Download macroeconomic policy framework for the five year development plan

THE UNITED REPUBLIC OF TANZANIA
MACROECONOMIC POLICY FRAMEWORK FOR
THE FIVE YEAR DEVELOPMENT PLAN/BUDGET
2011/12-2015/16
Produced by the Ministry of Finance
May, 2011
Table of Content
1.0 OVERVIEW OF ECONOMIC PERFORMANCE ......................................................................................... 1
2.0
RECENT MACROECONOMIC DEVELOPMENTS .............................................................................. 5
2.1 GLOBAL OUTPUT GROWTH...................................................................................................................................... 5
2.2
GDP GROWTH................................................................................................................................................ 7
2.3 PRICE MOVEMENTS................................................................................................................................................. 9
2.4
EXTERNAL SECTOR DEVELOPMENTS ............................................................................................................... 12
Exports performance ......................................................................................................................................... 12
Import Performance .......................................................................................................................................... 16
2.5
GOVERNMENT FINANCE ................................................................................................................................. 18
Domestic Revenue ............................................................................................................................................. 19
Foreign Resources ............................................................................................................................................. 20
Expenditure ........................................................................................................................................................ 21
2.6 NATIONAL DEBT ................................................................................................................................................... 21
External Debt...................................................................................................................................................... 22
Domestic Debt .................................................................................................................................................... 22
Debt Services ..................................................................................................................................................... 22
Performance of key debt indicators ................................................................................................................ 23
2.7 MONEY AND CREDIT DEVELOPMENTS ..................................................................................................................... 24
Credit to Private Sector ..................................................................................................................................... 25
Interest Rates Development ............................................................................................................................ 25
Exchange rate movements ............................................................................................................................... 26
2.8 FINANCIAL SECTOR REFORMS ............................................................................................................................... 27
2.9 REGIONAL INTEGRATION..................................................................................................................................... 29
2.10 MKUKUTA I PERFORMANCE .............................................................................................................................. 31
2.11 MILLENNIUM DEVELOPMENT GOALS - MDGS....................................................................................................... 33
2.12 TANZANIA DEMOGRAPHIC AND HEALTH SURVEY 2010-TDHS ............................................................................. 35
2.13: REVIEW OF THE VISION 2025 ........................................................................................................................... 37
3.0:
EMERGING MACROECONOMIC POLICY ISSUES, CHALLENGES AND STRATEGIES.......... 39
3.1 POWER SHORTAGES HURTING THE ECONOMY ........................................................................................................ 39
3.2 MKUKUTA II ...................................................................................................................................................... 40
3.3: THE FIVE YEAR DEVELOPMENT PLAN FORMULATION FRAMEWORK......................................................................... 43
3.4:
FINANCIAL INCLUSION .................................................................................................................................. 46
Payment System ................................................................................................................................................ 46
Mobile Phone Payment ..................................................................................................................................... 47
3.5: PUBLIC-PRIVATE PARTNERSHIPS.......................................................................................................................... 49
3.6: ECONOMIC OUTLOOK FOR SUB-SAHARAN AFRICA................................................................................................. 50
3.7: HUMAN RESOURCE DEVELOPMENT ....................................................................................................................... 51
3.8: THE SOUTHERN AGRICULTURAL GROWTH CORRIDOR OF TANZANIA (SAGCOT ..................................................... 52
3.9 MEDIUM TERM STRATEGIC FOCUS ......................................................................................................................... 53
4.0 MEDIUM TERM ECONOMIC OUTLOOK: 2011/12-2015/16 ........................................................... 63
4.1 MACROECONOMIC ASSUMPTIONS .......................................................................................................................... 63
4.2 MEDIUM TERM MACROECONOMIC OUTLOOK AND TARGETS .................................................................................... 64
The World Economic Outlook .......................................................................................................................... 64
Tanzania’s Growth Outlook .............................................................................................................................. 65
SECTORAL ASSUMPTIONS AND THE MEDIUM TERM OUTLOOK (2011 – 2015) .............................................................. 67
Inflation ............................................................................................................................................................... 71
Government Finance ......................................................................................................................................... 71
Money and credit development ....................................................................................................................... 74
External Sector ................................................................................................................................................... 74
5.0 CONCLUSION ............................................................................................................................................. 75
ii
Abbreviations and Acronym
ASDS
Agriculture Sector Development Strategy
BEST
Business Environment Strengthening for Tanzania
BoT
Bank of Tanzania
CIF
Cost, Insurance and Freight
CPI
Consumer Price Index
DPs
Development Partners
DSA
Debt Sustainability Analysis
EAC
East African Community
EPZ
Export Procesing Zone
FoB
Free on Board
FDI
Foreign Direct Investment
FSAP
Financial Sector Assessment Program
GDPmp
Gross Domestic Product, at market price
GFC
Global Financial Crisis
HBS
Household Budget Survey
MDAs
Ministries, Departments and Agencies
MDG
Millennium Development Goals
MKUKUTA
Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania
MTEF
Medium Term Expenditure Framework
NACSAP
National Anti-Corruption Strategy and Action Plan
NIR
Net International Reserves
NEEC
National Economic Empowerment Council
NSGRP
National Strategy for Growth and Reduction of Poverty
OECD
Organization for Economic Co-operation and Development
ODCS
Other Depository Corporations
PEDP
Primary Education Development Programme
PSDS
Private Sector Development Strategy
SACCOS
Savings and Credit Cooperative Societies
SADC
Southern Africa Development Community
SAGCOT
Southern Agricultural Growth Corridor of Tanzania
SEZs
Special Economic Zones
SMEs
Small and Medium Enterprises
THIS
Tanzania HIV/AIDS Indicator Survey
TIC
Tanzania Investment Centre
TRA
Tanzania Revenue Authority
USD
United States Dollar
VAT
Value Added Tax
WEO
World Economic Outlook
iii
1.0 OVERVIEW OF ECONOMIC PERFORMANCE
1.
Tanzania’s macroeconomic performance has improved substantially over the past
five years with sustained high rates of growth and relatively low inflation. The real GDP
grew at an annual average of 7.3 percent between 2004 and 2008 before slowing down
to 6.0 percent in 2009 following the effects of the Global Financial Crisis (GFC). In
response, the Government took policy measures to stimulate economic activities, which
helped the economy to bounce back, at a real growth rate of 7.0 percent in 2010. It is
expected that, the economic growth will maintain an upward trend, reaching 8.5 percent
by 2015. Improvement in the real growth of GDP is attributed by increase in agricultural
production,
improvements
in
the
performance
of
trade
(including
tourism),
communication and construction and the ongoing efforts by the Government, aiming at
stabilizing the supply of electricity. In comparison, the average real GDP growth in the
Sub-Saharan Africa was 5.0 percent in 2010.
2.
The economy experienced inflationary pressures in 2009, primarily due to food
supply shortages in some parts of the country and in the neighbouring countries and a
rebound in world oil prices. However, following good weather and a bumper harvest in
the 2009/10 crop season, food supply improved, leading to a downward trend in inflation
from 12.2 percent in December 2009 to 5.6 percent in December 2010. Although
inflation has remained a single digit, it has resumed an upward trend during the first
quarter of 2011, reaching 8.6 percent in April 2011 owing to the increase in the general
prices of electricity, food and gas. Inflation is expected to remain a single digit in the
medium term as the government continues to pursue prudent fiscal and monetary
policies, as well policy measures aimed at increasing food production and developing
alternative power generation sources to hydro power.
Government Finance
3.
The budget performance for the fiscal year 2009/10 experienced a shortfall in
domestic revenue collections against estimates by 8.8 percent. This lower performance
was partly due to the impact of the global financial crisis that led to a slower growth in
taxable production activities in the economy and postponement of implementation of
some revenue measures that were announced in the budget. Total domestic revenue
collection during 2009/10 was Tshs. 4,661,540 million equivalent 15.2 percent of GDP,
1
compared to Tshs 4,293,074 million, equivalent to 16.2 percent in 2008/09. On the other
hand, total expenditure for 2009/10 was Tshs. 8,173.7 billion, equivalent to 92.0 percent
of the estimates. The amount is equivalent to 26.7 percent of GDP in 2009/2010,
compared to 25.7 percent of GDP in 2008/09. Grants amounted to 4.6 percent of GDP,
resulting into a budget deficit after grants of 6.4 percent of GDP.
4.
Total domestic revenue collections during the first half of the fiscal year 2010/11
was 10 percent below the budget estimate. Notwithstanding this underperformance, the
gross collection for the period was 17.6 percent above the collection of the
corresponding period in the year 2009/10. The impact of GFC has affected Government
revenue collection, hence increased budget deficit. Thus, Government spending was realigned with resource availability without jeopardizing public service delivery.
National Debt
5.
The national debt stock as of end December 2010, stood at USD 11,380.2 million
(of which USD 9,516.8 was public debt) compared to USD 10,725.92 million, at endDecember 2009, equivalent to 6.1 percent increase.
Out of the public debt stock,
external debt was USD 6,529.6 million, equivalent to 68.6 percent of the total national
debt and domestic debt stood at USD 2,986.9 million. Total public debt as a percentage
of GDP increased from 33.6 percent in 2008/09 to 42.4 percent recorded in 2009/10.
Public external debt service as a percentage of domestic revenue, decreased significantly
from double digit ratio in the early 2000 to single digit of 2.7 in 2009/10. The trend is
attributed to measures taken by the Government in improving revenue collection and
debt cancellation under the enhanced HIPC and MDRI.
Money and Credit
6.
The main thrust of government policy in 2009/10 was to make use of the collective
force of fiscal and monetary policies to limit the severity of the global economic
downturn on domestic economic activity, and set the economy on a firm footing for
returning to its medium-term growth path, as the global economic and financial
conditions normalize. Hence, the government put in place a countercyclical stimulus,
with monetary policy providing ample liquidity to dampen possible slowdown in credit
growth and economic activity. Consistent with the monetary policy stance, monetary
2
aggregates in 2009/10 recorded a sizeable increase as a result of substantial increase in
net borrowing by the government from the banking system to cater for infrastructure
development. Credit to private sector has continued to improve, from an annual growth
rate of 9.6 percent recorded in 2009 to 20.0 percent in 2010, and further up to 23.3
percent in March 2011.
External Sector Development
7.
In 2010, Tanzania exported goods and services worth USD 5,828.0 million, which
was 21.9 percent higher than USD 4,780 million recorded in 2009. The value of exports
of goods grew by 27.7 percent in 2010 while services receipts were 12.8 percent higher
than the amount recorded during the year earlier. As a ratio to GDP, exports of goods
and services recovered by 3.2 percentage points to 27.6 percent in 2010 compared with
24.4 percent a year earlier. The improvement was largely due to increase in exports of
gold, travel and manufactured goods.
8.
In 2010, import of goods and services increased by 18.8 percent to USD 8,974.7
million from USD 7,543.1 million in 2009, largely due to a notable increase in the value
of imported oil and consumer goods. Oil imports increased nearly by 50 percent to USD
1,983.8 million, mainly attributed to the increase in both volume and prices. In
comparison, the volume of oil imports increased by 6.9 percent in the year ending
December 2009 while the average oil prices (refined products) in the world market hiked
by 24.9 percent to USD 691.9 per ton.
3
Table 1:
Trends in Selected Macroeconomic Indicators, 2002 – 2010
2002
2003
2004
2005
2006
2007
2008
2009
2010
NATIONAL ACCOUNTS
Real GDP growth at market price
7.2%
6.9%
7.8%
7.4%
6.7%
7.1%
7.4%
6.0%
7.0%
Agriculture, Hunting and Forestry
4.9%
3.1%
5.9%
4.3%
3.8%
4.0%
4.6%
3.2%
4.2%
Fishing
6.8%
6.0%
6.7%
6.0%
5.0%
4.5%
5.0%
2.7%
1.5%
Industry and construction
9.4%
10.9%
10.9%
10.4%
8.5%
9.5%
8.6%
7.0%
8.2%
7.5%
9.0%
9.4%
9.6%
8.5%
8.7%
9.9%
8.0%
7.9%
11.9%
13.8%
13.0%
10.1%
9.5%
9.7%
10.5%
7.5%
10.2%
8.2%
Manufacturing
Construction
Services
7.7%
7.8%
7.8%
8.0%
7.8%
8.1%
8.5%
7.2%
Trade and repairs
8.3%
9.7%
5.8%
6.7%
9.5%
9.8%
10.0%
7.5%
8.2%
Communications
10.4%
15.6%
17.4%
18.8%
19.2%
20.1%
20.5%
21.9%
22.1%
Financial intermediation
10.1%
10.7%
8.3%
10.8%
11.4%
10.2%
11.9%
9.0%
10.1%
14.8%
15.9%
15.4%
14.3%
12.4%
16.8%
18.3%
13.8%
14.5%
CPI inflation (period average)
4.5%
5.3%
4.7%
5.0%
7.3%
7.0%
10.3%
12.1%
5.5%
GDP deflator inflation (market price)
7.1%
8.4%
7.0%
6.4%
5.3%
9.0%
10.1%
7.4%
4.9%
Short-term lending rate
15.9%
15.6%
14.2%
15.7%
15.7%
15.0%
13.6%
14.0%
14.4%
Long-term lending rate
13.2%
12.5%
12.6%
14.1%
14.9%
16.7%
16.5%
14.5%
14.6%
12 month deposit rate
5.7%
5.0%
5.8%
7.7%
8.8%
10.1%
8.3%
9.0%
7.1%
Savings rate
2.7%
2.5%
2.6%
2.6%
2.6%
2.7%
2.7%
2.8%
2.4%
M3 growth rate
25.6%
18.0%
13.5%
34.8%
21.5%
20.5%
19.8%
17.7%
25.4%
M2 growth rate
21.6%
17.8%
19.8%
33.9%
16.7%
27.2%
24.4%
20.8%
21.8%
Growth rate of credit to private sector
41.5%
42.8%
32.8%
29.3%
40.1%
43.1%
44.6%
9.6%
20.0%
Nominal GDP growth at market price
PRICES
MONEY
BALANCE OF PAYMENTS (Ratio to GDP)
Exports of goods
9.1%
10.5%
11.5%
11.9%
12.2%
12.0%
15.0%
15.7%
18.4%
Exports of goods and services
17.6%
18.6%
20.3%
20.9%
22.9%
23.1%
24.7%
24.4%
27.6%
Imports of goods
14.0%
16.6%
19.3%
21.2%
27.1%
28.8%
33.8%
27.3%
30.4%
Imports of goods and services
19.8%
22.8%
26.9%
29.8%
35.8%
37.1%
41.8%
35.3%
38.2%
Reserves (months of imports)
8.8
9.3
7.7
6.0
5.0
4.8
4.3
5.6
6.3
GOVERNMENT BUDGETARY OPERATIONS (Ratio to GDP)
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
Revenue
10.7%
10.8%
11.2%
11.9%
12.4%
14.1%
15.9%
16.2%
15.2%
Expenditure
21.9%
21.8%
26.6%
29.4%
31.9%
31.7%
22.8%
25.7%
26.9%
18.4%
18.9%
20.9%
22.2%
24.2%
24.8%
14.9%
17.7%
18.3%
3.5%
2.9%
5.7%
7.2%
7.7%
6.9%
7.9%
8.0%
8.6%
Deficit (excl grants)
-4.3%
-5.3%
-8.3%
-9.7%
-11.4%
-9.9%
-8.6%
-9.3%
-11.0%
Deficit (incl grants)
-0.4%
-1.0%
-2.9%
-4.9%
-5.5%
-4.9%
-1.7%
-4.5%
-6.4%
Foreign borrowing
1.2%
Source: Ministry of Finance and Bank of Tanzania
1.4%
3.3%
3.9%
3.3%
3.7%
3.2%
3.6%
4.5%
Recurrent expenditure
Development expenditure
4
2.0 RECENT MACROECONOMIC DEVELOPMENTS
2.1 Global Output Growth
9.
