Growth ‘to slow down to 6.3pc’

Dar es Salaam. Tanzania’s economic growth will slow down to 6.3 per cent in 2017, a Barcelona-based independent research organisation has projected.

FocusEconomic’s projections are far below those of the government, the World Bank and International Monetary Fund (IMF).

The World Bank, through its Global Economic Prospect, projected in June that Tanzania’s economy would grow at 7.2 per cent.

That was shortly after the government, through Finance and Planning Minister Phillip, forecast 7.1 per cent growth. Dr Mpango revealed the projection during his state of the economy address to Parliament in June.

But FocusEconomics – which fronts itself as the leading provider of economic analysis and forecasts for 127 countries across Africa, Asia, Europe and the Americas, as well as price forecasts for 33 key commodities – says Tanzania falls short of what it takes to achieve 7.1 or 7.2 per cent growth in 2017.

In its October 2017 report, FocusEconomics also projects 6.5 per cent growth in 2018.

The organisation’s economist, Mr Massimo Bassett, told The Citizen by email yesterday that their forecasts for 2017 and 2018 had been cut due to poor implementation of the government’s spending plan.

He said poor implementation caused capital expenditure to grow below the target outlined in the 2016/17 budget, casting doubt on the scaling up of public investment projected in the 2017/18 budget.

The report also says that rising levels of non-performing loans (NPLs) in commercial banks mean that lenders were adopting a cautious approach to lending, thus reducing the level of economic activities in the country and ultimately affecting economic growth targets.

Bank of Tanzania (BoT) figures show that NPLs have increased to 10 per cent of commercial banks’ total gross loans during the year ending May 2017, twice the sector’s benchmark of five per cent.

According to Mr Bassett, President John Magufuli’s tax and regulatory crackdown on mining companies could result in higher government revenues in the short term, allowing the government to allocate additional resources for infrastructure spending.

“An intensification of the crackdown on the mining sector and sluggish credit recovery could, however, dampen growth. Our panel expects GDP to expand 6.3 per cent in 2017 and 6.5 per cent in 2018,” he said, noting that the benefits could prove temporary as the measures could backfire in the longer term.

The consequent deterioration of the country’s business environment and attractiveness might discourage investment, reducing both revenues and growth potential, according to FocusEconomics.

“There is evidence that some exploration plans have already been cancelled and the share prices of several foreign mining firms operating in the country have taken a major hit,” Mr Massimo noted.

The performance of the all-important mining sector could be jeopardized by the government’s attempt to tighten control over the mining industry.

The latest episode was the seizure in late August of diamonds belonging to Petra Diamonds, with the government alleging that the company had under-declared the consignment.

But FocusEconomics has noted that the economy should nevertheless grow briskly this and next year, supported by growing infrastructure spending and robust domestic demand.

In the 12 months up through May, the current account deficit shrunk by almost half, although this was due to imports contracting more than exports.

In the same period, however, external debt rose significantly. In the first quarter, the economy grew by 5.7 per cent on the back of robust expansions in the manufacturing, construction and financial sectors and a surge in mining and quarrying.

FocusEconomics has urged the government to avert a mining crisis by ensuring the predictability of the legal framework.

One way to do this would be to apply new legislation only to new investments and ensure that any legislative changes are communicated clearly and that uncertainty around implementation is limited.

In addition, Mr Massimo said it would be advisable to limit the extent of tax increases and avoid the State encroaching on business decisions of mining companies despite the government being a shareholder in many of the companies.