Economy expands despite weak global growth

In a report released last week, BoT said the economy posted robust growth and foresees superb performance this year. The revised growth rate of seven per cent, which is also how the economy flourished in 2014, was still among the fastest paces globally.

Six out of the 10 fastest growing economies in the world last year were in Africa and Tanzania’s was one of them. In October, IMF revised global growth projections for 2015 from the 3.5 per cent projected in April 2015.

“The domestic economy remained resilient to shocks on account of strong macroeconomic performance,” BoT notes on the state of the economy.

The report has it that GDP growth for 2015 was revised downward in October to seven per cent from 7.2 per cent in April due to low export commodity prices.

The review says drivers of the projected growth include the on-going investment in infrastructure, expansion in private and public sector construction activities as well as improvement in external sector.

“Tanzania’s economic growth remained vulnerable to spill over-effects from slowdown in emerging market economies and tight financial conditions. GDP growth for 2015 was revised downward in October 2015 to 7.0 per cent from 7.2 per cent in April 2015 due to low export commodity prices mainly gold and some traditional export commodities,” the report reads in part.

BoT says inflation remained in single digit, a trend expected to be maintained in 2016 on account of prudent monetary policy, reliable power supply as well as low food and oil prices.

According to a top World Bank economist, Punam Chuhan-Pole, Tanzania and other African top economic performers have survived the bad economic times because they are transforming from agricultural production to more modern forms of investment.

Speaking as the acting World Bank chief economist in October, Chuhan-Pole said Tanzania, Ethiopia, Rwanda, Cote d'Ivoire and Mozambique would sustain the seven per cent economic growth rate or more in the next two years.

"To withstand new shocks, governments in the region should improve the efficiency of public expenditures, such as prioritizing key investments and strengthen tax administration,'' said Chuhan-Pole from Washington during a teleconference briefing.

That’s exactly what President John Magufuli has been doing since he assumed power in November and is highly expected to consolidate starting this year. Through his unorthodox leadership style, the no-nonsense president has introduced hitherto-unheard-of radical economic thrift measures.

His increasingly popular fiscal discipline has not only deprived extravagant leaders and greedy public officials the opportunity to squander national resources but also ushered in a new era in public financial management.

According to Global Risk Insights, a UK-based international outfit that provides analysis on political risk and geopolitics, the new president’s actions have put Tanzania on a positive trajectory. The company says that Tanzania has changed from being perceived as a backward country in the region, to being seen as a progressive example to East Africa.

Measures that have made Dr Magufuli popular, include fixing tax evasion loopholes and cutting out ‘unnecessary’ expenditure to boost revenue collections. The government managed to collect 1.3trn/- in tax revenue with new Finance and Planning minister Philip Mpango vowing to rake in 1.5trn/- a month.

President Magufuli’s restrictions on foreign trips could bolster national coffers by up to over US$160 million (about 344bn/-), which was spent under his predecessor. The fiscal legacy of former President Jakaya Kikwete under which Tanzania recorded robust GDP growth that averaged seven per cent in the last five years, will include overambitious revenue targets that were never met and overspending in every aspect of the term.

“The Tanzanian economy has continued to perform strongly with economic growth at about seven per cent and inflation remaining relatively well contained. The IMF expects this positive outlook to continue into the new year,” the head of the global financial prefect in the country, Thomas Baunsgaard, told The Guardian last month.
The resident IMF rep said Tanzania will not be directly affected in the near future by the US Fed rate hike last month, which some quarters say will be one of the external factors the national economy will have to cope with in 2016.
BoT Governor Benno Ndulu told The Guardian that the impact of the hike had already been priced in the exchange rate as part of the measures to cope with the development. The shilling has also been trading above 2,000/- to the dollar as part of BoT’s monetary strategy to keep it within its true value.
In September, an IMF mission that was in the country to assess the state of the economy said the local currency had been overvalued for quite some time. The IMF has it that the unprecedented recent free fall of the shilling was normal because it reflected the strength of the US dollar.
Its chief of Debt Policy, Hervé Joly, who led the September mission, said other factors that helped to clobber the shilling in 2015 included high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends.
The shilling’s woes were further compounded by donors’ delays to fund the 2014/15 budget, which fuelled a foreign exchange shortage psychology. With a monthly tax revenue target of 1.5trn/-, which would bring in 18trn/- in a year that is 4.4trn/- less the total current budget, the days of donor dependency look numbered under President Magufuli.
According to Prof Ndulu, the strong dollar has not only triggered exchange rate volatility globally but it has also led to tightening of financial conditions. He says in the report that Tanzania was not spared from the tight liquidity conditions as pressure emanating from strong US dollar mounted.
“However,” he explains, “the resulting depreciation helped to correct overvaluation of the shilling contributing to improvement of Tanzania’s export competitiveness. Besides, decline in oil prices contributed to reduction in the country’s import bill, contributing to improved current account.”
According to the latest monthly economic review, the current account improved to a deficit of US$4 billion in October from a deficit of US$4.97 billion recorded in the corresponding period in 2014. The improvement was a result of an increase in the value of export of goods and services, coupled with a decrease in the value of imports of goods especially crude oil.
The head of strategy at NMB Bank, Manzi Rwegasira, said low prices will help to reduce Tanzania's trade deficit. Lower trade deficit should support the Tanzanian shilling, he added noting that lower oil prices should reduce inflation.
“Low oil prices should mean that the prices of these goods should increase a lot slower due to the low cost of production. In Tanzania the prices of kerosene, petrol, diesel, should remain stable if not fall,” Manzi told The Guardian over the weekend.