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 percent, which was below the targeted five percent, 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 percent in May this year from 4.8 percent recorded during the year ended in May 2018.
The improvement of the broad money supply as 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 percent from 2.9 percent, 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 percent from 17.53 percent, 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 percent 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 percent and 48.9 percent of total goods and non-traditional exports, respectively – grew by 15.4 percent 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 percent 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.