According to the April 2011 World Economic Outlook (WEO), the world
economy in 2010 started to recover from the impact of the financial crisis. The World
economy grew by 5.0 percent in 2010 up from a contraction of 0.5 percent in 2009
owing to stronger-than-expected consumption in the United States and Japan. The
recovery was also attributable to the stimulus measures pursued by various
governments. More generally, signs are increasing that private consumption—which
fell sharply during the GFC—is starting to gain a foothold in major advanced
economies. Growth in emerging and developing economies remained robust, buoyed
by well-entrenched private demand, accommodative policy stances, and resurgent
capital inflows.
10.
In advanced economies, activity has moderated less than expected, but
growth remains subdued, unemployment is still high, and renewed stresses in the
euro area periphery are contributing to downside risks. However, in many emerging
economies, activity remains buoyant, inflation pressures are emerging, and there are
now some signs of overheating, driven in part by strong capital inflows. Most
developing countries, particularly in sub-Saharan Africa, are also growing strongly.
11.
Despite the rejuvenated global activities, the downside risks to the recovery
remain elevated. The most urgent requirements for robust recovery need
comprehensive and rapid actions to overcome sovereign and financial troubles in the
euro area. In general, this calls for policies to redress fiscal imbalances as well as to
repair and reform financial systems in advanced economies. These need to be
complemented with policies that keep overheating pressures in check and facilitate
external rebalancing in key emerging economies.
12.
Growth in emerging economies performed relatively well, which is an
indication that these economies are picking up from the global downturn. Developing
economies, particularly in sub-Saharan Africa, were less affected by the global
downturn and are thus experiencing solid domestic demand growth. Output growth
5
in the region was 4.3 percent in 2010 compared to 1.6 percent recorded in 2009.
The increase in growth is mainly associated with recovery in exports and commodity
prices, as well as robust domestic demand in a number of economies. Foreign
inflows to the region, including official flows, FDI, and remittances, were less
affected by the global downturn than had earlier been feared, although the outlook
remains uncertain.
13.
South Africa, which is the largest economy in the region that was affected by
the economic downturn mainly due to market links with advanced economies, is also
recovering from the crisis. The recovery is mainly driven by demand of commodities
from emerging Asia and from a recovery in demand for manufactures from its
largest export market, the euro area.
14.
Generally, the recovery in Sub Saharan region is relatively well. Growth in this
region is expected to be driven mostly by domestic factors, despite differences in the
level of exposure. Similarly, countries in the region are likely to face challenges in
their budgets, particularly those depending much from foreign aid. The recent
problem of budget deficits and associated measures to cut budgets in advanced
economies is likely to reduce aid and private financial flows to the region.
Table No. 2: World Output from 2005-2010 (Annual percentage change)
World Output
Developed Economies
Emerging and Developing
Economies
Developing Asian Countries
Africa
Sub-Saharan Africa
2005
4.9
2.5
2006
5.0
3.0
2007
4.9
2.7
2008
3.0
0.5
2009
-0.5
-3.4
7.5
7.8
7.9
6.1
2.7
7.3
9.2
5.6
9.6
5.9
9.7
6.2
7.9
5.2
7.2
1.9
9.5
4.3
6.0
6.4
6.8
5.5
2.8
5.0
Source: International Monetary Fund (IMF), April 2011
6
2010
5.0
3.0
2.2
15.
GDP Growth
The Tanzanian economy is emerging from a slowdown associated with the
2008 global financial crisis. Prior to the GFC, real GDP was growing at an annual
average of 7.3 percent (between 2004 and 2008). The macroeconomic policy
response to the crisis, including temporary and targeted fiscal stimulus measures
and supportive monetary policy, helped to mitigate the slowdown growth pattern.
The real GDP growth which slowed down to 6.0 percent in 2009 from 7.4 percent in
2008 has bounced back to 7.0 in 2010. This growth was attributed to increase in
agricultural activities (good harvest of major food crops namely: maize; paddy;
millet/sorghum and cassava) following good weather in the 2009/10 agricultural
season and government intervention on input subsidy program and irrigation
schemes as well as the implementation of the rescue package.
16.
Growth in agricultural and livestock economic activities increased to 4.2
percent in 2010 compared with 3.2 percent in 2009 due to good weather in the
2009/10 agricultural season; Government initiative on input subsidies and irrigation
infrastructure; and the implementation of ASDP. In particular, crop sub activity grew
by 4.4 percent in 2010 compared to 3.4 percent recorded in 2009 mainly on the
account of increased crop production such as maize, paddy, sorghum and cassava.
17.
The growth rate of industry and construction economic activities increased
from 7.0 percent in 2009 to 8.2 percent in 2010, mainly on account of good
performance in construction, water supply and electricity and gas sub-activities. The
growth rate of construction sub-activities increased to 10.2 percent in 2010 up from
7.5 percent recorded in 2009. The good performance is attributed to the increase in
the construction works as part of infrastructure development. Electricity and gas sub
activity also indicated an up ward trend in terms of growth rate from 8.4 percent in
2009 to 10.2 percent in 2010. The growth is a result of increase in hydropower
electricity generation as well as government efforts to enhance capcity of other
sources of power including thermal and gas. Production increased to 5.3 bill.kwh in
2010 from 4.7 bill kwh in 2009, equivalent to increase of about 11.2 percent. It
should be noted however that, GDP is measured on production approach and thus,
7
the growth rate of electricity and gas was measured using the same methodology of
the quantity generated and not the quantity of electricity transmitted or distributed.
On the other hand, the manufacturing sub- activity grew by 7.9 percent in 2010,
compared to 8.0 percent in 2009, mainly on account of increase in the cost of
production.
18.
In 2010, services economic activities grew by 8.2 compared to 7.2 percent
recorded in 2009. The increase in the growth rate was recorded in all economic sub
activities such as hotel and restaurants; and trade and repairs; mainly on account of
recovery of sub activities which have been affected by the GFC such as financial
intermediation; tourism; transport; hotel and restaurants; and trade and repair.
Consistent with rapid increase in mobile phone usage, the highest growth continued
to be registered in communication sub activity, which grew at 22.1 percent in 2010,
after having grown at an average annual rate of 20.1 percent in the preceding five
years.
Table 3: Real GDP Growth (Percentage Change)
Economic Activity
GDP at market prices
Agriculture, Hunting and Forestry
Fishing
Industry and construction
Services
2005 2006 2007 2008 2009 2010 Av (05-10)
7.4
6.7
7.1
7.4
6.0
7.0
7.0
4.3
3.8
4.0
4.6
3.2
4.2
4.0
6.0
5.0
4.5
5.0
2.7
1.5
4.1
10.4
8.5
9.5
8.6
7.0
8.2
8.7
8.0
7.8
8.1
8.5
7.2
8.2
8.0
Source: Ministry of Finance
19.
The main contributors to growth in 2010 were Trade and repairs (16.7
percent); Agriculture (14.0 percent); Manufacturing (10.7 percent); Real estate and
business services (10.2 percent); and financial intermediation 10.1 percent) as
depicted in the figure below.
8
Figure 1: Real GDP Growth and Contribution to Growth by Activity (2010)
2.3 Price Movements
20.
The National Bureau of Statistics has updated the NCPI market basket weights
from 2001 to 2007 using results of the 2007 HBS. The new NCPI weights are based
on monetary expenditures relating to consumption for all types of households in the
21 geographic regions of Tanzania Mainland, while the old index covered only urban
households.
The
rebased
NCPI
follows
the
internationally
recommended
Classification of Individual Consumption by Purpose (COICOP). In addition, the new
NCPI incorporates a number of methodological improvements such as the use of
geometric means for compiling elementary index aggregates, and the use of an
improved index compilation system among many others. The new NCPI has been
compiled with a 12 month overlap in order to facilitate the calculation of 12 month
index changes based on the same index market basket and weights and it has
become the official Index starting in October 2010.
9
Table 4: NCPI linked index series
NEW NCPI
SNO.
MAIN GROUP
OLD NCPI
WEIGHT
Food and Non Alcoholic Beverages
2
Alcoholic and Tobacco
3.3
Drinks and Tobacco
6.9
3
6.7
Clothing and Footwear
6.4
9.2
Rent
1.4
5
Clothing and Footwear
Housing, Water, Electricity, Gas and Other
Fuel
Furnishing, Housing Equipment and Routine
Maintenance of the House
6.7
Fuel, Power and Water
8.5
6
Health
0.9
Personal Care and Health
2.1
7
Transport
9.5
9.7
8
Communication
2.1
Transportation
Furniture and Household
Equipment
9
Recreation and Culture
1.3
Recreation and Entertainment
0.8
10
Education
1.7
2.6
11
Restaurants and Hotels
6.4
100
12
Food
WEIGH
T
1
4
47.8
MAIN GROUP
Miscellaneous Goods and Services
4.5
Education
Household Operations and
Maintenance
Miscellaneous Goods and
Services
TOTAL – ALL ITEMS INDEX
100
TOTAL – ALL ITEMS INDEX
1.
Other Selected Groups
Food and Non-alcoholic Beverages - combining food consumed at home and food consumed in
restaurants
2.
Energy and Fuels - combining electricity and other fuels for use at home with petrol and diesel
55.9
2.1
2.1
1.5
NEW
WEIGHT
51.0
5.7
3.
All Items Less Food
49.0
4.
All Items Less Food and Energy
43.3
Source: National Bureau of Statistics
21.
This new system of using geometric mean started in October 2009, recording
an inflation of 4.2 percent during that month compared with 4.5 percent recorded in
September 2009 but using the old methodology of arithmetic mean. Had it the
arithmetic mean was used, inflation would have been 4.1 percent in October 2009
compared with 4.2 percent for the same month using the geometric means.
In
general terms, when comparing the inflation results using the two methodologies,
the difference is insignificant.
22.
Although inflation has remained a single digit, it has resumed an upward trend
during the first quarter of 2011. The annual headline inflation increased from 5.6
percent for the year ended December 2010 to 6.4 percent in January 2010 and
continued upwards to 8.6 percent in the year ended April 2011, owing to the
10
increase in the general prices of electricity, food and gas. The headline Inflation rate
measures inflation rates when all items in the fixed basket are included. Inflation is
expected to remain a single digit in the medium term as the government continues
to pursue prudent fiscal and monetary policies, as well policy measures aimed at
increasing food production and developing alternative power generation sources to
hydro power. Food and non alcoholic beverages inflation rate went down to 8.6
percent for the year ending March 2011 from 9.2 percent registered in February
2011.
23.
The annual inflation rate which excludes food and energy for the year ended
April 2011 using the rebased NCPI decreased to 5.7 percent from 6.3 percent in the
year ended March 2011 while the annual inflation rate for food consumed at home
and away from home increased to 9.2 percent in the year ended April 2011 as
compared to 8.3 percent in the year ended March 2011. The annual inflation rate for
energy increased to 22.1 percent in April 2011 from 17.2 percent registered in year
ended March 2011.This type of CPI excludes food consumed at home and
restaurants, non alcoholic beverages, petrol, diesel, gas, kerosene, charcoal and
electricity. Excluding food and energy which are the most volatile components in the
total NCPI could provide a more stable inflation figure for policy makers.
11
Figure 2: Monthly NCPI Movement and Inflation Rates (Jan – Dec 2010).
2.4
24.
External Sector Developments
In 2010, overall balance of payments remained positive at a surplus of USD
369.8 million, slightly above the surplus of USD 366.2 million recorded in 2009. The
surplus was largely attributable to capital inflows in the form of grants and foreign
borrowing.
Exports performance
25.
The value of exports of goods and services increased by 21.9 percent to USD
5,828.2 million during the year ending December 2010, compared to USD 4,780.4
million recorded in the corresponding period in 2009. The improvement was largely
due to surge in exports of non traditional goods and service receipts.
Goods Exports
26.
During the year ending December 2010, the value of exports of goods grew by
27.7 percent to USD 3,736.7 million 1 compared to USD 2,925.8 million in the
1
These figures exclude unrecorded trade amounting to USD 560.4 in 2010
12
corresponding period in 2009. This was largely attributed to the increase of exports
of non traditional goods especially gold and manufactured goods.
Traditional Exports
27.
The value of traditional exports went up by 16.5 percent to USD 558.9 million
during the year ending December 2010 compared to USD 479.6 million in
corresponding period in 2009. The increase was mainly attributed to an increase in
export value of cashew nuts and tobacco. The performance of tobacco is explained
by the increase in both export volumes and unit price. The increase in tobacco
export unit prices is largely attributed to the improved quality of Tanzanian tobacco
following proper farming practices coupled with accessibility and utilization of
agriculture inputs. Meanwhile, the volume of other traditional exports declined
during the year ending December 2010 compared to the corresponding period in
2009.
Non-Traditional Exports
28.
The value of non-traditional exports grew by 33.7 percent to USD 3,177.7
million during the year ending December 2010, compared to USD 2,376.1 million
during the same period in 2009. The improved performance was mainly due to an
increase in value of exports of minerals especially gold and manufactured goods.
During the period, the value of gold exports went up by 23.4 percent to USD 1,516.6
million, largely due to a rise in prices of gold in the world market. The prices of gold
increased to an average of USD 1,224.7 per troy ounce from USD 972.7 per troy
ounce recorded in 2009. The value of manufactured goods also increased to USD
963.9 million, being 90.3 percent higher than the value recorded during the
preceding year, largely associated with the increased demand in the world market
following the global recovery from the financial crisis.
13
Figure 3: Share of Goods Export Earnings (2010)
Service Receipts
29.
During the period ending December 2010, service receipts grew by 12.8
percent to USD 2,091.5 million compared to USD 1,854.6 million in 2009. This was
mainly caused by the increase in receipts from transportation services for transit
goods to and from land locked neighbouring countries and travel (tourism) earnings
following recovery of the global economy from financial crisis. Travel receipts
increased by 12.3 percent to USD 1,302.6 million while transportation receipts rose
by 33.2 percent to US Dollar 445.5 million following recovery of global economy.
