Tanzania Economic Structure
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Tanzania’s economic structure began adopting reforms more than two decades ago, but the payoffs, such as macroeconomic stability, increased revenue and rising revenue share, gathered realistic momentum only during the last decade. However, the global recession of 2009 severely impacted these avenues along three main routes – sharp fall in export-based revenue, reduction in FDI and remittances and low infrastructure financing. Real GDP growth fell to 5% in 2009 from 7.5% in 2008. Experts believe that Tanzania’s recovery from the slowdown will be slow, as demand for exports and foreign investments are expected to gain traction only in 2011.[br]
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Tanzania Economic Structure: Fiscal Stimulus
Revenues in 2008-09 stagnated and fell well short of the budget target by 2% of the GDP. The revenue shortfall was partially offset by increased domestic borrowing and reduced expenditure. In April 2009, the Tanzanian President formed a task force to combat the economic crisis by formulating a rescue plan. The measures were announced in the budget of June 2009. What Tanzania did was to combine external financing like grants and concessional loans, and suitable monetary policy. The package included measures to stimulate domestic demand and support for sectors badly affected, such as agriculture. The net domestic financing was pegged at 1.6% of the GDP.
Tanzania Economic Structure: Fiscal Policy Issues
Tanzania’s fiscal policy systems have weakened since the promising days of 1998-2002. The Medium Term Expenditure Framework (MTEF) in Tanzania no longer plays a role in setting up of the annual budget, formulating financial objectives, and the MKUKUTA (Kiswahili for Poverty Reduction Strategy for mainland Tanzania) objectives. The cash budgeting system adopted in 1995-96 fell short of its promises in 2008-09. Therefore, a careful, systematic and coordinated view of Tanzania’s economic future is seriously handicapped.
Despite the fiscal measures adopted by the Tanzanian government, 2010 is the right time to look ahead. Important questions regarding domestic and foreign investment programs, and developmental project identification, evaluation and implementation have to be answered sooner than later.
Tanzania Economic Structure: Liabilities[br]
Tanzania’s contingent liabilities have been estimated at around 1.2% of the GDP, reflecting the debt of the government-owned electricity company, TANESCO. To mitigate this liability, authorities have suggested some measures, such as compensation claims against the government, explicit loan guarantee schemes, off-budget financing and Private Finance Initiative (PFI) contracts against infrastructure projects.
