Tanzania Economic Update: From Growth to Shared Prosperity

  • Tanzania stands out as a model of sound economic performance with a growth rate of over six percent in 2011 and 2012
  • The fiscal deficit declined in 2011/12 for the first time in four years to five percent of GDP
  • Despite these successes, growth has failed to impact those who make up 80 percent of the country’s (mostly rural) population

DAR ES SALAAM, November 1, 2012—The Tanzania Economic Update is a biannual series aimed at fostering constructive dialogue between stakeholders and policymakers about the state of Tanzania’s economy and stimulating debate on the country’s essential economic issues.

This issue of the Update focuses on how to achieve structural transformation of the rural economy so that rural households, and not just those living in urban areas, can benefit from the country’s remarkable growth performance.

The Update points to three forces that have the potential to produce transformational impact in Tanzania: agricultural commercialization; diversification toward high value products and off-farm activities; and migration toward urban centers.

The Update finds that:

  • In economic terms, Tanzania was a rock of stability in 2011/12, recording solid growth and strengthened fiscal discipline despite increases in the rate of inflation.
  • Tanzania’s economic prospects look positive over the period for 2012-14 when its GDP is forecast to grow at a rate of 6.5 - 7.0 percent. However, the threat of exogenous risks cannot be ignored.
  • In 2012/13, fiscal policy will remain the main instrument to promote economic growth, through the combination of higher spending and an increasing shift towards expenditure on infrastructure.
  • To ensure fiscal and debt sustainability and the optimal use of public resources, close monitoring of public accounts is required, including of public agencies and enterprises operating in the energy sector.
  • Over the next few years private sector’s expansion is expected to remain biased toward capital-intensive sectors with the exception of the construction sector which will benefit from the Government’s infrastructure program and from increasing FDI in the extractive industries.
  • Tanzania’s macroeconomic success has not been felt by the majority of the rural population that is still living in extreme poverty.
  • Successful rural economies such as Malaysia and Vietnam, have implemented systems to connect their farmers to markets. To facilitate growth and equity, they have also encouraged the cultivation of high-value, non-traditional crops and developed off-farm activities. They have also managed migration flows toward urban centers.

Rather than minor adjustments, fighting rural poverty in Tanzania requires a major policy shift that involves: (i) agricultural commercialization; (ii) diversification; and (iii) urbanization. The challenge for Tanzanian policymakers is to stimulate these three transformational forces and to manage them appropriately over the long-term.