes such as excise, and modest VAT measures aimed at incentivising certain sectors such as tourism.

PwC headlined the 2023/24 budget as ‘building resilience and driving growth amidst global uncertainty’,

It said the transformation of the nation to a digital economy was another key theme, with reference to a number of initiatives taken in this regard by the government.

“…The 2023/24 tax revenue budget whilst ambitious does seem achievable, the PwC report said adding:

“A particularly important, and potentially transformative, announcement was the reference to the removal of the mobile money transaction levy on electronic money transmission, so that a transaction levy will only apply at the point of exiting the electronic ecosystem, namely at withdrawal,” PwC said in its budget bulletin.

Further, PwC said, the positive news for the sector was the removal of the airtime (simcard) levy as well as the reduction of right-of-way charges for fibre optic cable.

The 2023/24 budget is 7.0 per cent higher than the previous and the estimates showed that the government intends to allocate funds guided by its five-year development plan with plans to increase annual GDP growth to 8.0 per cent.

The proposed budget reduces excise duty on domestic manufactured ready to drink by almost half, increases the excise duty rate on imported energy drinks by almost 20/- per litre, and introduces a three-year excise duty freeze calendar from next month.

Also, CTI mentioned including an adjustment of the rate of 10 per cent to the specific excise duty rates on non-petroleum products and 20 per cent on beer and tobacco products.

“Increasing of 20 per cent excise duty on beer and tobacco products introduction of excise duty at the rate of 20/- per kilogramme of imported and domestically manufactured cement will have a negative impact on industrial development,” Mr Sufiani said.

PwC also raised a red-flag on increasing taxes on beer and tobacco, saying this will be of significant concern to beer and cigarette manufacturers, especially with indications of more constrained demand in the first half of 2023 as compared to 2022.

“The government’s rationale for such a drastic increase is that the last upward adjustment for locally manufactured excisable goods was in 2017,” stated PwC, warning that the increase will also be a concern for example, producers of soft drinks.

Additionally, the reduction of import duty on clothes ‘kanga’ and ‘kitenge’ from 50 per cent to 35 per cent, as well as valuation from 80 cent US dollars to 40 cent US dollars per meter, will have a huge negative impact on the industries which incidentally are among the leading industries that bring in more tax revenue in the country. Also, they want the previous taxes on cotton yarn to stay.

Imposition of excise duty at a rate of 20/- per kilogramme on cement reduces the effect of emission gases not only means an increase in cost but manufacturers will also face the existing challenges in the implementation of Electronic Tax Stamp (ETS). The significant related costs are equipment installation and operations of the system.