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publication June 8, 2020

Tanzania Economic Update: Amid Pandemic, Tanzania has an Opportunity to Sow the Seeds of Future Resilience

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  • May 2020
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STORY HIGHLIGHTS

  • A new World Bank economic analysis projects Tanzania’s growth will decrease sharply in 2020, due to the impact of COVID-19
  • Lives and livelihoods have already been impacted, according to the report, and a simulation shows the decrease in growth could bring an additional 500,000 Tanzanians below the poverty line
  • The report recommends building on Tanzania’s favorable macroeconomic conditions to support a robust health and economic policy response that can mitigate negative effects and position the economy for recovery in 2021

DAR ES SALAAM, June 8, 2020 – As the COVID-19 (coronavirus) pandemic continues to exact its toll on economies globally, a new World Bank economic analysis shows the costs of the pandemic are already being felt in Tanzania.

The 14th Tanzania Economic Update (TEU), Addressing the Impact of COVID-19: With a Special Section on the Role of ICT, says that the country’s growth remained solid in 2019, but projects gross domestic product (GDP) growth to slow sharply to 2.5% in 2020, down from the 6.9% growth the government reported in 2019. As the impacts of the pandemic continue to unfold, the report also warns of the risk for even slower growth if government’s policy response is delayed or not well-targeted, or the external environment does not improve markedly this year.

This projection follows April’s Africa’s Pulse, the World Bank’s regional economic update, which showed that the COVID-19 crisis could spark the first recession in Sub-Saharan Africa in 25 years. The Pulse projects a decline in regional growth, from 2.4% in 2019 to between -2.1 to -5.1% in 2020.

The TEU also describes wide-ranging impacts on the economy and on livelihoods. Simulations using the 2018 Household Budget Survey show an additional 500,000 Tanzanians could fall below the poverty line, particularly those in urban settings relying on self-employment and informal/micro enterprises.  

“The pandemic comes at a time when poverty reduction in Tanzania has lagged despite strong economic growth over the past decade,” says Mara Warwick, World Bank Country Director for Tanzania, Malawi, Zambia and Zimbabwe. “As a result, many people have remained vulnerable to falling back into poverty amidst any shock. This underscores the need for stronger policies and investments in safety nets and human capital to ensure future resilience.”

Tourism, which had been one of the fastest-growing sectors in the economy, contributed an estimated one percentage point to GDP growth in 2019, and constituted more than 26% of total exports. However, under the pandemic, international travel bans and caution against contracting the virus have severely affected the sector; tourism operators in the country are forecasting revenue contractions by 80% or more this year, and expecting only a mild recovery next year, based on how well global demand rebounds.

“Tanzania is in a better position than many other countries in the region to respond to the crisis, given favorable commodity price changes as an oil importer and gold exporter, as well as fiscal space given its relatively low fiscal deficits and low risk of debt distress,” said William Battaile, World Bank Lead Economist, and author of the TEU. “Further economic measures can be considered to help protect viable businesses and prevent layoffs.”

In Africa, the World Bank’s response to the economic crisis focuses on three main areas; protecting lives; protecting livelihoods and supporting recovery and growth. The TEU notes that with the country’s favorable economic conditions, this approach provides a useful framework for the government to consider priority policy actions to prepare for recovery in 2021.

The report calls for strengthening the health response and implementing of additional economic mitigation measures to protect lives and livelihoods:

  • Strengthened health response and transparency to save lives. Additional resources should be directed to reinforce Tanzania’s health response and implement a smart containment strategy to prevent cases from rising. Government should mobilize adequate financial resources to ensure equitable access to priority facilities and medical services.
  • Protecting jobs and medium, small and micro-enterprises. .Additional measures will be needed to help avoid the destruction of productive capacity due to potential bankruptcy of firms that would have been financially viable without the pandemic, particularly in sectors most affected by the crisis and affected global supply chains.
  • Protecting livelihoods and the future. The ongoing Tanzania Social Action Fund’s Productive Social Safety Net program  role toward protecting lives during the COVID-19 pandemic is limited given that is mainly oriented to rural families, while the most vulnerable households to the virus are in the informal urban economy

The report also  highlights the benefits of investing in Tanzania’s digital economy, both to support stronger policy responses to the current crisis as well as boosting the recovery in productivity and job creation. The report notes that the country has already made good progress in the ICT sector, which it can build upon, including the strong network of existing mobile accounts to streamline new cash transfer schemes and widen the coverage of existing social programs. Tanzania also is currently connected to three international undersea cables and, the report says, working with the private sector, the country could harness greater internet capacity to ensure continuity of government and education.

“However, if the digital economy is to rapidly expand, in order to support the government’s response to the pandemic, there are a number of interventions that need to be considered, including making mobile money and low-value data packages affordable for the poor and to removing barriers that currently prevent competitive mobile operators from investing in their own infrastructure,” said Tim Kelly, World Bank Lead Digital Development Specialist.