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Growth Expected to be Moderate but Several Problems Continue to Linger



Tanzania’s economy grew around 7.1 per cent last year, beating the government’s own revised forecast, Prime Minister Kassim Majaliwa said. In November 2017, the country trimmed its gross domestic product (GDP) to 7.0 per cent from 7.1 per cent.

That forecast had also been revised from 7.4 per cent. But Majaliwa said East Africa’s third-largest economy grew faster than expected last year owing to an increase in mining activity. “Latest data … shows that the country’s gross domestic product grew 7.1 per cent in the period between January and December 2017, compared to a GDP growth of 7.0 per cent in 2016,” Majaliwa said in the parliamentary presentation obtained by Reuters.

The session in January was held behind closed doors. Full-year GDP growth in 2017 was driven by mining and quarrying (17.5 per cent), transport and storage (16.6 per cent) and construction (14.7 per cent) activities, he said.

The World Bank cut its forecast for Tanzania’s full-year GDP growth in November to 6.6 per cent due to slowdowns in public spending and growth of credit to the private sector. Tanzania has pledged to boost public investment in infrastructure projects, including a standard gauge railway, new roads and an expansion of ports.

But some investors have been unnerved by some policies from the government of President John Magufuli, who is nicknamed “The Bulldozer” for his governing style. “There appears to have been an overall deterioration in business sentiment due to the perceived risks resulting from the unpredictability of policy actions,” the World Bank said in its economic update on Tanzania in November.

However, President John Magufuli has defended the country’s economy, saying it’s among the five fastest growing economies on the African continent – and projected it to grow also by 7.1 per cent this year. Dr. Magufuli made the statement on April 29, in Ismani, Iringa region, during a brief ceremony to inaugurate a 189 kilometer-long road stretching from Iringa municipality to the Fufu administrative ward in Dodoma region.

The Sh207-billion road was constructed with funding from the African Development Bank (AfDB) and the government of Japan through the Japan International Cooperation Agency (JICA). Reports released afterwards show that AfDB contributed 65 per cent of the construction costs, while JICA and the Tanzania government disbursed 21 and 12 per cent of the total cost respectively.

Tanzania also forked out the money that was used to compensate the ‘victims’ of the project who had to surrender land and other property to give way to the project. Addressing the local residents who turned up for the ceremony, President Magufuli took the opportunity to dismiss criticism from political rivals that the much-lauded economic growth hasn’t been translated into improved living for ordinary Tanzanians.

Noting that the country has built great trust in its development partners, Dr. Magufuli argued that this was ample testimony that the economy was growing. “We couldn’t construct this road in 1961 because we had a poor economy.

But, today, we are able to attract donors, convincing them that the country’s ability to service the loans has increased– which is an indication that our economy has grown,” the president said. “AfDB has so far disbursed over $3.6 billion.

Last year alone, they released $1.9 billion for implementing road projects – which is equivalent to 52 per cent of all the money issued for road construction projects.” Image 2: President John Magufuli officially launched work on a 207 km standard gauge line between Dar es Salaam and Morogoro The head of State further said that there were some projects which are being implemented through domestic funding.

These include rehabilitation of the central railway, construction of marine vessels and increasing the Health ministry budget from Sh31 billion to Sh269 billion in the last three years! He named other projects that are being implemented by domestic funding as the provision of free education for the first 12 years, connecting the rural community with electricity, and purchasing aircraft for the national flag carrier.

According to the president, the government will continue to secure soft loans for implementing development projects -noting that it spends billions of shillings monthly to service the loans. “Tanzania has 35,000 kilometers of road networks, including regional and national roads that contribute to growing the economy across the country,” he said – adding: “that’s how the government works.

Loans that were secured during the country’s independence are still being serviced. Probably, loans secured by my government will continue to be serviced even after I have died!” The president also encouraged Tanzanians to increase food production in their respective areas – and tap the benefits of a functional roads infrastructure to transport their crops to market.

In fact, he said, the country’s economy was growing at 7 per cent – with a 4 per cent inflation – partly because of good crops production. The IMF has regularly reviewed the Tanzanian economy under its Policy Support Instrument (PSI) program that was approved on July 16, 2014.

