World Bank sees Tanzania's economic growth slowing to 6.8% in 2019

16Jan 2019
By Financial Times Reporter
Dar es Salaam
Financial Times
World Bank sees Tanzania's economic growth slowing to 6.8% in 2019

THE World Bank expects Tanzania's economic growth to be slower than expected this year, but the country will still remain among the fastest growing economies in Africa over the next few years.

In its Global Economic Prospects (Darkening Skies) report released last week, the World Bank says gross domestic product (GDP) growth in Tanzania will likely slow down to 6.6 per cent in 2018 from a 7.1 per cent expansion in 2017.

This year, the World Bank estimates that Tanzania's economy to grow by 6.8 per cent and rise to 7.0 per cent next year.

But the government expects Tanzania's economy to grow by 7.2 per cent in 2018 and accelerate to 7.3 per cent next year, despite a slowdown in credit to the private sector and rising bad loans in the country’s banking sector.

The state-run National Bureau of Statistics (NBS) said last month that Tanzania’s GDP grew by 7.0 per cent in the first half of 2018 from a 6.7 per cent rise in the same period a year-ago, while the country's inflation rate dropped to a 10-year low in November, helped by slower rises in food prices.

"In fast-growing countries, such as Rwanda and Tanzania, the (economic) expansion will be supported by public investment in infrastructure and strong agricultural growth," said the World Bank in its 264-page report seen by the Financial Times.

"Inflation is expected to pick up across the (Sub-Saharan Africa) region in 2019, reflecting the pass-through of currencydepreciations during 2018 and domestic price pressures among metals exporters and non-resource-intensive countries ... price pressures are likely to intensify in Kenya, Tanzania and Uganda."

Tanzania's annual headline inflation rate rose marginally to 3.3 per cent in December from 3.0 per cent in November, the lowest inflation rate in a decade.

The International Monetary Fund (IMF) warned last month that a credit squeeze coupled with a slowdown in government spending could dampen prospects for faster economic growth in Tanzania.

"More recently, several indicators point to slower momentum which, combined with other risks, could complicate the outlook.

Constraints in implementing public investments and weak expenditure controls have led to an increase in fiscal arrears," the IMF said in its latest financial system stability assessment of Tanzania.

The lender, which warned that nearly half of Tanzania's 45 banks are vulnerable to adverse shocks and risk insolvency, forecast the economy to expand by 6.6 per cent this year.

The government plans to raise spending by 2.4 per cent in the 2018/19 fiscal year, with the fiscal deficit expected to increase on the back of higher infrastructure spending.

The fiscal deficit is seen reaching 3.2 per cent of GDP in 2018/19 fiscal year (July-June), up from around 2.1 per cent in 2017/18, according to data from the Ministry of Finance and Planning.

Elsewhere, the growth of the global economy is expected to decelerate to 2.9 per cent this year compared with three per cent in 2018, the World Bank said in the report, citing elevated trade tensions and international trade moderation.

A slump in the global economy will continue in the coming year, with 2020 growth estimated at 2.8 per cent, according to the report.

"Risks to the regional outlook are tilted to the downside. On the external front, slower-than projected growth in China and the Euro Area, which have strong trade and investment links with Sub-Saharan Africa, would adversely affect theregion through lower export demand and investment," the World Bank said.

"Moreover, Sub-Saharan African metals producers would likely be among the hardest hit by escalating trade tensions between China and the United States, as metals prices would fall faster than other commodity prices as a result of weakening demand from China."

Sharp currency declines would make the servicing of foreign currency-denominated debt, already a rising concern in the sub-Saharan African region, more challenging, it said.