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Tanzania: strong growing economy despite Covid-19

SUB-SAHARAN Africa is projected to enter into its first recession in 25 years as the Coronavirus pandemic is ravaging economies, threatening to wipe out decades of hard-won development gains.

In its latest regional economic analysis Africa’s Pulse, the World Bank predicts economic growth in the region to fall to -3.3 per cent in 2020 and up to 40 million people will be pushed into extreme poverty, erasing at least five years of progress in fighting poverty.

This happens when concerns are rife that debt levels to some African countries have risen to record high and repayment burden is growing heavy, raising risk of sovereign default.

Some analysts have even suggested the narrative about Africa seems to have gradually shifted from ‘Africa rising’ to ‘rising debt in Africa.’ But Tanzania has proved to be the exception in the narratives of doom and gloom for Africa with an economy that continues to grow, thanks to unconventional approach to Covid-19 and sustainable debt burden.

Tanzania’s economy is expected to grow at a rate of 5.5 per cent in 2020 compared to earlier estimates of 6.9 per cent after the government took steps to mitigate the economic impact of coronavirus.

The Minister for Finance and Planning, Dr Phillip Mpango said in Parliament in June that the government’s bold decision against coronavirus lockdown and expectations about a regional and global recovery, would buoy growth.

The government did not impose lockdown measures that have ruined economies of neighbouring countries but encouraged people to observe health precaution measures.

President Magufuli had said the government would not enforce lockdown measures as it would disrupt economic activities and cut supplies to landlocked neighbouring countries that use the Dar es Salaam port.

The Dar es Salaam port is an important gateway to east and central Africa and hub for international trade in the region serving neighbouring landlocked countries including Malawi, Zambia, Burundi, Rwanda, and Uganda, as well as Eastern DRC.

The economy has been growing at an average of 6.9 per cent in President Magufuli’s first term in office supported by heavy public expenditure in implementing major economic infrastructures projects in construction, transport, electricity sub-sectors and in social services (health, education and water).

The robust growth led to an upgrade by the World Bank from low to lower-middle income status in July this year. Tanzania’s GNI per capita had increased from $1,020 in 2018 to $1,080 in 2019, which exceeds the 2019 threshold of $1,036 for lower-middle income status.

Inflation The government managed to keep inflation at a single digit level averaging 4.4 per cent for the entire period of the Fifth Phase Regime, easing to 3.4 per cent in 2019, the lowest inflation rate ever recorded over a half century in Tanzania. Government records show the inflation rate had gone down to 2.4 per cent in 1970.

The stability achieved in inflation is attributed to prudent management of fiscal and monetary policies, stable oil prices and availability of food in domestic markets and in neighbouring countries.

It is on account of this stability that escalation of the cost of living has eased and good investment has been created.

Foreign Reserves Tanzania also boasts adequate foreign reserves sustain importation of goods and service thanks to an increase in foreign investment and export of goods and services.

The foreign reserves amounted to 5.3 billion US dollars during the period ending April 2020 sufficient to cover 6.1 months of imports of goods and services.

During a similar period in 2015 the foreign reserves reached 4.4 billion US dollars, which was sufficient to cover 4.3 months of imports of goods and services.

The level of foreign reserve attained is above the country’s target of 4.0 months of imports, as well as above the agreed East African Community (EAC) and Southern African Development Community (SADC) targets of 4.5 months and 6.0 months respectively.

This impressive growth of the economy helped to boost government revenue to finance development projects, improve social services and increase economic opportunities.

Debt Crisis? By using debt-to-GDP ratio which measures a country’s public debt to its gross domestic product (GDP), Tanzania has the lowest debt burden in East Africa of 27.1 per cent compared to a threshold of 70 per cent, according to the Minister for Finance and Planning, Dr Phillip Mpango.

Presenting the government budget for 2020/21 financial year in June, Dr Mpango said the value of external public debt to GDP was 16.3 per cent compared to the threshold of 55 per cent and value of external public debt to exports was 103.9 per cent compared to the threshold of 240 per cent.

Dr Mpango said debt sustainability analysis (DSA) of 2019 shows that Tanzania’s public debt is sustainable and the country remains at low risk of external debt distress.

In the East African Community (EAC) region, Kenya is leading with the highest debt distress from debt to GDP ratio of estimated 62.1 per cent in 2019, which is 12.1 per cent above the IMF recommended threshold of 50.0 per cent.

Uganda’s public debt is projected to hit 47.5 per cent of the Gross Domestic Product (GDP) in 2020/2021 financial year, because of increased borrowing and expenditure to counteract the COVID-19 pandemic on the economy while Rwanda’s debt to GDP 58.4 per cent in 2019, according to the International Monetary Fund (IMF).

Fitch Ratings warned in a report published in July that a number of countries in sub-Saharan Africa are in danger of slipping into a major debt crisis as government debt burdens across the region rise at a faster pace and to higher levels than in other emerging markets.

What do these achievements mean? The macroeconomic achievements have given the government financial muscles to undertake major infrastructure development projects such as construction of a standard gauge railway at the cost of 7.2tri/- and Julius Nyerere Hydropower Station (JNHS), also called Rufiji Hydroelectric Power Station which is expected to cost $3.0 billion US dollars.

The government could also afford to modernise the fleet of the national carrier, ATCL by buying eight new aircraft to help the airline compete with rival airlines in the lucrative domestic and regional aviation market.

It has also made initial arrangements for buying three more aircraft which will include cargo planes for an emerging horticulture industry.

Education and Health More funds to the government helped to make bold decisions of providing free education from primary to secondary school leading to a surge in enrolment.

The fifth-phase government issued Circular 5 which implemented the Education and Training Policy 2014 and directed public bodies to ensure that secondary education became free for all children.

This includes the removal of all forms of fees and contributions. It remains one of the most momentous developments in education in recent years notably after free education was abolished in the 1980’s. Government records show 1.03 trillion shillings was spent from 2015/16 to 2019/20.

In health, the government enhanced health infrastructure through construction of 1,198 dispensaries, 487 health centres, 71 district hospitals, and regional referral hospitals for 10 regions and 3 zonal referral hospitals.

It increased the budget for medicines, equipment, medical equipment and reagents from 31bn/- in 2015 to 269bn/- and improved access to essential medicines in health facilities to 94.4 per cent in 2019/20 from 36 per cent in 2014/15.

Consequently, the improved health services in the country resulted in reduction of patients referred abroad for further medical treatment by 95 per cent and hence, saving approximately

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Author: Henry Lyimo

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