Unlocking our country’s economic potential

25Dec 2017
Editor
The Guardian
Unlocking our country’s economic potential

THE global economic environment last year remained subdued, with growth performance in sub-Saharan Africa the weakest in over 20 years.

Economic conditions across most advanced economies remained challenging, while emerging and developing economies as a whole are set to maintain their growth momentum. The report aims to stimulate policy analysis and debate around the key economic and development challenges that Tanzania faces as it strives to fulfil its aspirations of becoming a middle-income country.

The report also identifies more and better infrastructure and human capital investment as key to unlocking Tanzania's economic potential, create more productive jobs, accelerate economic growth and reduce poverty.

 

In the same vein, an International Monetary Fund (IMF) team which concluded an official visit to Tanzania has called on the government to speed up reforms and spend more to prevent an economic slowdown.

The visiting delegation, in the country from November 30 to December 12   expressed satisfactory with the country’s macroeconomic performance in the first half of 2017 despite some indicators that actual economic growth may be slowing down.

They said the macroeconomic performance was broadly satisfactory although fiscal deficit on a cash basis was lower than programmed at 1.5 per cent of GDP, as delays in securing financing for projects held back development spending.

Delegation pointed out that Tanzania faces significant challenges in meeting its medium-term development objectives, taking into consideration that the population is set to double in the next 20 years.

It suggested that the government try to boost the business environment through policy reforms based on dialogue with the private sector, regulatory reforms, timely payment of VAT and other tax refunds, and eliminating domestic arrears.

 We are impressed with the ongoing dialogue on policy reforms between the private sector and government through the Ministry of Finance and Planning.

Data released by authorities in the first half of 2017 shows that Tanzania’s economy grew at 6.8 per cent thanks to a good agricultural harvest that improved significantly food availability, lowered food price inflation, and drove down the headline inflation rate to 4.4 per cent in November - below the monetary authorities’ medium-term target of 5 per cent.

However, downward pressures on economic growth are shown by other macroeconomic indicators like lower-than-anticipated government spending and tax revenue collections, weak private sector credit growth, and rising non-performing loans.

In the banking sector, the IMF team said the ratio of non-performing loans to total loans increased markedly to 12.5 per cent in September, although the banking system remained well-capitalised, mitigating systemic risks.

But there has been a sizable reduction in capitalisation ratios in some small and mid-sized banks, they added.

 High non-performing loans have prompted banks to curtail lending and private sector credit growth has continued to be very low even as the Bank of Tanzania has lowered minimum reserve requirements, its discount rate and stepped up liquidity injection operations.

We emphasise the importance of realistic revenue projections to underpin implementable budget spending estimates, addressing emerging financial sector vulnerabilities should be a priority and welcoming Bank of Tanzania (BoT) efforts to resolve some unviable banks.

While in the country, the IMF team held discussions with senior government officials including Finance and Planning Minister Dr Philip Mpango and outgoing BoT governor Benno Ndulu on the seventh review under the policy support instrument (PSI) programme for Tanzania approved in July 2014.

We commend the discussions held because they also covered macroeconomic policies and structural reforms that could underpin a successor arrangement to the PSI programme.

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