Funds to bypass treasury in new projects push

Tanzania is embarking on a significant reform of its public finance management, proposing that development funds for critical sectors such as water, roads, and energy bypass the central government's general fund and flow directly to dedicated sector funds. Prime Minister Dr. Mwigulu Nchemba announced these reforms, which have been submitted to Parliament, aiming to enhance efficiency, reduce administrative delays, and accelerate the implementation of key infrastructure projects. This shift necessitates amendments to existing legislation, particularly the Public Finance Act and several sector-specific Acts, to establish a new revenue-sharing framework and ensure robust accountability mechanisms are in place for the direct disbursement of funds.

The Tanzanian government is poised to introduce a transformative change in its public finance architecture, specifically targeting the management and disbursement of development funds. Prime Minister Dr. Mwigulu Nchemba recently announced proposals to Parliament that would see monies allocated for vital water, road, and energy projects channeled directly to their respective sector funds, circumventing the traditional route through the Government General Fund, also known as the Consolidated Fund.

This proposed overhaul is driven by a strategic imperative to address historical bottlenecks in development financing, thereby fostering greater efficiency, predictability, and timely execution of priority infrastructure programmes. The initiative signals a deliberate move to decentralise financial flows for specific development objectives, aiming to accelerate progress in sectors deemed crucial for national economic transformation. This article will delve into the legal implications of these proposed reforms, examining the existing framework, the anticipated changes, and the considerations for legal professionals operating within Tanzania's evolving public finance landscape.

Public finance management in Tanzania is primarily governed by the Public Finance Act, 2001 (Cap. 348 R.E. 2023), which repealed the earlier Exchequer and Audit Ordinance to provide for more effective control, management, and regulation of the collection and use of public finances. Under this Act, all government revenues are generally paid into the Consolidated Fund, from which monies can only be withdrawn under the authority of an Appropriation Act or other written law. The Treasury, under the supervision of the Minister responsible for finance, plays a central role in the control, management, and supervision of public finances, with the Permanent Secretary also serving as the Paymaster-General.

Additionally, the Local Government Finances Act (Cap. 290) outlines the financial framework for local government authorities, covering revenue sources, fund management, and audit requirements, often involving central government transfers. The Public Procurement Act, 2023 (No. 10 of 2023) further regulates the procurement processes for public bodies, ensuring transparency and efficiency in the use of public funds for goods, works, and services. This established framework ensures parliamentary control and oversight over public funds, with the Controller and Auditor-General (CAG) playing a critical role in auditing public accounts and reporting to the National Assembly.

The proposed shift to direct funding for sector-specific projects represents a significant departure from the established central pooling mechanism. Currently, all funds for roads, water, and electricity typically pass through the Government General Fund (Consolidated Fund). The Prime Minister's announcement indicates that the new system would channel these funds straight to respective sectoral funds, aiming to enhance efficiency and timeliness in project execution.

This reform will necessitate substantial legislative amendments. The Public Finance Act, 2001, which mandates the Consolidated Fund as the primary repository for public moneys, will require modification to legally permit the direct channeling of funds to specific sector accounts. Furthermore, the Finance Minister has indicated plans to amend several sector-specific laws, including the Rural Energy Act, the Road and Fuel Tolls Act, the Railways Act, and the Water and Sanitation Services Act. These amendments are expected to establish a new revenue-sharing framework where, for instance, 70 percent of revenues collected from specific sources would be transferred directly to the accounts of the respective funds, with 25 percent going to the Consolidated Fund and 5 percent to a special account for Export Processing Zones (EPZs) and Special Economic Zones (SEZs).

While the objective of accelerating project implementation and improving service delivery is laudable, legal practitioners must consider the potential implications for fiscal oversight and accountability. Bypassing the central treasury could streamline disbursements, but it also demands robust internal controls and audit mechanisms within the sector funds to prevent misuse and ensure adherence to procurement laws, such as the Public Procurement Act, 2023. The role of accounting officers, as defined under the Public Finance Act and Public Finance Regulations, will become even more critical in managing these direct funds.

Moreover, the reforms must carefully balance efficiency with the need for comprehensive fiscal planning and macroeconomic stability. The Consolidated Fund serves as a crucial tool for overall government financial management and resource allocation. Diverting a significant portion of development funds directly to sector accounts could impact the Treasury's ability to manage liquidity, respond to unforeseen national exigencies, or fund cross-cutting initiatives not covered by specific sector funds. The Parliament's role in scrutinizing the budget and monitoring its implementation, as highlighted in the budget process, will be paramount in ensuring these new arrangements do not compromise fiscal discipline.

The proposed reforms to channel development funds directly to sector-specific accounts in Tanzania represent a pivotal shift aimed at enhancing the efficiency and speed of infrastructure project delivery. For legal practitioners, this development signals a period of significant legislative activity, particularly concerning amendments to the Public Finance Act, 2001, and various sector-specific statutes. Attorneys advising government entities, contractors, and development partners must closely monitor these legislative changes to understand the new financial flows, compliance requirements, and potential contractual implications.

Practitioners should prepare for a revised landscape of public finance, where the emphasis on direct accountability at the sectoral level will likely increase. This will necessitate a thorough understanding of the amended Public Finance Regulations, the Public Procurement Act, and any new guidelines issued by the Ministry of Finance or the Treasury Registrar. Vigilance will be key to navigating the evolving regulatory environment and ensuring that projects benefit from the intended efficiencies while upholding the highest standards of financial governance and transparency.