In the modern economy, it is common for government budgets to exist in a state of deficit. However, it is unsustainable over long-term and can have adverse outcomes for developing countries without a proper fiscal structure in place. This report will seek to investigate the causes of an excessive budget deficit in the African country of Tanzania. Budget Specifics When presenting the government budget for 2018-2019 fiscal year, the Finance and Planning Minister Dr. Philip Mpango stated that the deficit has dropped to as low as 3.8% of the GDP, which is significantly lower 4.5% a year earlier. However, private analysts from Fitch Ratings suggest that Tanzania’s budget deficit will exceed 5.3% in 2018. This is more than a $2.2 billion deficit due to rising imports consisting of capital goods and service required to supply infrastructure development. The import will outweigh the successful growth of exports in terms of harvests and gold that the country is experiencing (Karega, 2018). Despite Tanzania’s economy growing stably over the last several years, a number of factors are causing significant deficits in its fiscal budget. Spending and Inflation One of the primary causes of the excessive budget deficit is the fiscal policy that the Tanzanian government has pursued for the last two decades. The country has actively pursued an expansionary fiscal approach which seeks to increase the government spending in order to fund programs and infrastructure development. It leads to excessive borrowing, as the Tanzanian government has to borrow in excess of 10 trillion shillings to finance its 31.71 trillion shillings plan to increase spending (Ng’wanakilala, 2018). While the expenditure is aimed towards supporting profitable industries and curb corruption, the effects of such reform are long-term. Up to date, the investments have not proved to be viable to reduce the deficit. Meanwhile, excessive borrowing leads to macroeconomic instability and hyperinflation. The country has an underdeveloped capital market which contributes to the issue. Tanzania has maintained a high-inflation rate for decades which was created by poor fiscal management and budget deficits. However, there is an inherent two-way connection between the budget deficit and inflation. This is known as the Olivera-Tanzi effect. Budget deficit impacts money supply and creates inflationary pressure. However, inflation eventually beings to push up the budget deficit as well by creating lags in tax collection. The accrual of tax obligations and time of actual payment do not actually coincide. As a result of inflation, the real tax burden is reduced significantly since money is no longer worth as much during collection as it was during accrual. The government experiences lower than expected tax revenues which further increases the budget deficit and contributes to inflation. It becomes a self-strengthening economic phenomenon (Solomon & de Wet, 2004). Trade One aspect that is closely interconnected with the budget deficit is the country’s trade deficit. Trade directly impacts government revenues, currency value, as well as the budget deficit necessary to maintain a specific level of output. In the last five years, Tanzania has experienced a negative t