The central bank’s promising growth prospects are premised on a combination of factors, including the projected rebound of the global economy, which is forecast to expand by 3.9 per cent in both 2018 and 2019.
According to its new Monetary Policy Statement (MPS), the other main propellers of the domestic economy over the short and medium-term will be the expected good weather conditions, improvement in power supply, buoyancy in the transportation sector as well as execution of mega infrastructure investments such as the standard gauge railway (SGR) and the Stiegler's Gorge hydropower project.
“Based on developments of the leading indicators of economic activities in the first half of 2017/18, the projected GDP growth rate for 2017 has been revised downwards to 7.0 per cent against the initial estimate of 7.1 per cent,” BoT notes in the MPS for February 2018 published late last week.
“Growth prospects for the second half of 2017/18 and beyond remain promising, supported by projected rebound of the global economy, expected favourable weather conditions which may lead to good harvests, improvement in power supply from natural gas and hydropower plants, transportation services and implementation of infrastructural projects under the 2nd Five Year Development Plan (FYDP II),” it adds.
Monetary & Macroeconomic Policy Objectives
The statement reviews the implementation of monetary policy during the first half of 2017/18. It also describes the monetary policy stance and measures the central bank will pursue in the second half of 2017/18 to meet its policy objectives.
The central bank says that monetary policy targets for 2017/18 contained in the June 2017 MPS have been revised to reflect the recent developments in broad macroeconomic objectives of the government. Consequently, BoT’s new monetary policy targets include attaining annual growth of average reserve money of not more than 10.7 per cent.
Others are annual growth of broad money (M3) of not more than 12 per cent; annual growth of private sector credit not exceeding 11.5 per cent; and maintaining gross official reserves at levels adequate to cover at least four months of projected imports of goods and services, excluding FDI related imports.
The macroeconomic policy objectives contained in the previous MPS have also been revised. Now the new macroeconomic objectives of the government comprise attaining a real GDP growth of seven per cent in 2017/18 based on the projected growth of seven per cent in 2017 and 7.1 per cent in 2018.
Another is maintaining a single digit annual inflation rate by end June 2018.The government also targets a budget deficit including grants of 3.8 per cent of GDP in 2017/18.
“The economy sustained strong real GDP growth at 6.8 per cent in the first three quarters of 2017. The fastest growth rates were recorded in mining and quarrying (24.3 per cent), information and communication (13.1 per cent), transport and storage (11.9 per cent), water (10 per cent), manufacturing (9.8 per cent) and construction (9.5 per cent),” reads the MPS.
“During the first three quarters of 2017, construction activities remained the main contributor to GDP growth at 15.7 per cent, followed by transport and storage (12.1 per cent). Other activities that contributed strongly to output growth include mining and quarrying (11.8 per cent) attributed to the increase in gas production, diamond, tanzanite, and coal; and agriculture (10.3 per cent),” it adds.
BoT expects headline inflation to remain around the medium-term target of five per cent in the second half of 2017/18 supported by continued improvement in food supply attributed to expected favourable weather conditions. The projected low increase in the general price level of goods and services will also be backed by stable power supply, sustained prudence of monetary and fiscal policies, and continued stability of the value of the shilling against the major currencies.
The current account balance is projected to record a deficit of 4.2 per cent of GDP in the year 2017/18, up from 2.8 per cent of GDP recorded in the year 2016/17 as imports are expected to increase much faster than exports, consistent with the implementation of some major public investment projects in infrastructure.
In the medium term, current account deficit is projected to widen consistent with the continued implementation of projects under FYDP II. The blueprint aims at economic transformation through industrialization and human development.
Major projects include the standard gauge railway linking Dar es Salaam with Mwanza, the 2100 MW Stiegler’s Gorge hydropower project, the Bagamoyo port, and the Hoima-Tanga pipeline linking Uganda’s Lake Albert oil fields to Tanga.
Banks and Credit
“During the second half of 2017/18, the banking sector is expected to remain sound and stable, with capital and liquidity levels remaining above the minimum requirement to withstand shocks.
“The Bank of Tanzania will continue to monitor banks with high levels of non-performing loans (NPLs), and require all banks and financial institutions to effectively use credit reference bureau reports when carrying out credit appraisals.”
In its latest country report for Tanzania, the International Monetary Fund (IMF) says that although official GDP data points to continued strong growth, other data suggests weakening of the economy due to missed revenue targets and stagnation of credit growth.
According to it, the provision of credit to the private sector has declined, as banks seek to cope with deteriorating asset quality. The global financial prefect says increasing nonperforming loans (NPLs) are exerting pressure on banks’ earnings, which has negatively affected their capital adequacy and liquidity.
“The macroeconomic outlook remains generally favourable over the medium term.” IMF says in the country report noting that downside risks are related to the poor business environment and a continued slow execution of infrastructure spending.
“The deteriorated perceptions regarding the business climate may become a drag on economic activity by failing to unlock new investment opportunities and deterring private sector participation in the major infrastructure projects,” reads the report.
“A continued low rate of execution of public infrastructure spending would have a negative impact on economic activity in the near term and reduce the growth potential going forward. Additionally, a prolonged slowdown in private sector credit growth could affect economic activity,” it adds.