GUEST COLUMNIST: This is why debate over GDP growth rate misses the point

Monday May 20 2019



Richard Mshomba

Richard Mshomba 

By Richard Mshomba

Recently, there have been heated debates over the accuracy of projections of the real growth domestic product (GDP) growth rate for Tanzania. While the real GDP growth rate is an important macroeconomic indicator, the country must be careful not to lose its focus on actual development indicators which paint a more realistic picture of the standard of living.

According to the April 2019 World Economic Outlook published by the International Monetary Fund (IMF), Tanzania’s real GDP is projected to grow by 4 percent and 4.2 percent in 2019 and 2020, respectively. Usually, these would be considered strong growth rates, even for a developing country. Developing countries typically have more room for rapid growth.

However, these projections for Tanzania suggest a slowdown of the economy, when compared with the GDP growth rate of about 7 percent on average in the past few years. While it may be a case of “shooting the messenger,” the IMF’s forecast was not at all pleasing to the Tanzanian government, to put it mildly. The Tanzanian government has argued that the projections of the World Bank and the African Development Bank, which present a more optimistic outlook on the Tanzanian economy, are more accurate. Whatever the case might be, what has ensued is a heated debate in the parliament and in the media over which projections are to be relied upon.

It is hard to overestimate the importance of GDP growth rate statistics in determining the health of the economy at the macroeconomic level. Accuracy in measuring GDP is critical. Otherwise, key fiscal and monetary policies might be formulated based on inaccurate information. Moreover, decisions on investment by the private sector are based, in part, on the GDP statistics.

Nonetheless, the GDP growth rate is only one economic indicator which, alone, cannot tell much about the standard of living of the people in a country. Caution must, therefore, be exercised so that the debate over whose projections of real GDP are more acceptable, does not distract policy makers from paying close attention to the real indicators of the standard of living.

A rapid growth in real GDP is not impressive in itself if it does not translate into increased access to good quality education, health care, clean water, electricity, agricultural and livestock extension services, increased public safety, and an overall reduction of poverty.

Recently, it was reported that Tanzanian public primary and secondary schools face a shortage of 80,000 teachers. The shortage is not evenly distributed between districts and regions or between subjects taught, but that is roughly a 25 percent shortfall nationwide. This raises many questions related to GDP which should be the focus of policy makers.

Does this shortage simply reflect the increase in the number of schools and students following the current administration’s declaration to eliminate all fees for public primary and secondary schools? If that is the case, this may only be a temporary challenge.

However, even if that is the case, one should still ask a follow-up question. How does an economy that has been growing at an average of 7 percent a year, over the last ten years, fail to supply an adequate number of teachers when education is the foundation of a nation? Moreover, there are hundreds, if not thousands, of individuals with legitimate diplomas and degrees in education in the country who are unemployed.

If the debate over the GDP statistics is not extended to these types of questions – the ones that point directly to the provision of social services and the standard of living in general – then it is, more or less, just an academic and political exercise.