14
Table 5: Exports by Type of Commodity
Goods/Year
2006
2007
2008
2009r
2009-2010 (%
Change)
2010p
Traditional Exports
Coffee
-8.6%
Value (USD Mil)
61.4
98.1
99.1
111.2
101.7
Volume (‘000 tons)
31.5
45.0
45.4
56.0
35.6
1953.1
2177.6
2185.7
1984.6
2852.4
111.0
84.0
-24.3%
Value (USD Mil)
55.8
66.4
115.8
99.4
67.6
-32.0%
Volume (‘000 tons)
55.0
59.1
87.9
1116.7
1241.8
11.2%
1014.2
1123.8
1317.6
0.0
0.0
-
Value (USD Mil)
6.1
8.8
15.7
0.0
0.0
-
Volume (‘000 tons)
8.0
9.5
13.8
0.0
0.0
-
766.7
928.4
1137.7
47.2
36.4
-22.8%
Value (USD Mil)
31.0
28.7
42.5
30.6
18.7
-39.0%
Volume (‘000 tons)
22.4
21.5
28.1
1538.7
1948.9
26.7%
1384.9
1334.8
1511.2
127.4
232.4
82.4%
Value (USD Mil)
65.2
87.8
Volume (‘000 tons)
25.0
37.9
-36.4%
43.7%
Unit Price (USD Per Ton)
Cotton
Unit Price (USD Per Ton)
Sisal
Unit Price (USD Per Ton)
Tea
Unit Price (USD Per Ton)
Tobacco
176.4
Unit Price (USD Per Ton)
Cashewnuts
55.2
33.8
53.5
58.2%
3194.6
3764.0
4339.3
15.3%
44.3
68.6
96.9
41.3%
52.7
95.5
125.0
30.9%
839.6
718.2
775.3
7.9%
13.5
14.4
7.6
-47.0%
3.7
4.8
2.2
-54.3%
3605.5
2977.9
3449.6
15.8%
2611.4
2318.1
Value (USD Mil)
39.4
25.6
Volume (‘000 tons)
66.3
41.3
594.4
621.1
Value (USD Mil)
8.2
4.2
Volume (‘000 tons)
2.4
1.4
3346.2
2968.3
Sub Total (Traditional)
Non-traditional exports (USD Million)
267.1
319.7
488.3
479.6
558.9
Minerals
836.8
848.7
1186.7
1271.4
1560.1
Gold
786.4
788.2
1108.3
1229.5
1516.6
Diamond
22.2
26.0
20.3
15.5
10.1
Other Minerals
28.3
34.4
58.1
26.4
33.5
195.8
309.8
145.9
136.6
741.8
141.6
506.5
155.0
963.9
141.0
15.4
19.1
45.7
33.3
31.1
128.3
154.0
149.7
213.7
160.3
285.5
120.4
289.6
132.5
349.1
1,476.2
1,678.1
174.3
202.4
2,279.6
347.8
2,376.1
438.9
3,177.7
560.4
1917.6
2,199.6
3,115.7
3,294.9
4,297.2
Unit Price (USD Per Ton)
Cloves
Unit Price (USD Per Ton)
16.5%
22.7%
23.4%
-34.8%
26.7%
90.3%
Manufactured goods
Fish and Fish products
-9.0%
-6.7%
Horticultural Products
Re-exports
Other Exports
Sub Total(NonTraditional)
Unrecorded Trade
Grand Total
Source: Bank of Tanzania
15
10.1%
20.5%
33.7%
27.7
30.4
Import Performance
30.
During the year ending December 2010, total value of imports of goods and
services went up by 18.8 percent to USD 8,974.7 million compared to USD 7,543.2
million recorded in 2009. The increase is attributed to the surge in goods imports
particularly intermediate and consumer goods whereas services payments recorded
a decline during the review period.
Goods Imports
31.
The total value of imports of goods grew by 22.1 percent to USD 7,125.1
million during the year ending December 2010, compared to USD 5,834.1 million in
the same period in 2009. This was mainly caused by an increase in value of imports
of intermediate and consumer goods especially oil and food and food stuffs
respectively. The value of imported oil increased by 49.9 percent to USD 1,983.8
million compared to USD 1,323.0 million in the same period preceding year following
the increase in both volume and prices. The volume of oil imports rose to 3.1 million
tons from 2.9 million tons during the period and the average oil prices (refined
products) in the world market also increased by 25 percent to USD 691.9 per ton
from USD 553.7 per ton. The increase in imports of food and food stuffs is largely on
account of a rise in importation of wheat.
Services Payments
32.
During the year ending December 2010, service payments went down by 8.2
percent to USD 1,849.6 million, from USD 1,709.9 million recorded in the same
period in 2009. The decline was largely attributed to decrease in payments from
transportation of passengers, construction services, government services and other
business services. On the other hand, freight payments went up by 21.7 percent to
USD 680.7 million, in line with an increase in importation of goods.
16
Table 6: Goods Imports by Category (USD Million)
Item
2006
Capital goods
1,435.1
Transport equipment
374.8
Building and construction
338.0
Machinery
722.4
Intermediate goods
1,576.9
Oil imports
1,146.5
Fertilizers
53.9
Industrial raw materials
376.5
Consumer goods
852.1
Food and foodstuffs
249.2
All other consumer goods
Imports goods(f.o.b.)
Imports goods (c.i.f)
602.8
3,864.1
4,246.3
2007
2008
2009
1,765.0
2,932.5
2,539.2
477.8
2010
2,715.2
%
Change
6.9%
847.5
748.5
901.1
20.4%
714.6
558.2
610.6
9.4%
870.5
1,370.3
1,232.5
1,203.4
-2.4%
1,970.7
2,667.4
1,890.3
2,700.8
42.9%
1,462.1
1,922.2
1,323.0
1,983.8
49.9%
171.5
95.2
115.0
20.8%
573.6
472.1
1,412.5
1,404.6
303.5
343.3
1,109.0
1,061.3
1,247.5
17.5%
4,860.6 7,012.3 5,834.1
5,341.4 7,705.8 6,411.2
7,125.1
7,829.8
22.1%
416.7
59.1
449.4
1,124.9
315.4
809.5
602.0
1,709.2
461.6
Source: Bank of Tanzania
Figure 4: Contribution to Total Imports (2010)
17
27.5%
21.7%
34.5%
22.1%
TABLE 7: TANZANIA CURRENT ACCOUNT BALANCE (Million of USD)
2006
2007
2008
2009
2010
%Change
Goods Account
(2,120.8)
(2,836.5)
(3,900.3)
(2,908.4)
(3,388.5)
16.5%
Export2
Import
1,743.3
3,864.1
2,024.2
4,860.6
3,112.0
7,012.3
2,925.8
5,834.1
3,736.7
7,125.1
27.7%
22.1%
Service Account net
278.7
462.1
145.6
253.4
66.1%
1,854.6
1,709.1
2,091.5
1,849.6
12.8%
8.2%
(2,762.8)
(3,146.5)
13.9%
5,828.2
8,974.7
21.9%
19.0%
Receipts
Payments
1,528.1
1,249.3
349.9
1,875.7
1,413.7
1,998.8
1,648.9
Goods and Services (Net)
(1,842.1)
(2,374.4)
(3,550.4)
Export of goods and services
Import of goods and services
3,271.4
5,113.4
3,899.9
6,274.3
Income Account (net)
(93.4)
(123.1)
(121.7)
(71.2)
(93.7)
31.5%
Receipts
Payments
80.3
173.7
107.3
230.4
122.7
44.3
161.1
232.4
164.6
258.3
2.1%
11.2%
Current transfer (net)
589.3
651.5
609.5
696.9
823.9
18.2%
Inflows
0/w General Government
655.2
560.3
724.0
626.9
689.0
588.5
765.4
658.4
902.9
798.1
18.0%
21.2%
Outflows
65.9
72.5
79.6
68.4
9.0
Current Account Balance
(1,346.1)
(1,846.0)
(3,062.6)
(2,137.1)
15.5%
13.1%
5,110.8
8,661.2
4,780.4
7,543.2
(2,416.3)
Source: Bank of Tanzania
2.5
33.
Government Finance
The budget performance for the fiscal year 2009/10 experienced a shortfall in
domestic revenue collections against targets. Total domestic revenue collection
during 2009/10 amounted to Tshs. 4,661,540 million, equivalent to 15.2 percent of
GDP compared to Tshs 4,293,074 million (16.2 percent of GDP) in 2008/09. The
slowness performance was partly due to the impact of the global financial crisis that
led to a slower growth in taxable production activities in the economy and
postponement of implementation of some revenue measures that were announced
in the budget. Total expenditure during the year reached 26.7 percent of GDP,
compared to 25.7 percent in 2008/09. Grants amounted to 4.6 percent of GDP,
resulting into a budget deficit after grants of 6.4 percent of GDP.
2
This exports exclude unrecorded trade as indicated in table 5 above
18
Domestic Revenue
34.
Total domestic revenue collection for 2009/10 was 8.8 percent below the
budget estimates.
The shortfall in revenue collection was primarily caused by
continued impact of the Global Financial Crisis (GFC), which led to a slower growth
in taxable production activities in the economy. In addition, non-tax revenue was
further affected by postponement of implementation of some revenue measures that
were announced in the budget, including new charges in residency permits, visas,
immigration fees and fire service charges. The implementation of these measures
was postponed to avoid adverse effects in tourism activities following the onset of
the global financial and economic crisis. Nonetheless, domestic revenue collection
increased in absolute terms from Tshs. 4,293.074 billion in 2008/09 to Tshs.
4,661.540 billion in 2009/10, equivalent to an increase of 8.2 percent. On monthly
basis, revenue collection has doubled from an average of Tshs. 174.8 billion in
2005/06 to 388.5 billion in 2009/10.
35.
During the first half of the fiscal year 2010/11, total domestic revenue
collections (including collections from LGAs) amounted to Tshs. 2,778.9 billion,
equivalent to 90 percent of estimated Tshs. 3,079.1 billion. The gross collection for
the period was above the collection of the corresponding period in the year 2009/10
by Tshs. 487.7 billion, reflecting an increase of 17.6 percent. Total tax revenue
collections amounted to Tshs. 2,558.5 billion, equivalent to 91 percent of estimated
Tshs. 2,798.7 billion. Collections from taxes on imports were Tshs. 226.1 billion,
reflecting the performance level of 97 percent of estimated Tshs. 234.2 billion. The
decline in volumes of petroleum imports was one of the causes for the fall in tax
collection of these taxes. On the other hand, non-tax revenue continued to perform
below the estimates during this period. The actual revenue collection from this
category was Tshs. 148.5 billion against the target of Tshs. 194.1 billion, equivalent
to 77 percent. LGAs collections during the period under review amounted to Tshs.
71.9 billion, equivalent to 83 percent of the estimated Tsh. 86.3 billion.
19
Foreign Resources
36.
The Government continues to use grants and concessional loans from
Development Partners as major foreign sources of financing development
programmes. During the fiscal year 2009/10, the total grants received were Tshs.
1,405.3 billion, of which programme grants amounted to Tshs 665.778 billion,
projects grants amounted to Tshs 459.04 billion and basket grants amounted to
Tshs 258.1 billion which is equivalent to 67 percent of the total estimate.
The
shortfall was caused by slow implementation of projects mainly on account of
prolonged procurement procedures; failure of some MDAs, Regions and LGAs to
account for D-funds; and failure to use the exchequer system by some development
partners on project funds. Total grants for the year 2009/10 amounted to 4.6
percent of GDP.
37.
During the year under review, total net financing was Tshs 1,948.1 billion
equivalent to 6.4 percent of GDP, out of which net borrowing from external sources
was Tshs 1,379.6 billion (4.5 percent of GDP) and net borrowing from domestic
sources was Tshs 568.5 billion (1.9 percent of GDP). Domestic borrowing was higher
than budgeted amount as the Government had to borrow 1.6 percent of GDP to
compensate for the shortfall in programme grants in order to meet MKUKUTA
expenditure requirements.
38.
During the first half of the fiscal year 2010/11, total grants and loans to
finance budget amounted to Tshs. 827.9 billion, equivalent to 101 percent of
estimated Tshs. 821.7 billion. The increase is attributed to exchange rate fluctuation
used to convert Tanzanian shillings against foreign currencies. This performance was
higher than the corresponding period in the year 2009/10 by Tshs. 42.6 billion,
reflecting an increase of 51.4 percent. On the other hand, grants and loans for
development expenditure amounted to Tshs 469.6 billion, equivalent to 24 percent
of estimated amount in fiscal year 2010/2011. This performance was less than the
corresponding period in the year 2009/10 by Tshs. 378 billion, reflecting a decrease
of 44.6 percent.
20
Expenditure
39.
Total expenditure for the period under review was below the target, but higher
than the amount of the corresponding period in 2008/09. Total expenditure for
2009/10 was Tshs. 8,173.7 billion, equivalent to 92.0 percent of the estimates.
Development expenditure for 2009/10 was Tshs. 2,611.3 billion, which is equivalent
to 92 percent of the total estimates. The shortfall in development expenditure was
mainly due to delays in the implementation of projects in some MDAs and LGAs
following failure to accomplish procurement procedures and delays in reporting on
the use of the funds. Similarly, overall recurrent expenditure amounted to Tshs.
5,562.4 billion, which was below the budgeted level by 8 percentage points.
Expenditure on wages and salaries was Tshs. 1,723.4 billion, equivalent to 98
percent of the budget.
40.
Total expenditure for the first half of the fiscal year 2010/11 stood at Tshs
5,052.7 billion, equivalent to 83.4 percent of the period estimates of 6,058.0 billion.
Actual development expenditure for the same period was Tshs. 1,255.8 billion which
is equivalent to 81 percent of the period estimates of Tshs 1,550.3 billion, while
overall recurrent expenditure amounted to Tshs 3,796.8 billion which was 84.2
percent of the period estimates of Tshs 4,507.7 billion. There was a relatively good
performance in recurrent expenditure execution partly due to timely spending in
goods and services related to the preparation for October 2010 General Election,
examination expenses and other regular government operations. Slow execution in
development spending was primarily due to delays in disbursement of foreign
project funds.
2.6 National Debt
41.
The national debt stock, comprising of external and domestic debt, as at the
end of December 2010 stood at USD 11,380.2 million compared to USD 10,725.92
million, at end-December 2009, equivalent to 6.1 percent increase.
Out of the
national debt stock, public debt was USD 9,516.8 million and private debt stood at
USD 1,863.4 million. Further, out of the total public debt, USD 6,529.6 was external
debt, equivalent to 68.6 percent of the total public debt and the remaining was
21
domestic debt. The increase in the national debt was due to the accumulation of
external interest arrears emanating from none-compliance of non Paris club
members in granting debt relief as per the agreements; increase in new domestic
and foreign borrowing to finance infrastructure projects; and depreciation of the
shilling.The trend in the national debt stock indicators is as indicated in table 8
below.
External Debt
42.
As at end December 2010, total external debt stock stood at USD 8,363.3
million compared to USD 7,641.9 as at end-December 2009, equivalent to 9.0
percent increase. Further, as of end December 2010 public debt accounted for 77.8
percent of the total external debt and the rest was private debt amounting to USD
1,863.4 million. Out of the total external debt as of end December 2010, Disbursed
Outstanding Debt (DOD) was USD 7,699.6 million, equivalent to 91.7 percent of the
total external debt and interest arrears was USD 693.7 million. The increase in
external debt stock was accounted for by new disbursements and unpaid interest
arrears to Non Paris Club creditor’s countries which have not concluded debt
rescheduling arrangements with the Government.
Domestic Debt
43.
Total public domestic debt stock as at end December 2010 stood at Tshs.
4,385.4 billion (equivalent to US Dollar 2,987.2 million), compared to Tshs 3,837.7
billion recorded at end December 2009. The increase is attributed to the rising
need to finance development expenditure such as infrastructure, issuance of
Treasury bills and bonds for monetary policy implementation and domestic debt
market development. Out of the total domestic debt, Government bonds accounted
for largest share of 62.0 percent of the total domestic debt; treasury bills were 37.8
percent and other debts accounted for 0.2 percent.
Debt Services
44.
During the period between July to December 2010, the Government spent Tsh
694.4 billion for debt servicing. External debt service in the first half of the fiscal
22
year 2010/2011 amounted to Tsh 62,800 million, out of which, Tsh 24,010 million
was principal repayments and Tsh 38,790 million was interest payments. Domestic
debt service in the first half of the fiscal year 2010/2011 amounted to Tsh 632.4
billion, of which, Tsh 424.7 billion was for rolling over maturing Government
securities and Tsh 107.7 billion was for interest payment.
Performance of key debt indicators
45.
