Growth Expected to be Moderate but Several Problems Continue to Linger
Tanzania’s economy grew around 7.1 percent 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 percent from 7.1 percent.
That forecast had also been revised from 7.4 percent. 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 percent in the period between January and December 2017, compared to a GDP growth of 7.0 percent in 2016,” Majaliwa said in the parliamentary presentation obtained by Reuters.
The session in January was held behind closed doors. The full-year GDP growth in 2017 was driven by mining and quarrying (17.5 percent), transport and storage (16.6 percent) and construction (14.7 percent) activities, he said.
The World Bank cut its forecast for Tanzania’s full-year GDP growth in November to 6.6 percent 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 percent 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 afterward show that AfDB contributed 65 percent of the construction costs, while JICA and the Tanzania government disbursed 21 and 12 percent 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 percent 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 road infrastructure to transport their crops to the market.
In fact, he said, the country’s economy was growing at 7 percent – with a 4 percent inflation – partly because of good crop 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 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 remains 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 charge 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 in 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.