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By Honest Ngowi
economics made simple
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The Parliament of the United Republic of Tanzania will be starting its meeting in Dodoma in February 2012. It is assumed that there are issues that are scheduled for discussion by our representatives. Some people who are not Members of the Parliament (MPs) have issues that they would like our representatives to either discuss directly or be informed by these issues when discussing the scheduled agendas.
It is arguably an exception rather than a norm for most MPs to seek views on discussion issues from the people they are supposed to be representing. In this article, the author takes the liberty of identifying some key and current economic issues that should shape, characterize and influence the coming Parliament meeting in February 2012. It is assumed that these issues will be important inputs that will raise the Bunge debates into newer and higher heights.
Perpertual rise in inflation
The December 2011 rise of inflate rate to 19.8 per cent marked a 14th month consecutive hike in the general price level. One is tempted to conclude that we as a nation have failed to tame inflation. Indeed, we have failed to address the fundamentals and kernels of the matter that trigger and fuel inflationary pressures in this Rupublic. Tanzanian type of inflation is structural as opposed to monetary. It is due to structural constraints and limitations that result into inadequate quantity and quality of electricity and its related relatively high prices. The structural constraints in the economy are also triggering and fuelling high food prices, inter alia. Electricity and food are specifically mentioned due to their lion’s share in the Consumer Price Index (CPI) and therefore in the numerical value of inflation.
Taming inflation sustainably at the policy target of single digit mark is proving to be a very tall order. Partly this has arguably been the result of Government use of monetary policy instruments including liquidity tightening to tame structural causes of inflation. Structual inflation should be tamed by appropriate structural measures including fixing the fundamentals responsible for this kind of inflation.
Applying such monetarist policy instruments as money tightening will not solve structural inflation. Indeed, structural inflation may need to be fixed through loose and expansionary monetary and fiscal policies and their instruments. These would provide room for, inter alia, easy and cheap access to credit.
It is such credit that is needed to address such fundamental structural constraints as inadequate investments in all nodes of food commodity chain as well as in all nodes of infrastructure chain including electricity. Tightening money supply has in-built inflationary pressures via the routes of expensive credit as interest rates will hike. Therefore, the would-be new businesses may not see the light of the day. Existing businesses may ‘close shops’ due to inability to access expensive credit. The result is fewer new goods and services from the supply side of the economy. This is among recipes for inflation.
The 40.29pc elecricity tariff hike
This Bunge meeting will be the first one since the January 15th 2012 hike in electricity tariff by 40.29%. The hike seems to be a necessary evil compared to a no power scenario. However, the discussion issues include on whether it is not more appropriate and logical for TANESCO owner – who happens to be the Government – to shoulder the substantial cost increaments instead of electricity consumers. More discussion views in this issue were covered in this column on 21st January 2012 among other places.
Sustaining Shilling’s strength
The Shilling experienced continuous decline against the US Dollar for most part of 2011. It reached all-times low of over 1800 Tshs per Dollar in mid-October 2011. At the beginning of January 2012 however, it started showing signs of gaining ground against the greenback by exchanging at 1500 Tshs per Dollar. However, some foreign exchange volatility (up and downward movement of exchange rate) are starting to be observed.
Issues of discussion here would be the extent to which the Shilling gained ground can be sustained. Did it gain ground due to such financial acrobatics and cosmetics as BoT’s supplying Dollars in the market (said to be 100 million per month) or was it because such fundamentals as increasing foreign currency earnings through the external sector and reducing expenditures of the same was addressed? Or, did it appreciate due to low demand as captains and titans of the industry were on end of year holidays thereby postponing their Dollar-denominated transactions? It would be appreciated if our representatives in Bunge would solicit answers from the Government on our behalf.
The Euro Zone Crisis
The ongoing, dynamic and ever-unfolding Euro Zone sovereign debt crisis should be an issue of very great concern for Tanzania. This is because of its many and far-reaching implications on trade, tourism, investments inflows, remittances and aid.
By extension the crisis will affect national income in general and foreign exchange earnings in particular. Assuming that the memories of the 2008 economic crisis are still fresh in the MPs minds, their discussions should be informed by the lessons learnt. Short of that, we as a nation might be caught with pants down. In connection to the Euro Zone crisis, it would add value in the Bunge discussions if the MPs consider the fact that prospects for the world economy for 2012 are rather gloomy. It may shrink by 0.3 per cent.
Now that Tanzania is not a country in autarky (closed economy), but an open one, it will be affected by what happens in the global scene in general and in the Euro Zone in particular. It is good to be vigilant and realistic rather than being just optimistic or persimistic.
If the MPs will be informed by current issues at the local and global scenes as partly outlined in this article, there will be more value for tax payers’ money spent by MPs.. The author is a senior lecturer, researcher and consultant in Economics and Business at Mzumbe University Dar es Salaam Business School
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