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How fares the national economy?
2006-02-15 07:01:59
By Theo Mushi
The biggest challenge facing the fourth phase government is to maintain the economic gains of the previous administration which include sustaining macro-economic stability.
The inflation rate was over 30 percent in 1995, but by 2000 it had been contained to a single digit of less be attributed to restrictive monetary policy and fiscal discipline as the government restricted borrowing from the banking system, which expands money supply and fuels inflation.
As the inflation rate fell, so did the interest rates both deposit and lending .
The lending rate has not fallen to the degree that was expected because of the culture of loan repayment deficit, and banks have to put higher lending rates because it hedges them against the losses that are created by willful defaulters.
There were deliberate policies to promote both traditional and non-traditional exports, and this included the institution of an Export Guarantee Scheme.
Hence exports rose from an average of $ 750 per annum to $ 1.2 million.
The trade deficit was not reduced because of the growing import bill, which consists mainly of transport equipment and capital goods, which are required for new investments.
In the era of economic diplomacy our diplomatic missions abroad should strive to promote exports to reduce the balance the of payments deficit which is normally bridged by official development assistance and grants from development partners.
Tanzania has adopted the IMF sponsored growth and poverty reduction strategy aimed at attaining the Millennium Development Goals.
These include halving poverty by 50 percent by 2015, and attaining universal primary education.
Other goals are reduction of infant and maternal mortality rates.
Tanzania has almost attained universal Primary Education as the implementation of the Primary Education Development Programme has shown a lot of success in enrollment and what remains is to increase the quality of education that is being offered.
The other parameter that is important is to continue to improve the investment climate to attract more foreign investment.
Under the third phase government, FDI rose from an average of $ 50 million per annum in 1995 to $ 248 million in 2005.
It is worth noting that over 60 percent of this investment went to the mining sector and hence the need to attract investments to other sectors of the economy in order to attain higher a GDP growth rate and create jobs and more income generating opportunities.
Economists observe that a growth rate of 8 to 10 percent is consistent with poverty alleviation if there are policies that lead to more equitable distribution of income.
The problem of urban and rural unemployment and underemployment is still a time bomb that should not be allowed to detonate.
As domestic and foreign investment increases to all sectors of the economy, so will the labour absorption capacity increase, especially trainable labour.
How correct are economic forecasts? There are a few external factors that may substantially alter economic indicators and forecasts of growth and inflation.
These external factors include the unpredictable weather, flow of donor funds for priority projects in poverty alleviation programmes, and the high price of fuel.
There are already indications that climatic conditions will not be favourable to good crop harvests and there is already a food shortage that has led to importation of grain supplies.
A substantial amount of foreign exchange will be used to import food and fuel, and this will not only deplete the impressive foreign exchange reserves, now estimated at six months worth of imports.
This will in turn increase the balance of payments deficit.
Food shortages may also derail the inflation target. This is due to the fact that food has a big weight in the Consumer Price Index (CPI).
A big rise in the price of food may lead to a high inflation rate.
A low and stable inflation rate is conducive to attracting investments because it makes business planning predictable.
The economy grew at 6.7 percent in 2005, and it was forecast that it world reach 8 percent in 2006.
These external factors have made the government to revise the projected growth rate down to 7 percent.
This may be attained if the agricultural sector grows at above 6 percent as it did in the previous year.The anticipated drought may derail the growth rate in the agricultural sector.
Considering that agriculture contributes 45 percent to GDP, a drop in the growth rate of the largest sector in the economy may make the projected 7 percent GDP growth rate unattainable.
Power rationing, if it continues, may affect the growth rate of the manufacturing sector and its contribution to GPP.
In 2005, manufacturing grew at 8 percent, and its contribution to GDP was also 8 percent.
If power rationing continues, there is a big possibility that workers may be temporarily layed off.
The SME sector has been adversely by affected because it does not receive priority in power rationing as most of these enterprises are located in residential areas.
And hence income-generating opportunities in the SME sector may also decline.
The mining and construction sectors will continue to grow at 12 percent and 17 percent respectively, but the impact on employment and poverty alleviation will be minimal because these sectors are largely labour intensive.
Tourism has been doing well over the last couple of years generating up to $ 700 million per annum in foreign exchange.
This sector is threatened by increasing violent crime in the country, which may also scare away foreign investors, which may lead to a decline of FDI and a lower rate of job creation .
Macro-economic stability should be maintained because the cost of going back to the 1990s is too big and it may take years to put macro-economic fundamentals right again.
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