During the period between 2000/01 and 2009/10, key debt indicators
improved significantly from very high ratios in the early 2000 as shown in table 8
and figure 5 below. These debt indicators exhibited a mixed pattern though, in
2009/10 they started to deteriorate following increase in Government borrowing to
mitigate the impact of the GFC and to finance infrastructure projects. Exchange rate
depreciation also accounted for the increase in national debt (hence deterioration of
the performance of the indicators above). In implementing the National Debt
Strategy, the Government continued to supervise the national debt effectively by
borrowing from cheap sources to finance infrastructure projects and analyses
critically the impact of new loans. The Government also undertook Debt
Sustainability Analysis (DSA) in October 2010 and Medium Term Debt Sustainability
(MTDS) in January 2011 and the results showed that the current ratios of debt
indicators are sustainable and manageable. In other word, Tanzania is creditworthy
subject to ability to service the loan and in adherence to the Loan, Guarantees and
Grant Act of 1974 (amended in 2004) and its regulations.
Table 8: Performance of Key Debt Indicators
Indicators
2000/01
2001/02
2002/03
Public Debt as %
of GDP
65.2
55.1
56.2
External Debt as
% of GDP
55.6
45.1
45.9
Domestic Debt
as % of GDP
10.3
10.1
10.7
Public Debt
Service as
Percentage of
Revenue
18.2
14.6
11.5
Source: Ministry of Finance and Bank of Tanzania
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
57.6
53.9
52.1
34.0
32.3
33.6
42.4
47.4
42.9
38.5
17.3
18.0
20.9
22.5
10.5
11.3
14.5
16.6
14.2
12.5
20.5
11.9
10.8
6.0
3.6
2.8
1.7
2.7
23
Figure 5: Trend in Key Debt Indicators
2.7 Money and Credit developments
46.
In 2010/11, monetary policy conducted by Bank of Tanzania is directed
towards maintaining an appropriate level of liquidity in the economy to contain
inflation and provide enough room for recovery of credit to the private sector. In
addition, the Bank’s liquidity windows namely Intraday Loan Facility (ILF), Lombard
and discount window will remain open for banks in need of liquidity to allow for
greater flexibility in the provision of liquidity to the economy.
47.
During the year ending December 2010, all the monetary aggregates recorded
a substantial increase. Extended broad money supply (M3) recorded an annual
growth rate of 25.4 percent above the target of 23.5 percent by end December
2010, and also above the growth rate of 25.1 percent recorded at end June 2010.
Broad money (M2) grew by 21.8 percent, slightly higher than the target of 20.7
percent by end December 2010, but lower than 26.3 percent recorded at end June
24
2010. The recorded annual growth rate of money supply in the year ending
December 2010 was driven by an increase in net domestic assets (NDA) of the
banking system in connection to sizeable increase in net government borrowing from
the banking system. The increase in net government borrowing from the banking
system was partly necessitated by shortfalls in revenue collections and delays in the
disbursements of donor funds experienced during the period.
Credit to Private Sector
48.
Consistency with the relaxed monetary policy stance pursued during the
period, the growth of credit to the private sector improved gradually since March
2010. Credit to private sector grew by 20.0 percent in the year ending December
2010, slightly higher than the target of 19.2 percent and above 16.3 percent
recorded at end June 2010. The recovery in the growth rate of credit to the private
sector reflects the signs of growing banks’ confidence in lending to the private sector
after the global financial crisis.
49.
During the period under review, personal loans dominated in terms of share of
total private sector credit, accounting for 21.4 percent, followed by trade activities
which accounted for 17.5 percent, manufacturing 11.9 percent, agriculture 12.1
percent, and transport and communication 9.2 percent.
Interest Rates Development
50.
During the year ending December 2010, annual average interest rates on
domestic currency denominated financial products exhibited a mixed trend. The
overall Treasury bills yield decreased slightly to an annual average of 6.32 percent in
December 2010, from 6.91 percent in the year ending December 2009. A same
pattern was observed in the Treasury bond market, where average yields declined
across all maturities. Overall inter-bank cash market rate increased to an average of
5.26 percent in the year ending December 2010, from 1.57 percent recorded in a
similar period a year earlier.
51.
Annual average interest rates offered and charged by banks, exhibited a
declining trend. In particular, overall time deposit rate declined to an average of
25
5.11 percent in December 2010, from 6.36 percent recorded in December 2009.
Similarly, negotiated deposit rate declined to 8.45 percent in December 2010, from
9.94 percent recorded in December 2009. Likewise, savings deposit rate declined
slightly to an annual average of 2.41 percent, from 2.83 percent recorded in the
year ending December 2009.
52.
On the other hand, overall lending rate decreased to 13.45 percent in
December 2010, from an annual average of 14.38 percent recorded in December
2009. A decreasing pattern was also observed in short-term lending rates that
decreased to an annual average of 13.37 percent in December 2010, from 13.96
percent recorded in December 2009 and negotiated lending rate which decreased to
an average of 11.88 percent, from an average of 13.18 percent recorded in the
same period. As a result, the spread between short-term lending and deposit rates
widened to 5.27 percentage points in the year under review, from 4.97 percentage
points recorded a year earlier.
Table 9: Domestic Weighted Average Interest Rates Structure Percent
Dec-08 Dec-09
Overall Interbank cash market rate
Overnight interbank cash market
REPO Rate
Discount Rate
Overall Treasury bills rate
35 days
91 days
182 days
364 days
Savings Deposit Rate
Treasury Bonds Rates
2-years
5-years
7-years
10-years
Overall Time Deposits Rate
12 month time deposit rate
Negotiated Deposit Rate
Overall Lending rate
Short-term lending rate (up to 1year)
Negotiated Lending Rate
Margin between short-term lending and oneyear time deposit rates
2010
6.54
6.27
6.42
15.99
10.99
6.88
11.20
12.13
12.79
2.74
1.57
1.46
1.26
3.70
6.91
3.80
6.06
6.59
8.83
2.83
Jan
1.80
1.67
1.22
7.58
7.20
4.57
6.35
7.20
9.06
2.84
Feb
1.89
1.66
1.22
7.58
6.32
4.09
5.57
6.33
8.24
2.89
Mar
1.29
0.98
1.06
7.58
4.15
1.99
3.25
4.45
6.32
2.88
Apr
0.92
0.86
0.79
7.58
2.70
1.26
1.77
2.58
4.86
2.83
May
0.87
0.67
0.65
7.58
2.68
0.89
2.16
2.26
4.96
2.82
Jun
0.97
0.86
0.54
7.58
3.33
0.65
2.89
2.59
6.08
2.82
Jul
0.92
0.82
0.58
7.58
3.89
0.78
3.22
3.91
6.26
2.69
Aug
1.09
0.93
0.58
7.58
3.86
0.97
2.71
3.91
5.98
2.58
Sep
1.65
1.68
0.90
7.58
5.06
1.62
3.89
4.77
6.96
2.57
Oct
2.29
2.27
1.53
7.58
5.68
1.84
4.76
5.67
7.85
2.56
Nov
2.86
2.87
1.78
7.58
5.85
1.46
4.61
5.62
7.48
2.51
Dec
5.26
5.19
3.20
7.58
6.32
1.33
5.24
6.20
7.67
2.41
14.35
16.39
17.04
19.47
6.63
8.48
10.23
16.05
13.56
12.05
10.89
13.45
14.15
16.73
6.36
8.99
9.94
14.38
13.96
13.18
10.89
13.77
14.15
16.73
6.12
9.06
7.44
14.39
13.76
13.68
9.40
13.77
14.15
16.73
5.82
8.84
7.16
14.81
14.73
13.79
9.40
13.77
12.11
16.73
6.11
8.78
9.41
14.80
14.61
13.71
9.40
13.77
12.11
11.99
5.96
8.67
9.63
14.50
13.88
13.97
9.40
9.52
10.38
11.99
5.79
8.56
9.47
14.50
14.02
13.80
8.79
9.52
10.38
11.68
5.88
8.43
9.57
14.67
13.92
14.13
8.88
9.52
10.38
11.68
5.42
7.86
8.76
14.34
14.14
13.84
8.88
9.70
10.85
11.68
5.55
7.13
8.58
14.35
14.37
14.00
9.82
9.70
10.85
13.00
6.03
7.15
9.33
14.47
14.29
13.80
9.82
10.44
11.88
13.00
6.11
7.26
9.60
14.49
14.22
13.71
9.67
10.44
11.88
13.59
5.55
6.14
8.76
12.84
12.31
13.65
10.35
11.58
11.88
13.59
5.11
7.09
8.45
13.45
12.37
11.88
5.07
4.97
4.71
5.89
5.84
5.21
5.47
5.49
6.28
7.24
7.14
6.96
6.17
5.27
Exchange rate movements
53.
In 2009 and 2010, exchange rate remained market determined. The Bank of
Tanzania continued to participate in the Inter-bank Foreign exchange Market (IFEM),
primarily to meet liquidity management objectives, while fostering orderly market
developments. In the year ending October 2010, the Bank was the main supplier of
26
foreign exchange in the IFEM, selling USD 1,001.0 million out of total USD 1,167.7
million traded in the IFEM. This compares with the sale of USD 1,044.4 million out of
total USD 1,582.1 million traded in the IFEM in the corresponding period 2009.
54.
In the year ending December 2010, the shilling depreciated by 7.2 percent to
Tshs 1,494.8 per US dollar from Tshs 1,394.7 per US dollar recorded in the year
ending July 2010. The depreciation of the shilling against the US Dollar was on
account of high demand for foreign currency, in connection of banks seeking to
increase their net foreign assets, coupled with the general strengthening of the US
Dollar against major currencies across the world.
Foreign Reserves
55. Gross official reserves increased to US Dollar 3,948.0 million at the end of
December 2010 from US Dollar 3,482.6 million recorded at the end of June 2010.
The level of gross official foreign reserves at the end of December 2010 was
sufficient to cover 6.3 months of import of goods and services against the target of
5.0 months of imports for 2010/11. The sustained high level of growth was largely
attributed to the increase in capital inflows in the form of grants and foreign
borrowing.
2.8 Financial Sector Reforms
56.
Second Generation Financial Sector Reforms were initiated since 2006/2007.
The main activities of the Reform Program included the following: improving the
monetary policy framework and the legal and regulatory infrastructure, so as to
enhance access to financial services; developing financial markets with vibrant
primary and secondary market supported by appropriate and secure settlements
systems as well as a stock exchange; to promote an efficient and competitive
pension and insurance sectors; establishing and promoting a viable and sustainable
microfinance industry. Significant achievements have been registered including
building a robust banking sector. All banks are adequately capitalized, and have
adequate liquidity for extending loans to the private sector and have persevered
during the global financial crisis. The National payment system has been improved
significantly, including enabling the government to collect domestic revenue and
27
effect some of its payments on real time through the introduction and development
of the Inter-bank Settlement System (TISS).
57.
During the review period, the government continued with the implementation
of the Second Generation Financial Sector Reforms. The Regulations for the Credit
Reference Databank (CRD) and Credit Reference Bureau were gazetted through
Government Notices number 177 and 178 respectively and became effective in
October 2010. The CRD is to be housed in the Bank of Tanzania. Under the auspices
of the Second Generation Financial Sector Reform, a Consultant completed a
feasibility study of establishing a market for municipal Bonds in Tanzania in
November 2010, and the Final report which was completed is expected to be
adopted as soon as it is approved by the Government. Furthermore, following
enactment of the Social Security Regulatory Authority (SSRA) in 2008, the office of
the SSRA was established in November 2010 and the CEO for the office has been
appointed. The SSRA was tasked to promote an efficient and competitive pension
sector supported by appropriate legal and regulatory structures.
Also, the
Government continues with the process of improving the systems through
harmonization of the pensions and ensure sustainability of the pension funds. Work
on the proposed transformation of the Credit Guarantee Scheme Department at the
Bank of Tanzania into an independent, sustainable entity is at an advanced stage.
The final report was produced in January 2011 and is being reviewed.
58.
A consultant has started work on developing a comprehensive policy
framework and legal infrastructure for long term development finance in Tanzania.
The Government has established the Tanzania Mortgage Refinance Company
(TMRC) under the supervision of the Bank of Tanzania with the aim of extending
housing finance through commercial banks and hence to enable the public to access
credits from the respective banks. In addition, the process of establishing the
Agricultural Development Bank is in the final stages. The aim of establishing this
Bank is to enable the public to access longer-term low interest bearing loans for their
economic emancipation. While the bank is being established, the Government has
opened agricultural financing window at the Tanzania Investment Bank (TIB) to
28
extend agricultural credits. The Government has transformed TIB to become an
instrument of extending longer – term development loans and is in the process of
procuring consultants who will transform TIB into a two tier group Development
Finance Institution.
2.9 Regional Integration
59.
In order to scale up efforts for regional integration, the EAC Member states
have established a Custom Union and a Common Market. The EAC is already at a
Common Market following conclusion of negotiation for the establishment of the EAC
Common Market Protocol signed by the Heads of State on 20th November, 2009 in
Arusha. Negotiations for the establishment of the Monetary Union are now on going.
The EAC has also developed a number of regional projects and programmes in the
area of Infrastructure which include projects on roads, railways, and energy,
programmes in the social sector including education, culture employment and the
environmental programmes under the Lake Victoria Basin Commission. During the
period under review, trade in the EAC Customs Union has improved, as evidenced by
increased Tanzania exports to the EAC market (including Rwanda and Burundi) from
USD 263.8 million in 2009 to USD 450 million in 2010, while imports from EAC
declined from USD 310.5 million to USD 285.2 million. It is worth noting that
Tanzania was a net exporter to EAC in 2010. Meanwhile, SADC member states which
have ratified the agreement on “Free Trade Area” continued to implement it and the
target is to ensure that by the year 2012, all member states would have ratified the
protocol. Countries which have not yet signed the protocol are DRC, Angola and
Seychelles. Trade performance within SADC member states has also improved as
shown in the table below. In general, trade performance in both EAC and SADC
improved substantially whereby total exports to these regional blocks increased by
USD 437.1 million in 2010, equivalent to 68.5 percent, while imports increased by
USD 69.2 million, equivalent to 6.6 percent increase.
29
Table 10: Trade Performance in EAC and SADC member states (USD Million)
EXPORTS
COMMUNITY/COUNTRY
2006
2007
2008r
2009-2010
(% Change)
2009r
2010p
416.8
53.5
17.7
137.1
625.1
143.9
116.1
SOUTHERN AFRICA DEVELOPMENT COMMUNITY (SADC)
South Africa
268.9
176.1
232.5
170.9
18.5
22.4
36.6
44.3
Swaziland
1.9
0.2
0.6
20.8
Zimbabwe
1.2
0.7
1.2
5.7
Mozambique
10.6
19.1
31.4
20.3
DRC
18.3
58.9
124
79.9
Other SADC Countries
21.7
23.7
17.1
32.3
341.1 300.8
443.4
374.2
Zambia
TOTAL- SADC
20.8
-12.8
71.6
67
EAST AFRICA COMMUNITY (EAC)
-
41.5
19.5
23.6
97.2
101.1
235
177.4
Rwanda
-
11.2
20.6
15.1
Uganda
20.5
19.3
40.5
47.7
117.7 173.1
315.5
263.8
51
297.3
55
46.8
450
2008r
2009r
2010p
2009-2010
(% Change)
Burundi
Kenya
TOTAL – EAC
67.6
264.2
-1.9
70.6
IMPORTS
COMMUNITY/COUNTRY
2006
2007
SOUTHERN AFRICA DEVELOPMENT COMMUNITY (SADC)
South Africa
569.6
585.8
791
672.8
745.5
10.8
1.3
1.8
27.6
0.6
1.1
83.3
Zambia
11.6
18.5
27.6
23.3
29.8
27.9
Mozambique
DRC
17.2
16.9
18.2
9
18.5
105.6
0.2
0.6
19.6
1.2
1.1
-8.3
Swaziland
16.8
20.1
76.5
26.3
31.7
20.5
9.2
12.4
19.2
-
-
-
625.9
656.2
979.7
733.2
827.7
12.9
-
0.02
0.4
0.3
0.6
100
169.1
100.1
197.9
298.3
265.9
-10.9
Rwanda
-
0.01
0.1
0.02
1.4
6900
Uganda
5.3
6.4
6.4
11.9
17.3
45.4
174.4
106.6
204.8
310.5
285.2
-8.2
Zimbabwe
Other SADC Countries
TOTAL –SADC
EAST AFRICA COMMUNITY (EAC)
Burundi
Kenya
TOTAL –EAC
Source: Ministry of Finance and Bank of Tanzania
30
2.10 MKUKUTA I Performance
60.
