This paper discusses fiscal space creation and use in the context of development of social sectors
in Tanzania. The paper observes that Tanzania is making good progress in creating and using her
fiscal space. The priority being accorded to social sectors, especially in education and health is in
the right direction. However, weaknesses in tax administration, imprudent tax exemptions, high
debt service, excessive reliance on external funding, and high administrative expenditures
dampen the robustness of the fiscal space. In this regard, the paper argues that there is a need for
creating additional fiscal space through re-prioritization of spending, especially by reducing the
size of government, scaling up mobilization of domestic revenue, including reducing or
eliminating tax exemptions, broadening the tax base and reducing external debt to sustainable
levels. In tandem, the available fiscal space has to be used more effectively and efficiently, and
progressively increasing social sector’s funding to meet internationally agreed commitments and
targets.