How Mwinyi navigated economic quagmire

TANZANIA: HE became the President of Tanzania when the economy was in serious difficulties. People were lining up for food and other basic goods as agriculture and manufacturing production had fallen too low to meet growing demand.

Exports had also declined as volume of cash crop production declined depleting foreign currency reserves and curtailed imports of petroleum products, necessary raw materials for the manufacturing sector and food items. Ali Hassan Mwinyi was a steadfast soul who navigated through the storm.

He will be remembered as a captain who kept a sinking boat afloat. It was not easy. The waters were rough.

The prevailing situation had led to a sluggish economy with key macroeconomic indicators pointing down. For instance, inflation was soaring to record highs and the country’s external debts had soared to unsustainable levels.

The external debt had reached 3.5 billion US dollars or nearly 70 per cent of the gross domestic product. By March 1986 external payments arrears stood at 700 million dollars and total debt service obligations were already the equivalent of about 60 per cent of export earnings.

In addition, the economic infrastructure had fallen into disrepair: roads had deteriorated, hospitals had no drugs and schools had no books.

Overall, economic growth increased, on average, by below 1.0 per cent a year during 1980-1985, compared with a registered growth of 2.5 per cent during 1976- 80. In his book Tanzania into 21 Century, former Minister Sir George Kahama put GDP growth per annum in 1980-1985 to 0.6 per cent, while Prof A.Y Mbelle says it was 0.1 per cent in his assessment of structural adjustment programmes published in an Eastern and Southern African Universities Research Programme Publication.

The inflation rate in the 1980-1985 period reached 30 per cent up from 14 per cent in the previous 1975-1980 period. Real export growth in 1980-1985 was -10.4 per cent down from 0.1 percent in the previous 1975-1980 period.

According to an IMF publication, large imbalances in the country’s fiscal and external accounts emerged, and gross official reserves fell to the equivalent of less than one week of imports by the end of 1985. With population growth estimated at 2.8 per cent a year, there was a considerable increase in the decline of per capita income.

By all standards, the economy was in a deep macroeconomic crisis by the mid1980s, writes former Bank of Tanzania (BoT) Governor, the late Gilman Rutihinda as the economy was reeling under long-term negative impacts of domestic policies and a hostile external environment that included successive years of drought in 1973 and 1974, oil price shock of 1974.

These were followed by waves of successive shocks in the breakup of the East African Community in 1977 that necessitated the diversion of meagre resources into establishing important services such as marine, air and rail and the Kagera war from 1978 to 1979. Given the precarious condition of the economy, President Mwinyi sought to reach an agreement with the International Monetary Fund (IMF), with which Tanzania had been negotiating for six years.

The agreement in 1986 aimed at remodelling the economy from a governmentplanned economy to a market economy. As a result of the agreement, donor nations agreed to debt rescheduling and some nations wrote off Tanzania’s debts completely.

In 1986, the Paris Club, an informal group of Tanzania’s donor nations and institutions, agreed to reschedule Tanzania’s accumulated matured debts of about $900 million, suspending payment for five years on 97.5 per cent of the loan principal and interest.

Principal donors agreed to provide $800 million a year for three years to help cover Tanzania’s foreign exchange requirements. In 1987, the 21 donor countries and institutions pledged $955 million for 1987 and $978 million for 1988.

As part of the 1986 IMF agreement, Mwinyi introduced a three-year Economic Recovery Plan (ERP) that resulted in IMF approval of a standby loan which was replaced in 1987 by a three-year structural adjustment facility. The Economic Recovery Plan was aimed at stabilising the economy and restoring growth.

It sought to help the nation achieve a positive growth rate in real per capita income, reducing the rate of inflation, and restoring a sustainable balance of payments position.

The major objectives of the recovery programme were to increase the output of food and export crops through appropriate incentives for production, improving marketing structures and increasing the resources available to agriculture; to rehabilitate the physical infrastructure of the country; to increase capacity utilisation in the industry through the allocation of scarce foreign exchange to priority sectors; and to restore internal and external balances by pursuing prudent fiscal, monetary and trade policies. Some of the measures under the programme were the devaluation of the Tanzanian currency, the raising of agricultural producer prices and the lifting of import and price controls.

The government also agreed to reduce public spending which affected the provision of social services like health and education which were provided free of charge.

The ERP programme led to improvements in key macroeconomic indicators with a positive rate of growth sustained at an average of 3.8 per cent in 1986-1992 up from 0.6 per cent in the 1980-1985 period. However, the average growth was below the target growth rate of 5 per cent.

The GDP per capita average in the 1986-1992 period indicated a modest rise of 1.0 per cent from -2.2 per cent in the previous period and the inflation rate went down to 26.2 per cent in the 1986-1992 period from 30 per cent in 1980-1985. The productive sectors of the economy showed marked increases: Agriculture rose by 4.8 per cent (against 3.2 per cent during 1980-85) and manufacturing rose by 2.7 per cent (against a recorded decline of about 5 per cent during 1980-85).

This growth performance was facilitated by improved weather, higher producer prices (thanks to the depreciation of the currency), incentives (thanks to liberalisation measures enacted in 1984/85), and increased inflow of external funds.

However, several sectors of the economy suffered from the programme and one of the most hit areas was the delivery of social services in education and health as the government’s ability to continue delivering these services free of charge had declined.

Former BoT Governor, Rutihinda says there was a serious deterioration of social overhead capital-schools, and the apparent widening of income inequalities created tensions in the society with regard to the appropriateness of the adjustment programme.

Furthermore, reforms in the parastatal sector led to retrenchment which led to increasing concerns due to subsequent deterioration of living standards.

Overall, some scholars say, the programme was carried out without proper sensitisation programme to the people and as a result, it remained the preserve of the few technocrats while the majority of the people did not know what was going on.

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