The Role of Local Government Borrowing in Tanzania’s System of Local Government Finance

Abstract

In most developed economies, local government borrowing forms an integral part of the system of local government finances. Although public sector borrowing for recurrent spending is generally considered a bad practice, public finance experts generally agree that it is appropriate for responsible and accountable local government authorities to borrow for the purpose of financing capital investments. Borrowing enables local government authorities to fund capital developments (such as roads or school buildings) that produce benefits over a longer period of time and spread out the financial burden for this investment over a number of years, thus providing a stronger link between the costs and benefits of the capital investment over time.