The East African nation of Tanzania has an estimated population of 47.4 million as of 2014. With the support of the International Monetary Fund (IMF), the World Bank Group (WBG), and other development partners, Tanzania has been able to make important economic and structural reforms and sustain its economic growth rates over the last decade. Nevertheless, poverty is still widespread, and given Tanzania’s position as a net exporter of gold and a net importer of oil, the economy is not immune to external shocks.
Tanzania continues to enjoy a stable and democratic government. Since the end of its first post-independence government of Julius Nyerere in 1990, it has held five presidential elections and legislative elections peacefully. President Jakaya Kikwete is concluding a second five-year term in October, when the general elections are slated to be held.
The overall macroeconomic performance remains strong. Real gross domestic product (GDP) grew by 7.3% in 2013 and 7.0% in 2014.The main contributors to growth were the construction, trade, agriculture and transport sectors. The headline inflation continuously declined from over 20% in 2011 to 4% in January 2015, largely due to the combined impact of prudent monetary policy and recent decreases in global food and energy prices. The rising local food prices have slightly pushed the inflation rate since early 2015 to 6.4% in July 2015.
The Tanzanian shilling has lost value against major international currencies, resulting in a nominal depreciation rate of more than 20% since January 2015 against US dollar. Initially this depreciation reflected the relative strength of the US dollar on international markets as well as the decline in aid inflows, temporary loosening in monetary stance also accelerated the trend. This has increased the cost of imports and puts upward pressure on inflation as well. In spite of the fluctuations in exchange rates, the balance of payments remained stable with the current account deficit being around 10% of GDP. The reduced import bill due to the fall in oil prices on international markets, coupled with improved export performance in some food crops and manufacturing, has helped the current account deficit to decline from 10.3% of GDP in 2013/14 to 9.5% in 2014/15.
Over the past few years, Tanzania has increasingly faced challenges in achieving its desired level of fiscal deficit. While the government managed to keep its fiscal deficit at 3.3% of GDP for 2013/14 and 3.8% for 2014/15, this has come at the expense of accumulation of arrears to suppliers, raising public debt (currently 38% of GDP), and reduction in development expenditures and transfers to local governments. Tax performance is diminishing with tax revenue not growing fast enough to catch up with the speed of expenditure growth. Fiscal stance of some parastatals such as TANESCO and pension funds are also quite worrisome, but significant fiscal risks to the government.
Approximately 28.2% of the population lived below the poverty line in 2012; a reduction from 34% in 2007. During the 2007/2012 period, there were improvements in living conditions, access to basic education, health and nutrition and, labor force participation in non-agriculture employment. Nevertheless, these benefits were not distributed equitably. Inequality has increased between urban and rural population and approximately 12 million Tanzanians are still living in poverty.
Tanzania’s main challenges include addressing infrastructure bottlenecks, improving the business environment, increasing agricultural productivity and value addition, improving service delivery to build a healthy and skilled workforce, and managing urbanization. The country also has a youthful labor force growing by approximately 800,000 every year and needs to increase the private sector’s role in employment creation for these youths.
Tanzania recently adopted the Big Results Now program, which focuses government efforts on accelerating delivery of selected priority results, with a major emphasis on leveraging private sector investment. Priority result areas include: increasing agriculture productivity, improving reliability and access to power supply, reducing transport costs, improving quality of basic education, increasing access to rural water supply, and improving the business environment. The government plans to add a new result area focused on reducing maternal mortality and improving nutrition standards across the population.
Last Updated: Sep 24, 2015