Good progress was made during implementation of MKUKUTA I since its
commencement in 2005/06, with overall macroeconomic stability remaining on track.
GDP performed relatively well with annual average growth reaching 6.9 percent
during the
five years period since 2005. However, with regards to cluster I,
between 2000/01 and 2007 the incidence of income poverty did not appear to have
changed significantly. Income poverty declined marginally with variations across
strata and regions as indicated in Table 11.
Table No.11: Incidence of Poverty in Tanzania (poverty headcount index)
Incidence of poverty
Year
Dar es
Other Urban
Rural Areas
Mainland Tanzania
Salaam
Areas
Food
2000/01
7.5
13.2
20.4
18.7
2007
7.4
12.9
18.4
16.6
Basic Needs
2000/01
17.6
25.8
38.7
35.7
2007
16.4
24.1
37.6
33.6
Source: URT, NBS, Household Budget Survey 2000/01, and 2007.
61.
Quality of Life and Social Well Being: The interventions put in place have
recorded significant achievement on the delivery of social services, notably in
education, health, water, sanitation and social protection. The investments in
education and health in the recent past have enabled Tanzania to record
improvement on the Human Development Index (HDI) ranking, from position 163 in
the pre-MKUKUTA period to 151 in 2009. Water supply services have also improved,
with the proportion of the population with access to clean and safe water in rural
areas increasing from 53.1 percent in 2005 to 58.7 percent in 2009; and from 74
percent to 84 percent in the same timeframe in urban areas.
62.
Good Governance and Accountability: Progress has also been made in
this area. Efforts to curb corruption and instill a culture of integrity have been
intensified under the National Anti-Corruption Strategy and Action Plan (NACSAP).
Systems for public financial management, which include auditing, procurement and
budgeting, are in place and functioning well. Compliance level to the Public
Procurement Act by both public and other bodies procuring entities was 60 percent
31
in 2008/09. For central government, procuring entities was at an average level of 57
percent. However, compliance for LGAs is still unsatisfactory. Accountability for the
use of public funds has also improved during the MKUKUTA period. Out of 105
ministries, departments and agencies (MDAs) audited, 88 percent received clean
audit certificates in 2008/09,
compared to 70 percent in 2007/08, whereas the
share of LGAs that received clean audit certificates was 58 percent, compared to 72
percent in 2007/08. Also, significant improvements development in the effectiveness
of the Parliamentary oversight function has been recorded; as well, the roles of the
media, civil society, and other watchdogs have risen.
MKUKUTA I Financing
63. Adequate financing continues to be crucial in the implementation of MKUKUTA,
particularly in facilitating achievement of outcomes under the three clusters.
MKUKUTA financing has continued to be the responsibility of the Government,
private sector, NGOs, CSOs and development partners, and the communities.
However, besides the contribution of development partners, it has been rather
difficult to ascertain and/or gauge the actual amounts spent by the private sector,
NGOs and CSO in implementing MKUKUTA. This is so because most of the financing
by non-state actors is not easily captured in the Government budgeting framework.
Nevertheless, the Government acknowledges their contribution in implementing
MKUKUTA.
64.
Since the commencement of implementation of MKUKUTA I in 2005/06,
substantial resources have been allocated and utilized by the Government and other
stakeholders. The share of financing MKUKUTA in the Government budget has been
increasing every year from 54.1 percent of the total budget in 2005/06 to 71.2
percent in 2009/10 (Table 12 ).
65.
Wages and transfers to LGAs, which in the first two years of MKUKUTA
implementation were excluded, are now included as part of MKUKUTA budget. This
inclusion is justified by the fact that these two budget components are essential for
public service delivery and the attainment of MKUKUTA strategic objectives and
32
goals.
Before this inclusion, allocation to MKUKUTA during the first two years
averaged around 55 percent
66.
The share of cluster II budget increased to above cluster I levels between
2007/08 and 2009/10 budgets, even though cluster I has also seen its share of
budget allocations increasing in the last three years from 23.1 percent of the total
budget in 2007/08 to 27.9 percent in 2009/10. The larger increase in the share of
cluster II is attributed to increased transfers to LGAs for public service delivery in
social services like education, health, and water (75 percent of transfers to LGAs
finance education, health and water expenditures). Moreover, 50 percent of MDAs’
wages fall under cluster II. The share of Cluster III budget has remained relatively
stable, at around 11 percent.
Table 12: MKUKUTA Allocations (Incl. LGA3 transfers)
2005/06
2006/07
2007/08
2008/09
2009/10
% of
MKUKUTA
% of
Overall
% of
MKUKUTA
% of
Overall
% of
MKUKUTA
% of
Overall
% of
MKUKUTA
% of
Overall
% of
MKUKUTA
% of
Overall
Cluster I
47.6
25.8
45.8
26.0
33.1
23.4
34.1
24.1
39.2
27.9
Cluster II
Cluster III
Crosscutting
Total
MKUKUTA
NonMKUKUTA
OVERALL
44.1
8.2
100
23.9
4.5
35.8
18.5
100
20.4
10.5
56.9
45.0
16.5
5.4
100
31.8
11.7
3.8
70.6
45.5
16.0
4.4
100
32.2
11.3
3.1
70.8
42.7
15.0
3.1
100
30.4
10.7
2.2
71.2
54.1
45.9
43.1
29.4
29.2
28.8
100
100
100
100
100
2.11 Millennium Development Goals - MDGs
67.
Tanzania is among few countries in Sub Saharan Africa that have achieved
notable progress in implementing some of the MDG targets. These achievements are
manifested in some social indicators, particularly primary education enrolment and
reduction in infant and child mortality. As was noted during the MDG summit in New
York in September 2010, Tanzania was awarded a certificate for good performance
in the MDG enrolment target in education, which is on track and likely to be
achieved in 2015. In 2010, drop-out rate in primary schools decreased and reached
2.6 percent from 3.7 percent in 2009 due to improved teaching and learning
3
Figures for 2005/06 and 2006/07 exclude transfers to LGA since they were treated separately
33
environments. Also, the teacher-student ratio improved from 1:54 in 2009 to 1:51 in
2010 compared to the target of 1:45.
Table 13: Progress in the Implementation of Millennium Development Goals
2015
1990
MDG
2007
2010
(MDG
Target)
(MDG
baseline)
Actual
Expected*
Required*
39
33.4
25.7
23.4
22
16.5
14.5
Under-5 Underweight (%)
28.8
21.9
18.7
17.3
20.7
14.4
Under-5 Stunted (%)
46.6
21.9
30.7
27.9
35.4
23.3
Primary school net enrolment rate
54.2
97.3
85.4
90.8
95.4
100
191
112
104.6
89.4
81
64
115
68
62.6
53.4
51
38
529
578
259.7
212.2
454
133
43.9
62
75.5
80.8
51
90
52
55.7
67
69.6
58.7*
74
68
83
78.9
80.8
84*
84
Proportion of population below basic
needs poverty line
Proportion of population below food
poverty line
Under-five mortality rate (per 1,000 live
births)
Infant mortality rate (per 1,000 live
births)
Maternal Mortality Rate (per 100,000 live
births)
Births
attended
by
skilled
health
personnel (%)
Access to potable water :% of rural
population
Access to potable water :% of urban
population
13.2
Actual
-
-
19.5
11
Note: * Computed as % of passage time from 1990 to 2015 (2007 = 68%; 2010 = 80%) , Data for water are up
to December 2009
Source: URT 2008: MDG Progress Report and MAIR 2009/10
68.
On the other hand, mortality rates need to be cut down further, since they are
still high relative to the MDG targets. Similarly, income poverty is still at a high level
owing to the global economic crisis which has slowed efforts in achieving the target.
HIV/AIDS still remains to be a single most impoverishing force facing people and
households in Tanzania. Nevertheless, achievements were realized in areas of
voluntary testing and counseling, this was manifested in the number of people who
34
tested for HIV in 2009, after the launch of the National Campaign. Generally, the
country is in a better position to achieve most of the MDGs by 2015. However,
concrete efforts need to be directed towards addressing the HIV/AIDS pandemic,
strengthening efforts to address maternal mortality, institutional strengthening,
structural, policy and infrastructural capacity, improving efficiency in resource
mobilization, and strengthening the strategy’s focus on MDGs as a strategic tool for
meeting the 2015 target.
69.
It should be noted that some of the MDG indicators miss other dimensions of
the progress made so far. For example, the analysis of HBS 2007 shows that
ownership of many consumer goods has continued to increase since the 1990s,
while income poverty which is one of the MDG indicators measured as headcount
ratio and/or poverty gap ratio has been marginally declining. Further, in some cases,
the indicators are missing and their proxies are not adequate, such as environment.
70.
There is also limited comparability of indicators over time, mainly due to
changes or differences in methodologies used in data collection and analysis of
survey data, which render it difficult to assess whether Tanzania is on track or not.
For instance, overemphasis on the enrolment rate leaves aside important issues of
changes in quality of education. Also, it is not enough to know the proportion of the
population with access to clean water, without knowledge of the frequency of water
availability.
While it is reasonable to first focus on the quantity, (e.g. rapid
expansion of enrolment at all education levels), measures are immediately needed to
improve the supply of other inputs , maintain service quality or halt quality decline
as a result of expansion.
2.12 Tanzania Demographic and Health Survey 2010-TDHS
71.
The 2010 Tanzania Demographic and Health Survey (2010 TDHS) presents
high quality data that provide trends for monitoring and evaluating health
programmes and interventions that are being carried out in the country. The 2010
TDHS covers data and information on fertility levels and preferences, family planning
use, reproductive, child and maternal health; nutritional status of young children and
35
women; childhood mortality levels; ownership and use of mosquito bed nets;
prevalence and treatment of childhood illness; fistula, domestic violence, knowledge
and behaviour regarding HIV/AIDS; maternal mortality and fertility.
72.
Preliminary findings indicate that notable progress has been achieved in this
survey, compared to findings from the previous TDHS surveys. In comparison, there
is significant reduction in both under-five mortality and maternal mortality. With
regard to under-five mortality, rates have dropped by 40 percent, from 137 deaths
per 1,000 births in the mid-1990s, to 81 per 1,000 births for the period 2006-2010.
Similarly, the infant mortality rate decreased from 88 to 51 deaths per 1,000 births
over the same period. These results indicate that the country is on truck in meeting
goal Number 4 in the MDGs. Maternal mortality has also declined during the period
under review. The maternal mortality ratio during the ten-year period before the
survey is estimated at 454 maternal deaths per 100,000 live births. This ratio is
lower than the ratio estimated for the 10-year period prior to the 2004-05 TDHS
(578 maternal deaths per 100,000 births) and the 1996 TDHS (529 maternal deaths
per 100,000 births).
73.
With regard to total fertility, the survey reveals that the total fertility rate in
Tanzania is now 5.4 births per woman. The TFR among rural women on the
Mainland (6.1 births) is higher than among urban women (3.7 births). The TFR
estimated in 1991-92 was 6.3 children per woman, which decreased to 5.4 as
measured in the 2010 TDHS. Although there has been a downward trend in fertility
since the early 1990s, the trend has not been steady. In addition, the survey noted
an increase in birth attendant services. The survey indicates that half of births in
Tanzania (51 percent) are delivered by a health professional and almost the same
proportion (50 percent) are delivered in a health facility, a slight increase compared
to 2004-05 (46 percent delivered by a health professional and 47 percent delivered
in a health facility). Appropriate medical attention and hygienic conditions during
delivery can reduce the risk of complications and infections that can cause the death
or serious illness of the mother and/or the newborn.
36
74.
Progress has been achieved in other areas such as ownership and use of
mosquito bed nets; prevalence and treatment of childhood illness; fistula, domestic
violence, and knowledge and behavior regarding HIV/AIDS. Despite notable progress
in demographic health, there are still challenges in reducing the rates further down.
Concrete efforts need to be strengthening to improve health related services in order
to achieve the National Development Vision and international commitments including
the MDGs
2.13: Review of the Vision 2025
75.
The National Development Vision 2025 was officially launched on 2000. The
Government undertook a detailed critical review on status of implementation of the
Vision 2025 and its challenges. The broad objectives of the reviews were to: make
an assessment of progress made in TDV 2025 goals; identify new challenges to be
considered in planning for the remaining 15 years; and recommend on the best
options to pursue.
76.
The review of the implementation of Vision 2025 revealed that the thrust of
the Vision is still valid and the goals are achievable. Also, the review noted the need
for putting in place a framework for cross-comparison in preparing and implementing
mid-term and longer-term plans.
The review further revealed some challenges
which the Government is determined to address. Those challenges includes the
following:
(i)
Though there has been relatively high economic growth, this was below the
trajectory necessary to meet Vision 2025 objectives;
(ii)
Sources of growth have been narrow and in most cases escaped the real
poor in the rural and peri- urban areas; failing to generate adequate and
decent jobs;
(iii)
There has been progress in poverty reduction but marginal particularly in
rural and agricultural dependant households;
(iv)
Though for a long time, inflation remained low and single digit, the impact
of vagaries of weather on agricultural production, coupled with persistent
37
rises in global fuel prices have led to a rise in inflation and cost of
production;
(v)
The country has promising opportunities from its rich natural resources,
advantageous geographical location and its active participation in regional
and global economic integration schemes. However, those resources have
not been exploited optimally to improve the economy. There is a need to
improve transport infrastructure and transport facilities to enable the country
to optimally exploit its geographic comparative location advantage as a
regional trade gateway and transport logistical hub. In addition, availability
and reliability of energy supply to accommodate the growing needs of the
economy is critical. The areas of interventions are to improve energy
infrastructure and increase power generation from different sources
including hydropower, wind, solar power, gas, and coal.
38
3.0: EMERGING MACROECONOMIC POLICY ISSUES,
CHALLENGES AND STRATEGIES
3.1 Power Shortages Hurting the Economy
77.
The
Tanzania
Electric
Supply
Company
Limited
(TANESCO)
officially
announced a month long load shedding in all regions connected to the national grid
on 22 December 2010. The recent countrywide power rationing was caused by a
breakdown of one generator at the Songas plant, a faulty transformer at Kipawa
sub-station, decrease of water level in hydro-power stations as a result of severe
drought and lack of Heavy Fuel Oil (HFO) at the Independent Power Tanzania
Limited (IPTL) in Tegeta. As the perennial electricity shortage continues to zoom, the
question lingering in the public mind is when this serious national problem will end.
Also, not only are the current power tariffs too high for the ordinary citizen, but also
the supply is most erratic and inadequate.
78.
