BOT urged to shields post-pandemic economic recovery

15Mar 2023
Daniel Semberya
The Guardian
BOT urged to shields post-pandemic economic recovery

Researchers have recommended fiscal and monetary policy measures to be taken by Bank of Tanzania (BoT) and the ministry of finance and planning in order to ensure strong post pandemic economic recovery.

ESRF Associate Researcher Dr Oswald Mashindano stresses a point on the impact of COVID-19 on the country’s economy during the ESRF workshop in Dodoma last week. Photo by Daniel Semberya

Monetary measures include buffering to safeguarding banking liquidity, prevent substantial disruptions of credits, deepen financial market, easy mobile money availability and complement its current monetary measures with macro prudential policies have been recommended.

This was said by Dr Oswald Mashindano when presenting a paper on Macroeconomic Policy Development in Tanzania during the COVID -19 Macroeconomic Policy Responses in Africa (COMPRA) dissemination workshop to government policy makers and actors in Dodoma last week.

The ESRF Associate researcher recommended another tool as to use capital buffer, which requires banks to increase their capital cushions during an economic expansion when systemic risks are rising, and then release them in an economic downturn to absorb losses.

“This tool reduces the capital constraint through releasing the buffer when the economy slows and helps to insure against deleveraging, which, if not counteracted, could deepen the downturn by restricting credit to the economy and worsening the liquidity crunch,” the policy recommendations read.

It has been recommended for increased social protection measures to shield the most vulnerable population, including women, youth and the elderly to prevent them from falling below the poverty line.

He said policies should also continue focusing on investment in education, skills development, healthcare, and research and development.

It is being recommended that precautionary debt management measures should be undertaken to prevent further escalation of debt service risk by prioritising concessional financing of the budget by as much as possible and ensuring that projects financed by non-concessional foreign loans have a large impact on overall social-economic growth, green growth and exports.

Measures should also ensure strengthening public investment management and domestic revenue mobilization and improving expenditure management to ensure that no new arrears are accumulated and that verified arrears are promptly paid to continue the country’s healthy debt sustainability threshold.

Latest research findings by the Economic and Social Research Foundation (ESRF) have revealed that the COVID-19 pandemic had an adverse impact on Tanzania’s fiscal and balance of payment.

 It has resulted in a drastic reduction in tourism and traditional exports receipts, exerted budget pressures, and decelerated GDP growth from about 7 percent in 2019 to a projected 5.5 percent and 5.4 percent in 2020 and 2021, respectively.

He said that tourism earnings dropped substantially – the sector was severely affected by the pandemic due to the disruptions in international travel.

The tourism sub-sector is one of the cornerstones of Tanzania’s economy, contributing about 17.2 percent to the country’s GDP and 25 percent of all foreign exchange revenues.

The sector, which provides direct employment for more than 600 000 people, generated approximately US$2.4 billion in 2018 and US$2.5 billion in 2019.20 In 2020, the number of international tourist arrivals declined by 59.6 percent to 616 491 from 1,527,230 in the year ending December 2019.

This resulted in a drop of 59.2 percent from tourism earnings to US$1.06 billion, exerting undue pressure on the country’s balance of payments.

It further details that the traditional export earnings also declined due to the disruptions in international trade.

The value of traditional exports also went down by 8.8 percent to US$8.8 billion in December 2020 from US$9.65 billion in December 2019.

The Bank of Tanzania (BoT) attributed the decrease to declines in export values of cashews, coffee and cotton, and reduced volumes and prices of tea and sisal.

The COVID-19 induced reduction in export earnings also impacted the smallholder farmers who constitute over 67 percent of the country’s workforce or about 11.3 million people during the 2019/20 crop season, in terms of reduced farm-gate prices and incomes.

However, findings show that gold export earnings rose to ameliorate the balance of payments tension caused by the pandemic.

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