The program was subsequently extended to January 15, 2018. Tanzania’s program under the PSI aims at maintaining macroeconomic stability and promoting a more inclusive growth. It supports the authorities’ objectives on reforms to strengthen public finance management, improve efficiency and transparency of public spending, and move to an interest rate-based monetary policy framework.

The economy likely kept up a healthy pace of growth in the first quarter, underpinned by rising commodity prices. However, data for Q1 2018 suggests several problems continue to linger. Credit to the private sector was extremely weak in the quarter, restrained by the bulky stock of non-performing loans held by banks.

Moreover, spending on public investment remained well below budgeted amounts. On the other hand, the 12-month rolling balance of payments surplus almost doubled in annual terms in March 2018, benefiting from increasing project funds from development partners.

Growth is expected to be moderate but remain robust this year. Industrial activity will be buoyed by rising investment in the hydrocarbon sector. Moreover, improved weather conditions should buttress agricultural output. However, downside risks persist as business sentiment could be hit by policy uncertainty. Infrastructure gaps and the business climate have also become increasingly challenging and require a response.

Inflation remains moderate, and international reserves have increased substantially. There are downside risks to economic growth in the short term stemming from slow budget implementation, a challenging business environment, and private sector concerns about authorities’ enforcement of rules.

This is why the IMF reiterates that the Tanzanian authorities should step up budget implementation, particularly in development spending, and macroeconomic policies will need to be closely coordinated. Addressing the high stock of NPLs is a priority to reduce financial sector vulnerabilities and revive credit growth.

The National Bureau of Statistics of Tanzania (NBS) indicates that the Annual Headline Inflation Rate for the month of April 2018 has decreased to 3.8% from 3.9% recorded in March 2018. The Consumer Price Index from March 2018 to April 2018 has changed by 0.4%, compared to a change of 1.2% recorded in March 2018 from February 2018.

The overall index has increased to 113.20 in April 2018 from 112.70 recorded in March 2018. The increase of the overall index is attributed to the price increase for both food and nonfood items. Some food items that contributed to such an increase include; rice by 1.2%, vegetables by 1.9%, dry peas by 1.4%, sweet potatoes by 2.6%, cocoyam by 1.7% and cooking bananas by 4.0%.

On the other hand, non-food items that contributed to such an increase include; kerosene by 4.9%, charcoal by 1.4%, diesel by 3.0% and petrol by1.9%. Food and Non-Alcoholic Beverages Inflation Rate for the month of April 2018 has decreased to 3.6% from 4.7% recorded in March 2018.

The 12-month index change for non-food products in April 2018 has increased to 3.9% from 3.5% recorded in March 2018. The Annual Inflation Rate which excludes food and energy for the month of April 2018 has decreased to 1.4% from 1.6% recorded in March 2018.

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Tanzania Economy to decline to 6.6% in 2019



Tanzania’s economy remains buoyant, thanks to the stability of major macroeconomic indicators, according to a Bank of Tanzania report. Inflation remained in single digits, while money supply in the economy rose during the year ending May 2019, the BoT says in its Monthly Economic Review (MER) for June 2019. Another notable development during the period was the rise in the importation of capital goods for ongoing mega infrastructure projects.

This is in line with President John Magufuli’s endeavor to build world-class infrastructure, which is expected to greatly reduce the cost of doing business in the country. The projects include the 2,100-megawatt Stiegler’s Gorge hydroelectricity station and standard gauge railway. With the government embarking on various measures to improve liquidity in the economy, the cost of borrowing also went down, BoT figures show, while food prices were generally stable.

These positives outweighed the impact of a fall in exports of goods and services, as well as shrinking foreign exchanging reserves and increased national debt, among others. The review shows that the annual inflation rate remained at 3.5 per cent, which was below the targeted five per cent, and this helped to maintain the stability of prices of goods and services.

Tanzania is also currently food sufficient, although increased demand for maize in neighboring countries is putting pressure on prices of the commodity in the domestic market. According to the review, the extended broad money supply growth jumped to 5.8 per cent in May this year from 4.8 per cent recorded during the year ended in May 2018.