Given the fact that the demand is very high, any interruption on supply will
make this worse. Despite the fact that the country's installed capacity stands at
1300MW at the moment, it has proved too tough to meet the 850MW demand. New
connections increased by 7.9 percent in 2010 compared to 5.6 percent in 2009,
indicating an increase in demand. In situation like this, TANESCO is hardly left with
enough reserve to fill the gap to steadily supply 850MW, because at any given time
the system cannot generate power at 100 per cent. Despite power rationing towards
the end of 2010, the quantity of electricity generated from local sources increased by
11.2 percent in 2010 to 5,268 mill.kwh compared to 4,738 million kwh generated in
2009. The increase was mainly emanated from gas and thermal – generation.
79.
The load shedding is having disastrous consequences, such as badly disrupted
production in most industries. Manufacturers both in the small enterprises and the
heavy production have risen concerns on the hardest hit by the power supply
crunch. A research conducted recently indicates that a single factory experiences an
average of 63 outages of electricity annually. Manufacturers are making loss due to
39
unreliable power supply and it is estimated at TSh7.7 billion annually. This amount
translates into government revenue loss of about TSh2.3 billion in corporate tax.
80.
In response to power shortages, the Government managed to add 145MW in
the national grid, following the completion of the Ubungo plant (100MW) in 2008
and Tegeta plant (45MW) in 2009. Had it not been the GFC which prevented the
investment by Artumas in power generation project in Mnazi Bay and problems with
the ownership of Kiwira Coal Mines, the plan was to add a total of 500MW in the
national grid, out of which, 200MW from Kiwira and 300MW from Mnazi Bay. The
government also enacted the Electricity Act 2008, which was meant to facilitate the
participation of the private sector right from generation to transmission and
distribution. But three years down the line, no credible investor has shown any
interest in putting in money. Some private sector players talk of lack of incentives as
one of the handicaps. The Government is determined to create conducive
environment to enable greater private participation in the energy sector. Having
more players in the sector will usher in competition, this is always good for
consumers, as it will go a long way in improving power supply and related services.
3.2 MKUKUTA II
81.
The second National Strategy for Growth and Reduction of Poverty (NSGRP II
or MKUKUTA II) is a continuation of the Government and national commitments to
accelerate economic growth and fighting poverty. Development of MKUKUTA II
follows the end of implementation of MKUKUTA I. The strategy is still an organizing
framework to rally national efforts for the next 5 years (2010/11 – 2014/15) in
accelerating poverty-reducing growth, by pursuing pro-poor interventions and
addressing implementation bottlenecks. It was approved in mid October 2010 after
comprehensive consultation processes, which involved MKUKUTA I study reviews,
consultation with involvement of different stakeholders at different levels and review
of the second draft of MKUKUTA II. Spending plans for implementing MKUKUTA II
were included in the 2010/11 budget and hence implementation is already
underway. Social protection is also mainstreamed in MKUKUTA II and thus will be
financed under the umbrella of MKUKUTA II financing framework. The new strategy
40
will ensure that there is appropriate prioritization and coordination of policies and
also puts emphasis on harnessing PPP potentials.
82.
MKUKUTA II will be a medium term strategy to achieve the aspirations of
Tanzania’s Development Vision (Vision 2025) and MDGs.
The Government is
developing a Long Term Growth and Development Plan, as a long term
implementation framework for the remaining 15 years of the Tanzania’s
Development Vision 2025. MKUKUTA II translates the Vision 2025 aspirations and
sector policies and strategies into measurable broad outcomes, and operational
targets respectively. Comparably, the major shift of this strategy from its
predecessor is the high drive and scaling up on the role and participation of private
sector in economic growth and employment, through strengthening business climate
for efficient use of factors of production, investing in people and infrastructure
development, and sustaining achievements in socio-economic progress.
83.
The structure of MKUKUTA II is not much different from its predecessor; it
maintains the three organizing clusters to depict three interrelated development
outcomes outlined below:
84.
Cluster I: Growth and Reduction of Income Poverty, focusing on equitable
and employment-generating growth, sustainable development principle, food
security and affordable and reliable modern energy services and adequate
infrastructures for production purposes;
85.
Cluster II: Improvement of Quality of Life and Social Well-Being, focusing on
quality of life of the poorest and most vulnerable groups, reduced inequalities in
access to social services such as education, survival, health across geographic,
income, age, gender and other groups, and provision and access to clean and safe
water, sanitation, decent shelter and energy, and a safe and sustainable
environment, access to social security and social protection, and thereby, reduced
vulnerability from environmental risks:
41
86.
Cluster III: Governance and Accountability - to ensure the poor have access
to and control over natural resources for lawful productive purposes, checking waste
and diversion of public financial resources, ensuring democratic participation in the
monitoring of public resources, rule of law, human rights and in total, a conducive
business environment for attracting investments.
Financing Framework
87. Government revenue as a share of GDP is projected to increase steadily from
15.2 percent during 2009/10 to around 18 percent by 2014/15.
Since the
Government is currently operating on a cash budget system, the revenue estimates
are taken as the ability of Government to finance levels of domestic expenditure.
Some of the Government’s expenditures are already directed towards MKUKUTA II
interventions, while other expenditures for essential operations are not directly
linked to interventions included in MKUKUTA II. The latter group is known as nonMKUKUTA II expenditure, which includes (but not limited to) expenditure on
Consolidated Fund Services (CFS) – debt and interest payments, pension payments
and other contractual obligations.
88.
The financing scenario assumes that an increasing share of government
revenues will be allocated to MKUKUTA II activities in each fiscal year of
implementation, building gradually from the projection of 60.7 percent of domestic
revenue to 84.4 percent by 2014/15. The assumption reflects Government's
commitment to accelerating economic growth and reducing poverty. However, the
actual cost of implementing MKUKUTA II for the period of 2010/11 – 2014/15 will be
established by costing key sectoral programs, which will also include grants and
loans from development partners. Other financing mechanism will come from
domestic borrowing and through the PPP arrangement.
42
3.3: The Five Year Development Plan Formulation Framework
89.
The thrust of development agenda of Tanzania since independence has been
on economic growth and poverty reduction, with the prime objective of ensuring the
majority of Tanzanians have access to development opportunities to be able to enjoy
the accruing benefits. In an effort to spearhead the pace of achieving the desired
development agenda, the Government in 1999 launched the Tanzania Development
Vision 2025. The gist of the Vision is that by 2025 Tanzania should have made
unprecedented economic transformation and development to achieve middle income
status characterised by high levels of industrialisation, competitiveness, quality
livelihood, rule of law; and having in place a learned and pro-learning society.
90.
The planning framework has undergone a number of fundamental changes
over time to influence socio economic management policies and national
development priorities from centrally prepared plans to indicative plans. In the
absence of Five Year Medium Term Plans which were to facilitate the
operationalization of the vision’s aspiration, MKUKUTA though designed as an
implementation strategy took precedence as the medium term plan to implement
Vision 2025. Therefore, there is a need to revive Five Year Medium Term Plans to
implement the TDV 2025.
91.
An independent study that was commissioned in 2009 to critically review
implementation of the vision after 10 years of its launch revealed that progress
towards implementation of Vision 2025 was a mixed one. Noticeable milestones have
been recorded in propelling national development towards its desired path. There
has been rapid progress towards the achievement of social development targets and
visible improvement of business environment following implementation of policy and
structural reforms. Consequently, Tanzania has managed to attract substantial
amounts of Foreign Direct Investments (FDIs) mainly into primary production sectors
and extractive industries, notably mining. However, the challenge remains of
hastening the transformation of the country’s production and trade supply structures
commensurate with the dynamics of global demand. Efforts taken to transform the
country’s supply structure to enable Tanzania realise the benefit of globalisation
43
continue to be hampered by the existence of weak supportive infrastructure,
notably, power and transport. Despite the existence of a numerous power
generation resources, the country’s production has remained largely reliant on
hydropower and therefore the wills of nature. Poor transport infrastructure has also
failed the country to optimally exploit its strategic geographic location as a regional
trade gateway and transport logistical hub.
92.
To be able to achieve the target of becoming a middle income country by year
2025 entails the need to prepare medium term plan to implement TDV 2025. In
preparing the planning framework, a number of changes are envisaged. First,
effectively from July 2011, the plan horizon will be five years and the first five year
plan will cover the period 2011/12 – 2015/16. Second, the new orientation calls for a
paradigm shift from needs -based planning which is resource based, to the
opportunity-based planning which requires thinking beyond the resource constrained
box towards strategically positioning the country to maximize on every opportunity
that presents itself thus making resources the means rather than the end.
93.
Preparation of the Tanzania Five Fear Development Plan (FYDP _ 2011/12 –
2015/16) is going on under the coordination of the President’s Office, Planning
Commission. The overall goal of FYDP is to unleash the country’s resource potentials
in order to fast- track the provision of the basic conditions for broad- based and propoor growth.
The main objectives of FYDP are to improve the physical
infrastructural networks and human capital
in order to hasten investment for
transformation of the country’s production and trade supply structures (agriculture,
manufacturing and services), and foster Tanzania’s competitiveness and improved
human development. The specific objectives are:
(i) To improve implementation through detailed prioritized and sequenced
interventions;
(ii) To improve synergistic and complementary growth; and
(iii) Streamlining institutional framework for effective implementation
44
94.
During the first five year plan, Tanzania will have to compete and benefit from
the unfolding opportunities presented by increasingly integrating regional markets
taking full advantage of its strategic geographical location that stand to be the
regional competitive trade gateway to serve most of the hinterland and the
surrounding land-locked countries. Tanzania is also endowed with natural resources
(mineral, fertile land, tourist attraction sites) and energy sources (such as biomass
and agricultural wastes, coal, hydro, natural gas, thermal, geothermal, solar and
wind) all of which are potentially capable of spurring the growth to the desired
development path. Therefore, the thrust of the first five year development plan
2011/12 – 2015/16 should reflect the whole issue of unlocking Tanzania’s growth
potentials. It will however be necessary to prioritize a few key interventions and in
orderly sequence in their implementation so that they can complement each other to
enable effective and optimal resource allocation.
45
3.4:
95.
Financial Inclusion
The financial sector in Tanzania is comprised of mainly banks, pension funds,
insurance companies, and other financial intermediaries. However, the sector is
dominated by banking institutions which account for about 75 percent of the total
assets of the financial system, followed by pension funds whose assets account for
about 21 percent and the insurance sector with 2.0 percent of the total assets, while
the remaining financial intermediaries hold about 2 percent. Currently there are 32
commercial banks and 10 non-bank financial institutions operating in the country,
and access to the more modern payment systems infrastructure remains limited to a
few commercial banks. Traditionally, Tanzania is cash based society whose
proportion of population with access to banking system is limited to around 35
percent of the urban population and less than 5 percent of the rural population. It
should be noted that the percentage of population living in the rural areas is about
72 percent of the total population. .
96.
In 2010, there have been increasing financial inclusion services for wider
outreach to the un-banked community i.e access to utilities facility through the use
of mobile payment, which has mushroomed and signal acceptance by many
Tanzanians. The Government has strived to create enabling environment by
developing effective regulatory framework for mobile payments, since this is a
proper tool for financial inclusion to the majority including those in the rural areas.
Payment System
97.
Payment systems play a fundamental role in the economy by their basic
function of enabling the circulation of money. An efficient and safe payment system
is a vital tool for the economic growth and financial stability. Given its importance,
the government embarked on the modernisation of the National Payment Systems
aiming at developing and maintaining strong and efficient financial market
infrastructure, safe and efficient payments, clearing and settlement systems.
46
98.
The government has joined TISS (Tanzania Inter-bank Settlement System) for
the transfer of its high value and time sensitive payments to minimise expenditure
float and cheque usage pruned to errors, omission and fraudulent activities. The
Draft National Payment System Act has also been developed that will further enforce
compliance to ensure safety and efficiency of the payment systems. The
Government has been progressively undertaking initiatives both in the country as
well as in the region to enhance accessibility, availability, convenience and safety of
payment services to the end users.
Mobile Phone Payment
99.
Tanzania is experiencing strong growth in number of mobile subscribers.
According to provisional data as of June 30, 2010, the number of mobile phone
subscribers reached 18.5 million, while that of registered users of mobile payments
services stood at 9.2 million by end July 2010. The strong increase in the number of
subscribers to the mobile payments is mainly attributed to limited access to formal
banking services especially in the rural areas. In this regard, the mobile payment
provides an avenue for linking bank account holders to the unbanked population. In
addition the service provides convenience in making payments for specified utilities
and other consumer services. Specifically, mobile phone payment services are mainly
used to facilitate top-up of mobile phones credit, airtime transfers between mobiles,
funds transfer and corporate bill payment services.
100. Just a few years ago people used to travel with huge sums of money to make
payments.
Some used to send money using buses which were costly and risky.
This was mainly because access to formal financial system was limited and
expensive. Recently, the mobile phone technology has revolutionalised the financial
sector pushing the boundaries of access to finance to include other market actors
such as mobile phone operators’ and technology companies to offer financial
services outside the traditional bank premises using delivery channels like mobile
phones, internet and retail agents. Mobile Phone Payment services which comprise
all aspect of financial services initiated using mobile phone have even successfully
47
brought financial services in the interior parts of the country where initially the
traditional banking could not offer its services.
101. The entrance of such players in the sector has increased efficiency of financial
services in terms of speed, convenience, affordability, and accessibility. The services
offered can be divided into two parts: Bank led model and non –bank led model. The
Bank Led Model is the one which is applicable when a financial institution on its own
initiative implements its own systems to offer mobile payments services. Through
the usage of mobile devices, the users of this model are given access to their bank
accounts to view statements, balance inquiry, and limited money transfer services.
The Non-Bank led model is where a mobile payment service provider collaborates
with a financial institution to offer a mobile payment services. This model involves
the usage of virtual money to access financial services through mobile devices and
the use of agents for the purposes of issuing electronic money.
Agents act as
access point in time the virtual money circulating in the economy should be equal to
funds deposited in a Trust Account maintained at the partners commercial bank.
102. The technology, embedded with procedures allows a registered customer to
access mobile payment services from any place in the country.
Services offered
include funds transfers from Person to Person (P2P), Customer to Business (C2B),
Business to Customer (B2C), and Cash in and Cash out services at agents outlets.
These services have made it easy to send money to relatives in the villages, pay for
utility bills such as TANESCO (LUKU), DAWASCO, DSTV, insurance premiums and
loan disbursement and repayments.
103. The schemes which offer these services are M-Pesa which offered by Vodacom
in collaboration with NBC Ltd; ZAP offered by Zain in collaboration with Citibank; and
Z Pesa offered by Zantel and E Fulusi in collaboration with FBME Bank. The mobile
payment services launched in Tanzania in 2007 have already registered about 6
million subscribers as at 31st May 2010.
The number of customers is bound to
increase as more services continue to be offered through these schemes.
48
104. However, the provision of mobile payment services in the country provide a
regulatory challenge to the Bank of Tanzania, as this is a new phenomenon where
financial services providers who are traditionally not financial institutions could now
offer financial services. The legal and regulatory requirements of the mobile phone
payment system require partnership of service providers with commercial banks. The
existing arrangement creates gaps in the regulatory framework because the mobile
phone payments services are regulated by two regulators, each with a limited scope
of coverage. The Bank of Tanzania focuses on the financial transactions, while
Tanzania Communication Regulatory Authority (TCRA) regulates the communication
infrastructure. In recognition of the importance of developing a rigorous supervisory
oversight for this fast developing mobile banking industry, the Bank of Tanzania has
signed an MOU with TCRA which provides a mechanism for regulatory and
supervisory coordination between the two regulators. The Bank has embarked on
the development of a regulatory framework, which is coherent and flexible. The
purpose of the regulatory framework is to promote new innovations that creates
access to financial services that are convenient to customers and minimise the usage
of cash.
