The government has been advised to maintain economic growth of 6.8 per cent and control inflation and exchange rates to build strong foreign reserves that have been dropping over the years now.
“High inflation and exchange rates have an adverse impact on economic growth since they lead to a loss of competitiveness,” said Phumelele Mbiyo, head of the Macroeconomic Research for the East Africa region at Stanbic Bank, when presenting a paper entitled: “Re-establishing macroeconomic stability: laying the foundation for sustained economic growth” during the bank’s economic forum in Dar es Salaam yesterday.
Mbiyo said the inflation rate in the country kept increasing, while the shilling continued depreciating against the US dollar. According to him, the exchange rate in 1996 was US$1 per 600/- but now it has doubled to over 1,500/-.
He noted that lack of foreign reserves, inadequate infrastructure and power problems hindered economic growth. “The country has imported more than it exports, which leads to inadequate financial inflows. The country’s foreign reserves as per January this year was US$4,000,” he said.
Mbiyo explained that there were more imports than exports and protracted droughts had caused the country to import more than export and thus reduce possibilities of economic growth.
“It is important for policy makers to take measures to maintain the economic growth of 6.8 per cent recorded in previous years. Tanzania managed to build strong foreign reserves between 2005 and 2010 but from late 2010 to last year they dropped,” he noted.
He explained that Tanzania’s Gross Domestic Product (GDP) grew fast compared to Kenya and Uganda. He said last year, for instance, Tanzania’s GDP grew by 6.4 per cent, while Kenya’s grew by 4.2 per cent and Uganda by 3.6 per cent.
For their part, Stanbic bank economists Jeremy Stevens and Goolam Ballim said most of developed countries had started realising the economic potential in Africa including Tanzania.
Stevens said trade between China and Africa had increased, whereas Chinese investments in African countries were increasing also mainly in infrastructure and mining sectors.
He said Tanzania was well economically integrated with the rest of the world although its businesses with such countries had dropped.
Meanwhile, Stanbic Bank Managing Director Bashir Awale said they had organised the forum to give economists a chance to discuss issues related to the global economic recession.
Last week, CRDB Managing Director Dr Charles Kimei said high inflation in the country was the main challenge facing the banking sector as it resulted in high operational costs. He said the high inflation had been affecting currency circulation, hence increasing the lending rate.
“When the inflation is high depositors in banks will demand for increment of the lending rate, which will be over 20 per cent,” he said.
Dr Kimei noted that the situation occurred, when the central bank controlled inflation by taking the money out of circulation. He said the situation also posed difficulties in loan repayment.