Tanzania Economy on Track Says World Bank

Dar Es Salaam Tanzania's capital

Tanzania can attain its ambitious accelerated and shared growth by only maintaining proper balance between borrowing, expenditure and savings it makes, a new World Bank report has revealed. Equally important in attaining the ambition to stir development, the bank said in its latest analysis of the national economy, is the need to make further investments in human capital and in facilitating business development.

The commitment to fiscal prudence, addressing skilled labour shortcomings and promoting the private sector is also a decisive factor in the country’s efforts to tame poverty, it further noted.

“Tanzania can achieve its vision of accelerated and shared growth through the combination of fiscal prudence, cost-effective reforms in the education sector, and smart policies aimed at promoting the transformation of firms,” the Bretton Woods institution noted in a statement released on this week.

Some local economists have, however, faulted the austerity economic measures proposed by the international financial institution (IFI) to address the country’s awkward fiscal position.

According to Dr Honest Ngowi of Mzumbe University, the government’s liquidity problems are due to various internal and external factors, which require more than fiscal prudence.He yesterday wrote in a local daily that more austerity measures as proposed by the World Bank would be bad economics for the country.

Increased, as opposed to reduced government expenditure, he said, is necessary for the needed increase and sustained economic growth and national development.

The bank’s first Tanzania Economic Update titled “Stairways to Heaven: Fiscal Prudence, Value for Money in Education, and Economic Transformation of Firms”, launched on Wednesday shows that the country has been performing well over the past few years due to effective demand policies but warns against complacency.

“Tanzania relative isolation from global markets has helped it to survive recent external and regional shocks. However, this resilience of the economy in the past does not necessarily guarantee immunity in the future,” cautioned Ms Mercy Tembon, the World Bank acting country director for Tanzania, Uganda and Burundi.

She added: “But if Tanzania continues to commit to fiscal prudence and stability and makes further investments in human capital and in facilitating business development, it could reach its ambitious target of rapid and shared growth in the current decade.” Despite the high rate of economic growth in recent years, poverty is still pervasive in Tanzania.

The report forecasts that Tanzania could grow at around six per cent in 2011/12 but quickly adds that this good performance would nevertheless represent the lowest rate achieved since the early 2000s and a slowdown compared to 7.3 per cent and 6.5 per cent observed in 2009/10 and 2010/11 respectively.

The report notes that this deceleration is partly the result of the new restrictive fiscal and monetary stance, rightly adopted by the government after the deterioration of several indicators during the second half of 2011. “Tanzania needs to find new drivers of growth after three years of rapid fiscal expansion,” says Mr Jacques Morisset, the bank’s lead economist for Tanzania.

“The challenge is to create new impulse for growth through better education outcomes and skills, which will in turn sustain job creation and transformation of firms,” she said. Treasury chief Mustafa Mkulo said Tanzania’s economy continues to grow strongly.

He argues that despite power shortages, real GDP grew by 6.3 per cent in the first half of 2011, and most leading indicators remain favourable.Accordingly, the government is strongly of the view that the revised six per cent GDP growth projection for 2011 will be achieved and most likely surpassed.

Mr Mkulo noted in a recent communication to the International Monetary Fund (IMF) that growth is projected to increase to 7.2 per cent in 2012 and remain above this level in the medium term.This week, a Dutch financial institution said Tanzania’s economic growth would slow down to three per cent this year due to the government’s conservative monetary policy to tame inflation, which would stifle financing to the private sector.

However, Mr Mkulo dismissed the prediction as an overreaction, which also contradicts the IMF and World Bank’s forecasts.The first World Bank economic update on Tanzania underlines that education has been a national priority where the government has invested as much as 20 per cent of its budget every year, but the next challenge will be to produce more graduates with limited fiscal resources and fast growing school populations.

“Getting better value for money will require some reallocation of fiscal and human resources across districts, improvements in teachers’ capabilities and in financial management, and synergies with the private sector and parents,” says Mr Stevan Lee, co-author of the report.

The bank also considers that signs of economic transformation have emerged from the private sector with technological and educational improvements as main drivers.Small and medium firms are now the fastest source of employment growth and manufacturing exports have been booming since 2005.

The good signs can be further encouraged by smart supportive policies.The Tanzania Economic Update will be published bi-annually and constitutes an important aspect of the World Bank’s analytical programme that aims at fostering a constructive policy dialogue between stakeholders and policymakers and to stimulate debate on critical economic issues.