Human Rights, Justice, Op-ed

What Does the 2025/26 Budget Mean for Climate Action in Tanzania?

Tanzania’s 2025/26 budget falls short in allocating adequate resources for climate adaptation and resilience—particularly when measured against the urgent needs on the ground.

Ronald Ndesanjo

June 23, 2025

subscribe to our newsletter!

The 2024/25 fiscal year will conclude at the end of June. As is customary, on June 12, 2025, the Minister of Finance, Dr Mwigulu Nchemba, presented the draft budget for the 2025/26 financial year to Parliament. This draft outlines the government’s projected revenue and expenditure, detailing how funds will be raised and allocated.

According to the Minister, one of the key assumptions guiding the budget is the need to strengthen resilience to disasters such as droughts and floods. This positions climate change as a key priority, underscoring its significant impact on Tanzania’s economy. But why does climate change matter to the economy?

Well, climate change-induced disasters are now among the leading causes of death in Tanzania, alongside road accidents and diseases. This underscores the urgent need for coordinated efforts to both reduce the impacts of climate change and address its underlying drivers.

Many of the key economic sectors emphasised in the budget—such as agriculture, livestock and fisheries, energy, transport and logistics, and health—are highly climate-sensitive. This highlights the importance of a budget that not only protects these sectors from escalating climate risks but also outlines clear strategies for mobilising adequate financing for climate action.

Despite this, the draft budget identifies climate change as a potential risk to its successful implementation. In response, the budget speech reiterates the importance of continuing to address climate risks through the implementation of existing strategies, including the National Environmental Master Plan for Strategic Interventions (2022–2032) and the National Cooking Strategy (2024–2034).

However, the question remains: to what extent does the proposed budget commit to achieving these goals?

Climate action outlook

Before addressing this key question, it is important to briefly examine the current initiatives aimed at tackling the climate crisis in Tanzania, particularly as reflected in the 2025/26 budget speech. The government’s efforts, as outlined in the speech, appear to focus primarily on the energy sector—especially through the promotion of clean cooking solutions and cleaner, though not fully carbon-neutral, energy options in transport.

Notable initiatives include the implementation of the Liquefied Natural Gas (LNG) processing project, mainly for cooking purposes; the promotion of Compressed Natural Gas (CNG) for vehicles; and the continued exploration and development of oil and natural gas resources. These measures aim to reduce reliance on charcoal and firewood, the country’s primary sources of carbon emissions for cooking, and to lower emissions from petrol and diesel use in the transport sector.

However, while these steps may reduce emissions, it is important to recognise that they do not represent carbon-neutral solutions. Their limited potential to significantly cut emissions highlights the urgent need to invest more in truly carbon-neutral alternatives, such as scaling up solar and wind energy. This, in turn, raises a critical question: to what extent does the proposed budget support Tanzania’s transition to a carbon-neutral economy?

Proposed tax reforms

The proposed tax reforms constitute about 26 pieces of legislation. Some reforms are relevant to Tanzania’s climate action. As the general outline of the budget implies, there is a proposed Value Added Tax (VAT) exemption on natural gas sold to CNG stations for motor vehicle use.

This is expected to be instrumental in pushing forward the transition from petrol and diesel to gas-powered means in the transport sector. With this accomplished, Tanzania will have made some progress in its path towards a greener energy and transport sector.

Not only that, but this desired progress will also contribute to reaching the targets set out in the Nationally Determined Contribution (NDC)- reducing greenhouse gas emissions economy-wide between 30- 35 per cent by 2030 and the National Environmental Master Plan for Strategic Interventions (2022-2032) which stresses the need to reduce emissions from transportation and industrial activities.

Additionally, a VAT exemption on carbonisation furnaces is expected to boost briquette production, aiming to reduce charcoal use, curb deforestation, and cut emissions from charcoal-related activities.

Furthermore, the proposed Income Tax amendments will provide a price relief on two and three-wheelers, and goods-carrying vehicles (under 500 kgs). This amendment is expected to encourage the adoption of electric and gas-powered two- and three-wheelers, which are already gaining popularity in Tanzania. A prime example is the increasing use of electric and gas-powered three-wheelers (Bajaji) in urban transport.

The amendments also impact the forestry sector—a key player in climate mitigation—by introducing a 3.5 per cent income tax increase on forest products. This adjustment could discourage extractive activities like logging while incentivising sustainable alternatives, such as tree planting and forest conservation for carbon credits under REDD+ (Reduced Emissions from Deforestation and Forest Degradation) initiatives. The shift may steer businesses from resource extraction toward climate-friendly services like carbon and nature credit schemes.

A proposed excise duty under the Excise (Management and Tariff) Act introduces a carbon tax of US$8 per metric ton of carbon emitted from coal and natural gas. This duty is likely to impact the manufacturing, sale, and use of carbon-emitting goods from coal and gas. For example, it may slow the adoption of LPG—central to the Clean Cooking initiative—particularly among low-income households, due to potential cost increases. Likewise, it could affect the production and import of coal briquettes, potentially slowing efforts to reduce deforestation from charcoal use.

Budget frame for 2025/26

The 2025/26 budget frame proposes a ceiling is 56.5 trillion. Domestic financing is expected to be 40.5 trillion comprised of Tax (32.31 trillion), non-tax revenue (6.5 trillion), and Local Government Authorities (LGA) revenue sources (1.7 trillion). Financing from grants is expected to be 1.1 trillion while loans will pull in around 14.9 trillion. This constitutes both domestic (6.3 trillion) and external (8.7 trillion) loans.