3.5: Public-Private Partnerships
105. Governments throughout the world have historically financed infrastructure
projects through budgetary arrangement. However, as the demand for infrastructure
grows and access to resources has become limited, the public sector has increasingly
looked to the private sector to provide financial resources, innovation, managerial
skills and technical expertise. Though the working relations between the public and
the private sectors are not new, public-private partnerships (PPP) are relatively a
recent arrangement to an ever-evolving relationship. PPPs are a cooperative venture
between the public and private sectors, built on the expertise of each partner that
best meets clearly defined public needs through the appropriate allocation of
resources, risks, and rewards.
106. In November 2009 the Government issued the National Public-Private
Partnership Policy. Subsequently, in August 2010 Parliament enacted the Public49
Private Partnership Act No. 19 of 2010, and the related Regulations are expected to
be issued within the first six months of 2011. The TIC and MoFEA are required by
the legislation to establish PPP units within their jurisdictions. In the financial year
2011/2012, implementation of the National PPP Program is expected to commence
by developing an implementation strategy and operational guidelines. As part of the
medium term (2011/12 – 2015/16) plan, MDAs, LGAs, and public bodies are
expected to come up with initial proposals giving details of identification of the
opportunities for partnerships and the initial studies to substantiate the potentiality
of the opportunities. This will be in line with the Medium-term Plan and Budget
Framework (2011/12 – 2013/14) which assumes, among other assumptions, that the
private sector will participate effectively in public investment including in Kilimo
Kwanza.
3.6: Economic Outlook for Sub-Saharan Africa
107. Most countries in sub-Saharan Africa have recovered quickly from the global
financial crisis, with the region projected to grow by 5.5 percent in 2011. But the
pace of the recovery has varied within the region. The recovery in South Africa and
its neighbors, however, has been more subdued, reflecting the more severe impact
of the collapse in world trade and elevated unemployment levels that are proving
difficult to reduce.
108. Prior to the recent global crisis, sub-Saharan Africa enjoyed a period of strong
growth. Growth in the region’s 29 low-income countries (LICs) was particularly
impressive at more than 6 percent during 2004–08. This reflected the improved
political environment, favorable external conditions, and sound macroeconomic
management. These strong initial conditions helped most countries in the region
weather the worst effects of the food and fuel price hikes of 2007–08 and the
subsequent global financial crisis. Many countries supported output by injecting fiscal
stimulus and lowering interest rates. As a result, LICs in the region continued to
grow at nearly 5 percent in 2009, although output fell in the region’s middle-income
countries—a group dominated by South Africa.
50
109. Most countries in the region have now returned to pre-crisis growth rates. In
2011, LICs are projected to grow by 6½ percent. Domestic demand is being
supported by automatic stabilizers, expansion in public investment and social
support programs, and continued monetary accommodation. Growing trade ties with
Asia are also playing a role in the region’s recovery, primarily through commodity
markets. Output growth has rebounded in South Africa, but high unemployment and
subdued confidence are expected to continue to dampen the pace of recovery,
restricting growth to about 3½ percent in 2011.
110. The continent is not free of the downside risks. The pace of recovery in
Europe, the dominant trade partner for most countries in sub-Saharan Africa, is
modest and uncertain. More immediately, the sharp pickup in fuel and food prices
stands to make a significant impact on many of those countries. Rising food prices
are likely to affect the urban poor in particular, given the high share of food in their
consumption baskets. In response, governments will need to consider targeted social
safety nets, with attendant fiscal costs. Managing these pressures, particularly
against the backdrop of elevated fiscal deficits and narrowing output gaps, will be an
important challenge for the region in 2011—a year with a busy political calendar,
including perhaps 17 national elections.
3.7: Human Resource Development
111. Successful implementation of a focused development agenda requires a supply
of skilled human resources that meet the demands of the market. Without a wellfunctioning skilled labour force, productivity will remain low. The building of human
resource capacity underpins the transformational process in any society. It is
important therefore that there is a strong linkage between the provision of basic
education and the development of capabilities for growth and transformation. This
linkage can only be achieved where states set high standards for quality in
education. As countries strive to provide universal primary education, it is crucial to
raise the quality of primary, secondary and technical education, to appropriately
equip students for subsequent employment and, for those who continue
academically, for tertiary education. The ongoing discussion about focusing
51
government-sponsored student loans towards strategic training at the tertiary level
is a move in the right direction. This move is important because it will provide the
right signals to service providers of technical and higher education, both public and
private, on where to focus their training. It may also raise competition among
training institutions to attract students and state loans, thus raising the standard of
the education provided. In this way, the Government encourages private-public
partnerships to produce the skilled labour force required to realize the national
vision. There also need to focus specifically on areas such as human resource
management, performance management systems, human resource planning and
capacity building, payment systems and rewards. Furthermore, the Government is in
the process of engaging Diasporas to participate and contribute in the economic
development.
3.8: The Southern Agricultural Growth Corridor of Tanzania (SAGCOT
112. The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) is key to
opening the door for Tanzania in social and economic development. This is one of
the collaborative efforts in improving agricultural development, focusing more on
marketing; investment in agricultural; and availability of capital. It has come at a
time when Tanzania is looking for a viable and practical means of implementing
Kilimo Kwanza. SAGCOT provides one way of moving “Kilimo Kwanza” from
theoretical perspective into practice. SAGCOT complements existing policies and is
built on what existing organization and institutions are already doing in both private
and public sector. Implementation of this plan under the vision of Kilimo Kwanza is
expected to create employment opportunities and transform small farmers in to
commercial farmers. This will also enable Tanzania to be food self sufficient and net
exporters of food. However this cannot happen overnight, it needs concerted effort
in changing the mindset and let everyone (Public and private sector) plays his role.
113. Tanzania has a total of 44 million hectors of arable land but only about 23
percent of it is being used. Out of the arable land, 29 million hectors is suitable for
irrigation but only one percent of that land is being used for irrigation. Most of the
agricultural products are sold unprocessed or semi processed (i.e with very little
value addition) and contributes less than 20 percent of total goods export earnings
52
and about a Quarter of GDP. Food crop is basically for subsistence and can meet 95
percent of domestic demand annually. Livestock is also not used commercially to the
extent possible and contribute very little to GDP. Tanzania has about 223,000 square
kilometer of Exclusive Economic Zone along the Indian Ocean as well as 62,000
square kilometer of rivers and lakes, all of which are suitable for fishing among other
economic activities. However, fishing activities is done at very minimal level.
Looking on those facts, it is clear that there are many gaps or opportunities that
need to be filled up and Kilimo Kwanza initiative and SAGCOT are basically meant to
address this
114. The SAGCOT covers some 320,000km2 within Tanzania and runs through the
Southern Highlands of Tanzania which is one of the areas of greatest agricultural
potential in the country. It also has infrastructure and trade links to Malawi, Zambia
and DRC. The corridor conversely links the south and west, to the main market of
Dar es Salaam with its port opening up to global trade. SAGCOT aims to boost
agricultural productivity and competitiveness in the Southern corridor of Tanzania.
115. Some of the challenges facing
the agricultural sector
include food
preservation; graduates not work in the field; inputs (fertilizer and seeds); financial
support (capital); infrastructure particularly road and railway; and marketing
(quality, packaging). SAGCOT is aiming at addressing all those challenges and others
not mentioned. Specifically, SAGCOT will strive to ensure proper coordination of
activities in the corridor and availability of requisite environment for investment
including reliable power supply, a bank branch, storage facilities for fertilizer as well
as for agricultural products, tractor garage, tarmac road, among others.
3.9 Medium term strategic Focus
116. In order to have sustainable economic growth under the framework of the five
year plan, there is a need to prioritize and sequence interventions which depend on
each other. The Government will focus on selected national priority areas of high
impact which will bring quick results and accelerate economic growth. The priority
areas are divided into four pillars follows:
53
(i)
Sustaining macroeconomic stability: Need to improve macroeconomic
fundamentals including food supply, inflation, GDP growth, and money supply
all of which will bring peace and harmony. Further, good governance will be
emphasized in all sectors in order to speed-up and sustain the economy at
large. While sustaining macroeconomic stability, the achievements recorded in
the social sector will be sustained. In this regards, more emphasis will be put
on quality of education, health, and water services as well as social welfare at
all levels;
(ii)
Optimal use of the Natural resources: Tanzania is endowed with various
natural resources such as land, water, minerals and natural gas. Medium term
interventions will also focus on the optimal exploitation of these resources to
foster growth. Emphasis will be on the implementation of Kilimo Kwanza to
ensure food security and exporting the surplus especially to the Great Lakes
Countries;
(iii)
Geographical advantage in the region: The strategic location of Tanzania
within the region provides opportunities to become a business center and
transport hub for the great lake countries. The five year development Plan will
put emphasis on improving the ports, solve railway problems and improve
trunk roads, improving energy infrastructure, national fibre optic and increase
efficiency in the provision of services in these areas and those of Tanzania
Revenue Authority; and
(iv)
Technology and skills development: Intervention will focus on improving
technology to facilitate value addition particularly on agro processing and
minerals. Further, skills development and improving science, technology and
use of ICT will be emphasized.
54
Sector specific interventions
117. During the five year plan framework, resources will need to be allocated to few
but key interventions for sustained growth and desired poverty reduction results.
The aim is to promote sustainable broad based growth in the economy through
investment in the much needed physical infrastructure and social service delivery.
Strategic intervention areas in the pilot year of the plan (2011/12) will be on
electricity, ports, railway, water and food reserve. The areas of focus in the five year
plan framework and their strategic relevancy will include the following:
(i)
Education
118. Education sector is constituted mainly by the Ministry of Education and
Vocation Training and the Local Government Authorities. The sector coordinates and
promotes the development of human resources through education, training,
research, science, technology and innovation. The sector is strategically important in
two fronts: (i) as the main pillar of the socio-economic development strategy and in
particular with respect to the attainment of Cluster II goal of universal education and
literacy; (ii) as the main determinant of the human capital formation, which is
essential for intensifying growth and ensuring that growth translates into quality
employment and therefore poverty reduction.
a) Improving the quality of education at all levels;
b) Reviewing policy and strategies to sustain provision of loans to higher
education students;
c) Continue with the construction of the national ICT infrastructure backbone
(optical fibre); and
d) Improvement of access and equity by providing conducive teaching and
learning
environment; constructing
and
rehabilitating
infrastructure
(classrooms, libraries, lecture rooms, laboratories, hostels, latrines, etc.)
(ii)
Agriculture
119. Agriculture is the mainstay of the Tanzanian economy in terms of production,
employment, income and foreign exchange generation. The agricultural sector is not
growing at significant rates to meet national targets, especially in the production of
sufficient food surplus and cash crops for export. The sector’s productivity is
55
generally very low and uncompetitive with other countries, in both food and cash
crops production. Low productivity in the sector calls for more research, extension
services and technology such as mechanization. The importance of agriculture in
economic growth and poverty reduction makes it a priority for investment and
development. Given the fact that about 80 percent of the population depends on
agriculture and agriculture related activities for their livelihoods, any intervention to
bring about higher and sustainable economic growth and improvement in living
standards, need to focus on the agricultural sector. Irrigation and water
infrastructure are important in supporting Kilimo Kwanza, and among the main
activities in this area should include developing and supporting national irrigation
schemes.
In
order
to
ensure smooth
implementation
of
the
agricultural
transformation, proposed priority areas in agriculture should include:
a) Developing and improving irrigation infrastructure;
b) Increasing availability and utilization of agriculture and livestock inputs
and mechanization;
c) Strengthening agriculture and livestock research, training and extension
services; and
d) Improving market access and agro-processing
120. Agriculture remains a key pillar of the Tanzania’s economy in many aspects.
Apart from enhancing diversification of the economy given its enormous potential, it
stands a better chance of spurring economic growth to new levels; it also provides
the much needed employment, food production and rural development thereby
contributing towards poverty reduction. Recent statistics indicates that the sector
accounts for about 24 percent of GDP, 17 percent of export, and contributes
significantly to employment. About 80 percent of the poor in Tanzania lives in rural
areas and earn a large proportion of their livelihood from agricultural activities. For
these reasons, there is no doubt that the sector constitutes the foundation of
poverty reduction and rural development.
(iii)
Infrastructure Development
121. The competitiveness of Tanzania to produce is undermined by costly and
inadequate infrastructure services, such as poor roads and railways that increase
56
maintenance costs, high port charges and slow and outdated communication
systems that impede the flow of market information. To this end, investment in
physical infrastructure is the only way that will reduce transport costs and attract
more private investments needed to transform the agricultural sector from
subsistence to a commercial and profitable business enterprise. In this regard,
priority areas in infrastructure development should include:
a) Construction, rehabilitation of roads, bridges and ferries and addressing
the problems of traffic congestion in Dar Es Salaam and other urban
areas;
b) Construction and rehabilitation of Government quarters;
c) Rehabilitation and upgrading of railway lines and airports;
d) Construction of new ports, rehabilitation and upgrading of existing ports;
e) Strengthening of meteorological services; and
f) Increasing the capacity of TEMESA to service Government owned
machines, vehicles and other equipment.
(iv)
122.
Land Management and settlement
Land is wealth and a powerful economic asset as it provides a foundation for
economic activity in various sectors such as agriculture, industries, housing, and
tourism. Expanding human requirements and economic activities are placing everincreasing pressures on land resources, creating competition, and conflicts and
resulting in sub optimal use of both land and land resources. In order to reduce
land-use conflicts, conserve critical ecosystems, and
protect and
manage
environment, priority areas in land management should include:
a) Improving accessibility to affordable housing in rural and urban areas and
public awareness on housing finance facilities;
b) Establishment of National Network Control points and satellite receiving
station to facilitate surveying and mapping.
c) Strengthening and expansion of the national land information system to
improve land administration and simplifying the National Addressing and
Postcode System;
57
d) Implementation of National Land Use Framework Plans to include
preparation of integrated District Land Use Framework Plans and other
programmes; and
e) Preparation of Urban Plans for managing urban growth challenges;
(v)
Energy
123. Energy is a critical prerequisite for all sectors of the economy. It is an essential
service whose availability and quality can determine the success or failure of
development endeavours. The importance of energy as a sector in the national
economy cannot therefore be overemphasized. Hydro-power generation accounts for
about two third of the sources of power in the National Grid. In other words, as
agriculture depends very much on rain, so is power generation in the country.
124. Adequate energy supply is essential for transforming a country from a
traditional economy characterized by production of traditional and unprocessed
commodities to a modern society in which the manufacturing sector becomes
dominant.
Of recent, shortage in power supply, unreliability and high costs of
energy have caused major disruptions in economic activities, thus reducing economic
growth as well as the competitiveness of the economy. There is no doubt that
problems facing the energy sector have detrimental effects not only to the
attainment of sector performance and the rapid resolution of energy problems, but
also to the prospects of rapid progress in economic transformation and accelerated
growth. This is why the Government is making concerted efforts to stabilize, boost
capacities, and increase energy supply to accommodate the growing needs of the
economy. Government efforts in the medium term are geared towards increasing
power generation, transmission and distribution as well as increasing availability of
energy in rural areas.
125. In order to ensure a reliable and efficient energy production, procurement,
transportation, and distribution; priority areas in energy sector should include:
a) Developing and improving infrastructure for generation, transmission and
distribution of electricity to meet the growing demand;
58
b) Supporting Rural Electrification projects through Rural Energy
Agency
(REA); and
c) Continue with efforts of exploration of natural gas and oil and expansion
of infrastructure for production and distribution of natural gas and oil.
(vi)
126.
