Selected economic issues in Magufuli’s Parliament speech

On November 13, 2020 President Magufuli delivered his inaugural speech in the Parliament following the October 28, 2020 general election. A number of issues were outlined in the 82-page speech which gives the direction of his second tenure as Union President. Some key economic issues in the speech are outlined and discussed here.

Economic growth
The President insisted on the need to manage the economy well and protect successes gained so far so that the country attains higher economic growth. There is emphasis on ensuring that the growth benefits citizens. This is very important because growth should not be the ultimate goal. What is needed is jobs creating, incomes generating, poverty reducing, inclusive and sustainable growth. The aim is to post eight percent growth figure. This is a very high figure compared to Sub Sahara Africa rate of about four percent and the just over five percent growth forecasted for Tanzania in 2020/21. 

Employment
The speech informs that the aim is to create 8,000,000 jobs. Those responsible for implementation will note that some of these will be direct and indirect jobs, permanent and part time jobs and jobs for different demographic groups including youth, elderly, men and women. The 8,000,000 figure will have to be disaggregated into these different categories.  Implementers have to ensure that the jobs are decent including providing a living wage in conducive working environment in its very broad sense.

Economic Policies
The speech talks of improving economic policies including monetary policy. Policies do give directions of where the country should be moving towards. Monetary policy is singled out in the speech. Whereas this is good, fiscal policy should not be forgotten.
What is needed for a vibrant and buoyant economy are expansionary fiscal and monetary policies and their various policy instruments. The policies should ensure that there are stable macroeconomic fundamentals and indicators. Some of these are listed in the speech as shown in what follows.

Value of the shilling
The aim is to have stable currency. This is a function of a number of variables including availability of foreign currencies especially the vehicle currencies such as the US dollar.
The availability of foreign currency in turn is a function of exports, imports, aid, investments inflows and remittances from sons and daughters in the Diaspora.
The more foreign currencies there are in the economy, the stronger the local currency and vice versa. In practice, there is foreign exchange volatility in response to the free interplay of market forces of supply of and demand for foreign currency.
Efforts should be export more in types, quantity and quality of goods and services, import less, attract more remittances, aid and investments inflows denominated in vehicle currencies.

Inflation
The President’s speech in the inflation space aims at remaining at the already achieved strong and good single digit inflation. In the recent years leading to 2020, Tanzania has recorded impressive inflation rate of just above three percent.
This is very good in a country that has seen double digit inflation. Taming it at single digit seems to be very feasible unless there is a very big shock in the economy.
Since Tanzania’s is mainly structural than monetary inflation, efforts to tame inflation at single digit should revolve around structural factors especially those affecting food price. This is because food takes huge share of over 40 percent in the Consumer Price Index (CPI).
Therefore, high inflation in Tanzania is just a crop failure away. Its opposite is true for low inflation.

Interest Rate
Interest rate is a very important economic indicator. The President’s speech focuses on the need to lower this price of borrowing which is the cost of capital and correctly so. Lower interest rates tend to attract and retain investments.
The role of having more investments in Tanzanian types of economies cannot be overemphasized.
Whether they are investments by micro, small, medium or large enterprises both formal and informal, local and foreign they play very significant roles in creating employment, generating taxes and other social and economic benefits.  
Attaining the needed low interest rates is a function of several variables. They include good supply of funds in relation to demand for the same, low inflation, low operating costs for lenders as well as having in place a good credit reference bureau.

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Honest Ngowi is Associate Professor of Economics at Mzumbe University and Principal of Mzumbe University Dar es Salaam Campus College