The improvement of broad money supply was a result of the growth of domestic credit to both the government and private sector. The recovery of the domestic credit market indicates increased lending to the private sector. The BoT review shows that credit to the private sector grew by nine per cent from 2.9 per cent, indicating borrowers’ increased confidence in the banking industry.

This was experienced as individual banks were lowering their interest rates as part of implementing an accommodative monetary policy by the BoT. The review shows that the average interest rate dropped to 17.17 per cent from 17.53 per cent, thus stimulating borrowers’ appetite. A decreased was also recorded in gross official reserves, which amounted to $4.3billion, covering about 4.2 months of projected imports of goods and services.

However, this was above the country’s benchmark of not less than 4.0 months, but below the East African Community’s 4.5 months. Another indicator which fell slightly during the period under review was exports of goods and services, which dropped to $8, 514.4 million from $8, 578.7 million.

Exports of traditional crops declined to $533.9 million from $1,140.3 million, manifested in all traditional crops, except coffee and cotton. However, non-traditional goods exports, which account for 78.9 per cent of goods exports, increased to $3, 499.2 million from $3, 142.7 million, largely driven by gold exports.

The value of gold– which accounted for 38.6 per cent and 48.9 per cent of total goods and non-traditional exports, respectively – grew by 15.4 per cent to $1, 716.7 million on account of increased volume. Domestic revenue realized by the government in May 2019 amounted to Sh1.28 trillion from Sh1.30 trillion. Out of the collections, Sh1.2 trillion was collected by the central government and Sh50.4 billion was local government authorities’ collections from own sources. Tax collections amounted to Sh1.1 trillion, accounting for 87.4 per cent of domestic revenue.

In May 2019, expenditure amounted to Sh1.8 trillion, of which recurrent expenditure was Sh1.06 trillion and development expenditure was Sh741.7 billion. The level of external debt stock, comprising public and private sector debt, amounted to $21.6 billion, having increased by $1.07 billion from May 2018. The increase was mainly on account of new disbursement, with recent sustainability reports indicating that Tanzania’s debt is still stable.

Tanzania’s economic growth slowed to 6.6% year on year in the first quarter of 2019 from 7.5% in the same period a year earlier, official data shows, weighed down by softer construction, agriculture and manufacturing activity.

A leaked report from the IMF said earlier in 2019 that Tanzania’s economy has not been expanding as fast as official figures suggest. It said lower growth was partly due to President John Magufuli’s “unpredictable and interventionist” policies.

In the first quarter, construction, the biggest driver of GDP, grew 13.2%, compared with 15.6% a year ago, the state-run national bureau of statistics said.

However, growth in the mining sector, which has been the target of repeated government interventions, rebounded to 10.0% from a 5.7% decline during the same period in 2018. Tanzania is Africa’s fourth-largest gold producer.

“The growth of the mining sector was mainly due to an increase in production of gold, coal and diamonds,” said the bureau.

Magufuli embarked on an ambitious programme of industrialisation after coming to power in late 2015, investing billions of dollars in infrastructure, including a new rail line and a major hydropower plant and reviving the national airline.

But critics say government intervention in mining and agriculture have discouraged investment. Foreign direct investment has slumped and private sector lending growth dropped below 4% in 2018, from an average of 20% from 2013-2016.

Agriculture, which accounts for about a third of economic activity, also slowed in the first quarter of 2019, with crop production growing 6.0% compared to 8.9% in the same period in 2018, the statistics bureau said.

In 2018 the government sent the military to seize the cashew harvest, the main export crop, after complaints by farmers that prices offered by brokers were too low. Manufacturing, another key GDP contributor, grew 4.8% in the first quarter compared with 5.3% a year earlier.

Tanzania’s economy grew 7% in 2018, according to the government, which has forecast 7.1% growth in 2019. Earlier in July, however, the World Bank released its own estimates that said Tanzania’s economy grew 5.2% in 2018.

Following the World Bank report, Tanzania said it might revise its 2018 GDP growth rate after meetings in August. In April, a leaked report from the IMF predicted lower growth of about 4%-5% in the “medium term”. The IMF report said there were serious weaknesses in Tanzania’s official data.

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