- Tanzania’s economic growth rate has averaged seven per cent during the past two decades but the government projects the rate to increase to 8.2 per cent by 2019.
Dar es Salaam. The World Bank has commended Tanzania for maintaining a steady economic growth rate but wants the country to undertake three specific steps to reach admirable levels.
Tanzania’s economic growth rate has averaged seven per cent during the past two decades but the government projects the rate to increase to 8.2 per cent by 2019.
With the seven per cent average growth rate, Tanzania has managed to reduce the number of people living below the global poverty line of $1.9 (Sh4,400) per day from 60 to 47 per cent during the years. However, 12 million of the country’s population still lives on less than Sh1,300 per day. In its 9th edition of Tanzania economic update, the World Bank says to achieve the 8.2 per cent growth rate, which will put the country on the smooth path to attaining the middle income status by 2025, Tanzania will have to ensure prudent management of its macroeconomic fundamentals.
Secondly, the country will also be required to reform its business environment with a view to supporting the growth of the private sector.
Thirdly, the government will also be required to effectively implement its public investment plan by addressing key infrastructure gaps, including transport and energy.
“To maintain the growth momentum, the government will need to focus on three key growth enablers. The challenge is to increase growth rates to achieve higher levels of poverty reduction and the creation of a sufficient number of productive jobs to absorb new entrants to the labour market,” the report reads.
To attract private investment, Tanzania must address the bottlenecks to investing and doing business in the country.
This comes against a backdrop of the country lackluster performance in the WB’s Doing Business Report where Tanzania climbed 12 positions from the previous year’s to 132nd out of 190 economies.
Among the areas where Tanzania performed better than regional peers is the depth of credit information, reflecting expansion of credit bureau borrower coverage and credit data distribution from retailers.
However, the country is doing poorly in aspects of trading across borders where traders are exposed to high costs that are twice more than the average for the Sub Saharan Africa region. Tanzania’s import procedures are also cumbersome while the documentation process at the border is also lengthy.
“Additionally, the recently launched EAC Common Market Scorecard 2016 shows that Tanzania has the highest number of non-tariff barriers among EAC members. Besides, access to financing, tax rates and inadequate supply of infrastructure are other problematic factors,” the report reads in part.
According to the report, the poor quality of power services is limiting productivity growth of manufacturing and the poor performance of the power sector is perceived as a major constraint by larger firms.
A survey of business managers of the top 100 mid-sized companies undertaken in December 2016 also signals a weakening private sector sentiment in what partly reflects the recent and planned reforms by the government.
The ongoing austerity measures and the drive for increased domestic revenue collection have also reduced the demand for goods and services.
“Taken together, these constraints imply that Tanzania will need to do more to improve the investment climate and crowd in private sector investment,” the report says.
The reforms, it states, should include ensuring policy predictability, expanding access to affordable finance, streamlining taxes and regulations, expanding access to reliable infrastructure, such as power supply and good road and railway networks, and improving the education and training system to produce skilled workers to promote industrialisation.
In the endeavour to achieve higher economic growth rates and promote industrialisation in the long term, the government plans to scale up investment in infrastructure and human capital.
However, the WB is of the view that this is constrained by poor disbursement of development financing from development partners, hence, the need for the government to unlock the budget funding source.
The government would also be required to tap financing from private sector resources, including through the public private partnership.
Unveiling the 2017/2018 budget framework to Members of Parliament in Dodoma two weeks ago, the minister for Finance and Planning, Dr Philip Mpango, said until February 2017, the government had released only Sh3.97 trillion which translates into only 34 per cent of the planned Sh11.8 trillion development expenditure for the current financial year.
The situation was largely due to delays in disbursement of funds from foreign sources so much that until December 31, 2017 (half way into the financial year), the government has managed to raise only 12 per cent of planned external financing from both concessional and non-concessional sources.
Generally, the WB is satisfied with the government’s strong track record of macroeconomic policy management, noting that the momentum needs to continue.
“The continued implementation of prudent monetary policy should provide the necessary support for maintaining relatively low inflation, which is important for growth,” the report reads in part.