From Daily News
AS president Jakaya Kikwete ends his second and last term in office, how will his legacy be remembered? There may be many different answers to the question, some positive and others negative depending on one’s viewpoint.But this needs to be said. Tanzania has recorded robust economic growth over the last decade during his term in office. Tanzania maintained a high level of economic stability over the past decade making it the fastest growing economy in the East African Community with an average annual gross domestic product growth rate of 6-7 per cent. The growth rate reached 7.3 per cent in 2013 up from 6.9 per cent in 2012 before it rose to 7.0 per cent in 2014.
According to the Minister for Finance Saada Mkuya Salum, the growth is expected to reach 7.5 per cent this year driven by rapid expanding sectors of information and communications, construction, manufacturing and other services. Medium-term prospects are favourable, with growth projected to remain above 7.0 per cent, supported by public investments in infrastructure, particularly in the transport and energy sectors.
The strong growth performance of the country happened despite the 2009 global recession that affected economies of many developing countries thanks to sound macroeconomic policies and continued donor support. Poverty reduction Economists agree that sustained economic growth, if well managed, is the main driver of long term poverty reduction. This is the case in Tanzania.World Bank’s Tanzania Mainland Poverty Assessment and the 2012 Household Budget Survey (HBS) show the strong growth is trickling down and is helping to ease poverty. According to the World Bank report, sustained rapid economic growth and concerted efforts around national strategies to alleviate poverty have led to a decline of approximately one percentage point per year in the rate of poverty in the country between 2007 and 2012, constituting the first significant reduction in 20 years.
It confirms earlier findings by the 2012 Household Budget Survey (HBS) that the basic needs poverty rate declined from around 34 per cent to 28.2 per cent during that period. “There are emerging signs of pro-poor growth,” says Philippe Dongier, Country Director for Tanzania, Burundi and Uganda in the report.
“These can be seen in the improved levels of education, access to basic services and ownership of land and other assets among poor households. In addition, the economic returns to the poor’s economic activities have also increased, particularly outside agriculture.” He however cautions there should be no room for complacency as poverty remains a major challenge.
The majority of Tanzanians remain close to the poverty line. In fact, more than 70 per cent of the population lives on less than 2.0 US dollars per day. With declining poverty and an increase in people’s income, the East Africa’s second largest economy is now inching closer to join the middle-income countries groups.
The Minister for State in the President’s Office (Relations and Coordination), Mary Nagu told Parliament in June this year that the strong economic growth had boosted the total output of the economy to 79.1 tri/, equivalent to a per capita income 1,724,416/- or 1,038 US dollars in 2014.
To put it in perspective, the fourth-phase government came to power in 2005 when the total output of the economy was 16.9 billion US dollars (19.11tri/-) with a per capita of 375 US dollars (625,327.1). According to World Bank classifications for the current 2015 fiscal year, low income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method of 1,045 US dollars or less in 2013.
Middle-income economies are those with a GNI per capita of more than 1,045 US dollars but less than 12,746 US dollars. The total output in 2013 was 70.9 tri/- which is equivalent to a per capita income of 1,582,797/- or 948 US dollars, she said.
Inflation control Despite the rosy picture of strong economic growth, the fourth-phase government grappled with rising inflation and currency fluctuation challenges that affected most of developing countries and the world’s largest emerging nations from 2010. Under his stewardship, the government is credited with prudent measures that helped to contain inflation to a single digit from a record level of 19.8 per cent in 2012.
The government applied tight monetary policies and implemented other measures that included expansion of food crop production through increasing access to agricultural inputs such as fertiliser, pesticides and seeds.
These policies managed to bring down inflation to a single digit from in 2013 to date. The inflation rate reached 4.0 per cent in January this year although it rose gradually in the past few months to 6.4 percent in August 2015.
Economists attribute the rise in inflation to largely supply side factors, particularly food prices, and the exchange rate depreciation in the first half of 2015, which raised the domestic cost of imports and partly offset the relief from the fall in global oil prices.
It is predicted that inflation could increase somewhat more in the coming months, due to the lagged effects of the recent depreciation of the shilling, but it is expected to remain within single digits, helped by expected stable global oil prices as well as continued tight monetary policy.
It would gradually decline next fiscal year back to the authorities’ objective of five per cent. Weakening of the shilling The government had also to grapple with the fluctuation of the shilling brought about by strengthening of the US dollar. The dollar’s rapid surge from late last year, which is described as fastest in 40 years, has been painful for many economies and developing countries have, unfortunately, been getting the worst of it.
The shilling was not spared. It has been reeling under the weight of the mighty US dollars leading to a rise in prices and threatening to erode the gains obtained through painstaking reforms.
The shilling depreciated rapidly against the U.S. dollar particularly in April–June 2015, as the global strength of the dollar overlapped with high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends.
The situation was further compounded by delays in the mobilisation of external programme financing, which may have fuelled a foreign exchange shortage psychology. Tanzania as a net importer did not gain from weakening of the shilling. It could not contribute to improving the economy by stimulating exports as it would have logically been expected through common understanding of basic economics.
Instead it hurts the economy as imports become more expensive. A combination of measures, including a tightening of monetary policy and seasonally higher export earnings, subsequently helped to stabilise the shilling and have allowed a return to normal in the interbank and foreign exchange markets since August 2015.
According to IMF, the shilling, which was assessed to be somewhat overvalued in 2014, is now closer to equilibrium. Government revenue Domestic revenue collection increased from 2,124.8 billion shillings in 2005 to 10,510.56 billion shillings in June 2014 equivalent to 438.6 per cent increase. This was possible due to improved management of tax and non tax revenue collection and increased economic activities due to rapid expanding economy.
Revenue collection was also boosted by measures by the government to plug off loopholes for tax evasion and enhance compliance which include introduction of Electronic Fiscal Devices, control of fuel trade by introducing fuel marking mechanism and to increase duty on kerosene to curb fuel adulteration which cause huge loss of government revenue.
The increase in government revenue has enabled the government to improve access to social services and finance various development projects. However, the increase in revenue collection is deemed not good enough by some quarters as it cannot finance the rapid expanding development plans in the wake of declining donor support and limited borrowing.
“The primary threat to Tanzania’s economy comes ... from domestic issues. In particular, low levels of revenue, lower than anticipated aid inflows and the accumulation of arrears with contractors and pension funds have disturbing implications for Tanzania’s fiscal stability,” the World Bank said in its latest economic update report.
“The government has had to respond through significant cuts in expenditure ... This has made it difficult for the government to implement its ambitious investment plans, despite the urgent need for investments in infrastructure and social services.”
No comments :
Post a Comment