Why experts are worried about tight fiscal policies

Finance and Planning minister Philip Mpango speaks at a past event. PHOTO|FILE

What you need to know:

  • Although the government expects a growth rate of above seven per cent, the Bretton Wood’s institutions project lower levels due to uncertainties ranging from weak budget implementation, challenging business environment and private sector concerns about authorities’ enforcement of rules.

Dar es Salaam. The World Bank and the International Monetary Fund (IMF) have projected Tanzania’s lower economic growth rates.

Although the government expects a growth rate of above seven per cent, the Bretton Wood’s institutions project lower levels due to uncertainties ranging from weak budget implementation, challenging business environment and private sector concerns about authorities’ enforcement of rules.

A recent World Bank report forecast growth rates of 6.6 per cent in 2017 and 6.8 per cent in 2018.

Economists agree that the economy is shaken, but hope the situation will improve in the long team.

They cite the main challenge as economic consolidation stemming from austerity measures and a campaign against corruption and misuse of public resources.

“All these measures like squeezing expenditure, removing unqualified workers from the payroll can affect the economy in a short-term, but they are also grounds for putting the economy in a better position in the long run,” says Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics Department.

“We need to consider the context in which the little-slower growth is happening because the new government has come up with different strategies to consolidate the economy in the long run. So, the growth may be below seven per cent this year but in the long term things will be in line with the government projection of 7-8 per cent to become a middle-income country.”

In its vision, Tanzania plans to transform itself into a middle-income status come 2025.

For Dr Abel Kinyondo, of Repoa, although Tanzania’s economy is affected by its contractionary fiscal policies and little participation of the private sector to the economy, there are opportunities which may stimulate its development.

“Things like the construction of the Uganda-Tanzania oil pipeline and the standard gauge railway are opportunities for creating jobs. If the government can also change its stance and expand the fiscal policies by involving the private sector, it could help more in building the economy,” he says.

According to him, maintaining the tight fiscal policies may plunge the country into recession.

“GDP is one of the worst indicators of economic growth because it does not separate local and foreign contribution and therefore doesn’t reflect the reality on the ground,” he says.

“We need to see more employment opportunities and better services like health, water and education and this is a real economic development.”