Tanzania’s 2025/26 budget highlights at least four sectors that are directly relevant to climate action: natural resources, environment and tourism, energy, agriculture, and water. The natural resources, environment, and tourism sector has been allocated Sh317.4 billion—significantly less than the Sh441.8 billion requested by the Vice President’s Office (VPO) and the Ministry of Natural Resources and Tourism (MNRT).

This represents a 61 per cent decrease from last year’s allocation of Sh596.1 billion and could hinder efforts to manage climate risks, particularly given the sector’s high vulnerability to climate change. Although the MNRT’s budget priorities do not explicitly reference climate change, many of the planned projects are climate-related, especially in water infrastructure, such as boreholes and dams, intended to support wildlife and nearby communities affected by drought.

Out of the Sh105.7 billion allocated for development projects, nearly 70 per cent is expected to come from external sources. The VPO, which is responsible for environmental and climate change matters, has requested Sh33 billion for development initiatives. However, only 14 per cent of this amount is expected to come from domestic sources, with the remaining 86 per cent dependent on external grants and loans.

The Ministry of Energy has been allocated nearly Sh1.96 trillion for the 2025/26 fiscal year—a 4.3 per cent increase from the previous year’s Sh1.88 trillion, though still short of the TZS 2.25 trillion the ministry had requested. A major focus of the ministry is the promotion of clean cooking energy, which is a key component of Tanzania’s climate change mitigation strategy.

This effort is complemented by the continued expansion of renewable energy, particularly hydropower, which currently accounts for around 67% of the national electricity supply. Notably, 96.5 per cent of the ministry’s budget is allocated to development projects, mainly in the areas of power generation, transmission, and distribution from renewable sources—including hydropower, solar, wind, and natural gas.

Overall, the energy budget aligns closely with Tanzania’s climate mitigation goals and supports the country’s Nationally Determined Contributions (NDC), which identify energy as a top priority for transitioning to a low-emission economy.

The agriculture sector has been allocated Sh1.93 trillion in the 2025/26 proposed budget—significantly more than the Sh1.24 trillion requested by the Ministry of Agriculture in its May 2025 submission to Parliament. The government’s focus is largely on climate adaptation, particularly through research on climate-resilient crops and expanded irrigation.

Notably, 25 per cent of the total budget is earmarked for irrigation, with 85 per cent of development funding expected from domestic sources. This positions the ministry as a leader in mobilising local climate finance—an important step. Its emphasis on adaptation is especially vital for rural communities, which remain highly vulnerable to erratic rainfall and frequent droughts due to their dependence on rain-fed agriculture.

The Ministry of Water has been allocated Sh898.1 billion in the 2025/26 budget—a 33.3 per cent increase from last year’s Sh641.9 billion, though still below the Sh1 trillion requested for the 2025/26 fiscal year. About 63.9 per cent of the development budget is expected to be externally funded.

Like the agriculture sector, the water budget places a strong emphasis on climate change adaptation and resilience. Nearly all ongoing and planned water projects include a climate adaptation component. A key example is the Simiyu Climate Resilience Project, funded with Euros 171 million by the KfW Development Bank and the Green Climate Fund (GCF).

Falling short

Despite progress in the energy sector and the continued implementation of strategies like the National Environmental Master Plan for Strategic Interventions (2022–2032), Tanzania’s 2025/26 budget falls short in allocating adequate resources for climate adaptation and resilience—particularly when measured against the urgent needs on the ground.

The move to grant the National Carbon Monitoring Centre (NCMC) legal authority to oversee carbon trading is notable; however, it appears primarily focused on boosting government revenue rather than strengthening climate resilience for the most vulnerable rural communities. This reflects a broader tendency to prioritise financial gains over climate justice.

Consequently, Tanzania’s climate finance remains heavily dependent on external sources, including the IMF’s Resilience and Sustainability Facility (RSF), the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the African Development Bank (AfDB), among others.

The 2025/26 budget’s approach to climate action appears to be shaped by three main factors: the global climate agenda’s strong emphasis on mitigation—particularly emissions reduction under the Paris Agreement—which largely reflects the priorities of developed countries rather than those of developing nations, especially in Africa; the Government’s flagship Clean Cooking initiative, implemented through the Clean Cooking Strategy (2024–2034); and the government’s growing interest in benefiting from carbon markets, as evidenced by the enhanced role of the National Carbon Monitoring Centre (NCMC).

However, the budget gives insufficient attention to climate adaptation and resilience—critical areas for Tanzania’s predominantly rural population, which is highly vulnerable to the effects of climate change. To achieve a more balanced and effective climate budget in the future, it is essential to scale up domestic funding for adaptation.

This can be done by issuing green bonds, promoting private sector partnerships, and ensuring that carbon revenues are properly audited and channelled into climate adaptation initiatives—an urgent priority in today’s ‘polycrisis’ context of shrinking foreign aid.

Dr Ronald B. Ndesanjo is a climate, environment and sustainability expert with the Ecotan Consult (T) Ltd. He can be reached at ndesanjo@ecotanconsult.co.tz or on X as @ronaldndesanjo. The opinions expressed here are the writer’s own and do not necessarily reflect those of The Chanzo. If you are interested in publishing in this space, please contact our editors at editor@thechanzo.com.