Tanzania has sustained relatively high economic growth over the last decade, averaging 6–7% a year. But while its poverty rate has declined, its absolute number of poor has not because of its high population growth rate. The country's overall population is about 55 million (2016).
In October 2015, John Pombe Magufuli, was elected the fifth President of the United Republic of Tanzania, ushering in a period of political change.
At 7%, in 2016, Tanzania’s economy expanded quickly, putting it close to the top of the fastest growing economies in Sub-Saharan Africa. This expansion softened during the last quarter of 2016, however, and continued to do so into 2017.
Since coming to office, President Magufuli has reoriented public expenditure toward development spending, reducing recurrent expenditure significantly, and intensifying efforts to mobilize domestic revenue. Government spending was cut back, and a cap put in place on the salaries of executive officers. Measures were introduced to control tax exemptions.
At 5.2%, the inflation rate has remained low and close to the Government’s medium-term target of 5%. This recent decline in headline inflation (from March/April’s 6.4%) has been driven by lower food and energy prices.
The current account deficit also declined to about US$1.5 billion (equivalent to 3.1% of GDP) in June 2017, from about US$1.9 billion (equivalent to 4.2% of GDP) in June 2016. The value of exports dropped by 6.2% in the year ending June 2017, compared to the year ending June 2016, while the value of imports dropped by 16.7% over the same period.
In an attempt to boost growth in credit to the private sector and ease tight liquidity, the Bank of Tanzania reduced the discount lending rate from 16% to 12% in March 2017, and followed it with another reduction to 9% in August 2017.
Response has been limited, with the growth of credit to the private sector still very low at 2.8% in June 2017. Interest rates have remained significantly higher.
The fiscal deficit declined to 3% of GDP, its lowest level over the past seven years. This resulted from increased domestic revenue mobilization and controlled recurrent expenditures. The level of payment arrears remained unsustainably high, at about 6% of GDP by June 2017. This includes arrears to suppliers to the central government, as well as suppliers to TANESCO and pension funds. Despite the Government’s effort to verify and clear payments to its suppliers, the emergence of new arrears has meant that the level of debt to suppliers has remained high at about 2% of GDP.
Although Tanzania's poverty rate fell from 60% in 2007 to an estimated 47% in 2016, based on the US$1.90 per day global poverty line, about 12 million Tanzanians still live in extreme poverty on earnings of less than US$0.60 per day. Many others live just above the poverty line and risk falling back into poverty in the event of socio-economic shocks. Universal education, and the waiving of fees for primary and secondary schools, has drastically increased primary school enrolment.
Tanzania's economic prospects depend on investment in more infrastructure, as well as improving the business environment, increasing agricultural productivity and value addition, improving service delivery (to build a healthy and skilled workforce), and managing urbanization. With approximately 800,000 youth entering the labor force every year, nurturing a vibrant private sector to provide productive jobs is critically important.
Tanzania embarked on its second Five Year Development Plan, 2016/17 to 2020/21 (FYDP II), which picks up on interventions which fell short under MKUKUTA II and FYDP I. Based on a credible, realistic financing plan, the country’s fiscal and debt sustainability will be maintained. The private sector can also be leveraged, not only as a source of financing for FYDP II through public private partnerships (PPPs), but also as the actual driver of industrialization.
Last Updated: Oct 05, 2017