Manufacturing
Industrial transformation is an important tool and vehicle for realization of the
green revolution (Kilimo Kwanza). A characteristic feature of Tanzania’s agriculture is
the dominance of primary production or subsistence economy. There is very little
processing of agricultural produce, which translates to low income for farmers and
less jobs for Tanzanians. There are compelling reasons therefore for encouraging
agro-processing. Nevertheless, manufacturing activities in Tanzania are relatively
small and at an infancy stage, with most activities concentrated on manufacture of
simple consumer goods. To this end, priority areas in manufacturing should include
the following:
a) Developing conducive environment for trade, industrial development and
investments;
b) Facilitating and promoting SMEs technologies by expanding and
deepening of value addition through agro-processing, development of
incubator sites and industrial and trade premises;
c)
Intensifying the promotion and development of designated industrial
parks, export processing zones (EPZs) and special economic zones
(SEZs), including pro-identification and provision of prior serviced
industrial plots; and
d) Developing basic industries and promoting industries that use domestic
raw material.
(vii)
Health
127. Just like the education sector, the health sector is also key to strengthening
human capital and thus in the efforts to solidify the foundations for medium and
long term economic growth.
It is one of the sectors whose aim is to achieve
59
objectives of MKUKUTA Cluster II (improvement of quality of life and social
wellbeing). Strategic areas of focus in the Five year plan include the following:
a) Enhancing quality of curative, preventive and rehabilitative services;
b) Improving human resources capacity and ensure availability of medical
and social welfare personnel at all levels;
c)
Constructions, rehabilitation and equipping health facilities with basic and
high tech equipment of appropriate technology and medicines; and
d) Improving maternal health and family planning services;
(viii)
Water
128. Adequate supply of safe and clean water is essential for development of the
nation as it is an important element of social well being, useful domestically and
industrially in urban areas. In that respect the Government continues to devote a
sustained attention to the development of water resources and improvement of
access to safe and clean water. In the Five year development plan framework, key
areas of intervention will include:
a)
Strengthen water resources management to cater for socio economic
activities such as irrigation, hydropower generation, industrial , and
domestic uses and water for ecosystem;
b)
Implement rural water supply and sanitation programs in 10 villages in
each district council;
c)
Implement a special program for improving water supply and
sewerage services in Dar es Salaam City;
d)
Continue to implement ongoing water projects to increase access to
clean and safe water; and
e)
Extend Lake Victoria – Shinyanga – Kahama Water Project to Nzega,
Igunga and Tabora.
(ix)
Regional Integration
129. Regional Integration development continues to create Social and Economic
opportunities including trade, industries, employment and investments. The custom
60
union has created opportunities in terms of trade, investment and industrial
development. Furthermore, the Common Market opens opportunities in trade in
goods, trade in services through free movement of services, employment
opportunities through free movement of labor and opportunities in capital market
through free movement of capital. Nevertheless, a number of studies indicate that
the ability to utilize EAC opportunities and capacity to raise the awareness thereof is
still limited. Therefore, more efforts are required to this end for Tanzania to benefit
from Regional Integration as envisaged.
130. In this regard, priority areas in the area of regional Integration should
include:a)
Development of the requisite capacities and skill to enable Tanzania
utilize existing and emerging regional integration opportunities;
b)
Regional infrastructure development including roads , railways, ports,
ICT and energy sectors;
c)
Finalization of the Common Market Implementation Strategy;
d)
Finalization of the implementation of information, communication and
awareness strategy covering a wide spectrum of stakeholders.
(x)
Regional Administration and Local Government
131. Regional Administration and Local Government are instrumental in translating
the various sectoral plans into actual action at the regional and local government
levels. During the five year plan, RSs and LGAs will be facilitated to execute their
functions and responsibilities in adherence to the following interventions:
(i)
Continue embedding Decentralization by Devolution across Government;
(ii)
Undertaking construction and rehabilitation of infrastructural projects and
provision of physical incentives that will serve to attract and retain trained and
qualified staff in local government service and especially in the underserved
parts of the country;
(iii)
Widening revenue base and improve tax administration;
(iv)
Improving public financial management and accountability both at higher and
lower levels;
61
(v)
Construction of headquarters/offices for the newly established LGAs, Regions
and District; and
(vi)
(i)
Strengthening monitoring, evaluation and timely reporting;
(xi)
Financial Sector
Strengthening TIB and Women Development Bank
(ii)
Facilitating establishment of Tanzania Agricultural Development Bank;
(iii)
Increase financial services and education specifically to the rural un-banked
community;
(iv)
(v)
Establishing Credit Reference Bureau and Credit Reference Databank; and
Promoting an efficient and competitive pension and insurance sectors;
62
4.0 MEDIUM TERM ECONOMIC OUTLOOK: 2011/12-2015/16
4.1 Macroeconomic Assumptions
132. The underlined assumptions and targets are aimed at addressing infrastructure
bottlenecks with a view to accelerating economic growth and reducing poverty. This
can be achieved through the implementation of Vision 2025; the Ruling party
election manifesto of 2010; the President’s inaugural speech to the 10th Parliament;
MKUKUTA II; Sector policies and other Government policy directives, including
implementation of KILIMO KWANZA. In the medium term (2011/12-2015/16) key
macroeconomic assumptions underlying macroeconomic projections and policy
targets are as follows:
(i)
Macroeconomic stability will continue to be sustained and socio-economic
development will continue to improve;
(ii)
Domestic revenue collection will be expanded to facilitate implementation of
the five year plan;
(iii)
Increased impetus in the implementation of MKUKUTA II and allocation of
adequate resources in areas that have higher multiplier effect in the
economy;
(iv)
SAGCOT and Kilimo Kwanza initiative will be implemented as planned;
(v)
Increased
progress
in private
sector
development,
including
further
improvements in the business environment;
(vi)
(vii)
Continued good relationship with development partners;
A supportive monetary policy, reflected in low inflation consistent with the
major trading partners, a narrowing interest rate spread, and increased credit
to the private sector; and
(viii)
Political stability will be sustained.
63
4.2 Medium Term Macroeconomic Outlook and Targets
The World Economic Outlook
133. Global activity is expected to expand by 4.4 percent in 2011 – down from a
contraction of 5.0 percent in 2010. This indicates that economic activities are
recovering stronger but at a slower pace than anticipated. The forecasted recovery
carries some vulnerability because policies to foster rebalancing of demand from
public to private and from external deficit to surplus are not in place. Activity in the
advanced economies is projected to expand by 2.4 percent in 2011, which is still
sluggish considering the depth of the 2009 recession and insufficient to make a
significant dent in high unemployment rates. The 2011 growth projection is an
downward revision of 0.1 percentage point relative to the January 2010 WEO,
mostly due to expected impact of the Japanese earthquake to the world economy.
The Japanese earthquake is also expected to affect disbursement of foreign
assistant.
134. In both 2011 and 2012, growth in emerging and developing economies is
expected to remain buoyant at 6.5 percent, a modest slowdown from the 7.3
percent growth achieved in 2010. Developing Asia continues to grow most rapidly,
but other emerging regions are also expected to continue their strong rebound.
Notably, growth in sub-Saharan Africa is projected at 5.5 percent in 2011 and 5.9
percent in 2012 is expected to exceed growth in all other regions except developing
Asia. This reflects sustained strength in domestic demand in many of the region’s
economies as well as rising global demand for commodities.
64
Table 14: World Economic Growth –Actual Outturn and Projections (Percent)
April 2011 WEO
projections
Difference from
January 2010
WEO Projections
World
Advanced economies
2009
2010
2011
2012
2010
-0.5
5.0
4.4
4.5
0.0
2011
0.0
-3.4
3.0
2.4
2.6
-0.1
0.1
United States
-2.6
2.8
2.8
2.9
-0.2
0.2
Euro area
-4.1
1.7
1.6
1.8
0.1
0.1
Japan
-6.3
3.9
1.4
2.1
-0.2
0.3
Emerging & developing economies
2.7
7.3
6.5
6.5
0.0
0.0
-1.7
2.8
3.4
3.8
-0.1
-0.1
2.8
5.0
5.5
5.9
0.0
0.1
Central and eastern Europe
-3.6
4.2
3.7
4.0
0.1
0.0
Developing Asia
7.2
9.5
8.4
8.4
0.0
0.0
China
9.2
10.3
9.6
9.5
0.0
0.0
India
6.8
10.4
8.2
7.8
-0.2
-0.2
1.8
3.8
4.1
4.2
-0.5
-0.5
South Africa
Sub-Sahara
Middle East and North Africa
Source: WEO – IMF (April 2010 projections)
Tanzania’s Growth Outlook
135. The inadequate short rains in 2010/11 season have caused substantial
reduction in hydro power generation in the third quarter (January _ March, 2011)
and this may affect production in manufacturing, trade and repair and Small and
Medium-Sized Enterprises (SMEs) in the first quarter of 2011. As indicated in the
figure below, a similar decline in power generation in 2006, led to reduction of GDP
growth to 6.7 percent from 7.4 in the preceding year. Agricultural production may
also be affected negatively. In addition, the soaring oil prices exacerbated by the
growing instability in the Arab World are expected to have a negative effect on
economic performance. In line with these developments growth is likely to slow
down to 6.8 percent in 2011. This calls for measures to address the dependence of
hydro power generation and rain fed agriculture.
65
Figure 6: Actual and Projected GDP (2004-2015)
Total GDP at current market prices
GDP by activity at constant 2001 prices
8.5%
7.4%
7.1%
7.5%
7.4%
7.0%
6.7%
7.0%
6.8%
1.0%
32,293
28,213
24,782
20,948
17,941
2.0%
15,965
3.0%
36,965
5.0%
42,073
6.0%
47,575
6.0%
4.0%
8.1%
53,876
8.0%
7.8%
61,355
9.0%
70,000
60,000
50,000
T
s
h
s
.
40,000
30,000
20,000
10,000
0.0%
B
i
l
l
i
o
n
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year
136. The Government will continue to take initiatives to stimulate economic growth
with measures in “Kilimo Kwanza” initiative and ASDP, whose implementation are
expected to boost the overall performance of the economy in the medium term.
Furthermore, as the global economy recovers gradually, and demand for exports
improves, economic activities are expected to pick up, leading to improved
performance of the economy. Against this background and on the assumption of
successful implementation of economic policies; availability of favorable weather;
stability in the power supply sector; and the fact that GDP has been growing at the
rate of above 7 percent for the past five years (excluding the 2006 power shortage
and 2009 crisis year), economic activities are expected to pick up in the medium
term, with growth projected to pick up in the medium term to: 7.5 percent in 2012
and continue to grow, reaching 8.5 percent in 2015. Among strategies/policies to be
implemented to support the growth in the medium term include the Five Year
Development Plan framework, Kilimo Kwanza, ASDP, MKUKUTA II, and infrastructure
development (DARTS, roads, railway, energy, and ports).
66
Sectoral Assumptions and the Medium Term Outlook (2011 – 2015)
Agricultural Economic Activities
137. In the medium term, growth of the agricultural activity is expected to pick up
to an average of 5.0 percent, mainly on the assumption that agricultural production
will be motivated by the recovery of the world economy. Moreover, implementation
of SAGCOT and Kilimo Kwanza programmes (such as road construction, agro
processing, markets improvement and irrigation), initiatives to establish the
Agricultural Development Bank and the current agricultural lending window at TIB
are expected to boost agriculture performance in the medium term.
Fishing activities
138. Following Government’s efforts to modernize fishing activities, increased
demand for fish and fish products in both domestic and foreign markets,
implementation of supply-enhancing sector policies, as well as curbing illegal fishing
practices, domestic fish production is expected to rise substantially in the medium
term. Fishing activities are projected to pick up and maintain growth rate of around
2.5 percent in the medium term.
Industry and construction
139. These activities are poised for higher growth, projected to maintain an annual
average growth rate of 9.6 percent in the medium term. Growth of the activity is
expected to accrue from all its sub-activities, namely mining and quarrying,
manufacturing, electricity and gas, water supply and construction.
140. Manufacturing: The sub-activity is expected to grow by 7.4 percent in 2011,
down from 7.9 percent in 2010, mainly on account of power shortage which
occurred between January and March 2011. In the medium term, growth of the subactivity is projected to pick up emanating from improved power supply,
implementation of the Special Economic Zone programme, the expected increase in
demand for manufactured export owing to the ongoing recovery from the global
financial crisis, implementation of the SME policy including agro processing and the
Tanzania Trade Integrated Strategy (TTIS) and other supportive trade policies.
67
141. Construction: The sub-activity is expected to maintain an annual average
growth of 12.2 percent in the medium term, largely due to increased infrastructure
developments, including roads and bridges, water supply projects, construction of
power plants, shopping malls, commercial and residential dwellings as well as land
development.
Services
142. The services economic activity is projected to grow at an average of 8.7
percent in the medium term. This growth is expected to be driven by increased
export promotion initiatives, improvement of standards and capacity of hotels,
improvements and scaling-up of investments in transport and communication
infrastructure. The activity will also be bolstered by expansion of education and
health services, increased demand for financial intermediation in response to growth
of other economic activities in the country, and sustained implementation of public
service reforms.
143. Trade and Repairs: The sub-activity is projected to grow at 8.4 percent in
2011, from 8.2 percent in the previous year, and it is expected to grow at an
average of 9.6 percent in the medium term. The projected growth rate will be
largely attributed to increased export promotion initiatives, including SEZ, EPZ and
concessional regional trading arrangements such as EAC and SADC; promotion of
exports through the Export Credit Guarantee Scheme; improved business
environment (facilitated through the BEST programme) and construction of new
shopping centers.
144. Hotels and Restaurants: In the medium term, the activity is expected to
grow at an average rate of 7.7 percent. This growth is attributed to an increase in
the number of international tourists following recovery from the global financial crisis
and government initiatives to promote domestic tourism and construction of new
hotels. Tables below, summarize performance of economic activities and the
projected outlook in the medium term.
68
Table 15: Real GDP Growth (Percentage)
Projection4
Actual
2015
ECONOMIC ACTIVITY
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Agriculture, Hunting and Forestry
4.3
4.4
4.4
3.6
6.0
10.4
16.1
9.6
9.4
4.3
10.1
8.0
6.7
5.6
6.7
18.8
10.8
7.5
11.4
4.0
8.1
2.6
3.8
4.0
2.4
4.6
5.0
8.5
15.6
8.5
-1.9
6.2
9.5
7.8
9.5
4.3
5.3
19.2
11.4
7.3
6.5
5.0
8.5
3.7
4.0
4.5
2.4
2.9
4.5
9.5
10.7
8.7
10.9
6.5
9.7
8.1
9.8
4.4
6.5
20.1
10.2
7.0
6.7
5.5
8.8
3.2
4.6
5.1
2.6
3.4
5.0
8.6
2.5
9.9
5.4
6.6
10.5
8.5
10.0
4.5
6.9
20.5
11.9
7.1
7.0
6.9
9.0
3.1
3.2
3.4
2.3
3.5
2.7
7.0
1.2
8.0
8.4
5.6
7.5
7.2
7.5
4.4
6.0
21.9
9.0
6.8
4.4
7.1
6.7
3.2
4.2
4.4
3.4
4.1
1.5
8.2
2.7
7.9
10.2
6.3
10.2
8.2
8.2
6.1
7.0
22.1
10.1
7.0
6.5
7.3
6.9
3.5
4.1
4.2
3.6
4.1
2.6
8.0
2.9
7.4
7.1
5.3
10.8
7.9
8.4
6.1
6.8
18.8
10.3
6.8
5.4
6.7
6.7
3.4
4.3
4.4
3.5
4.9
2.3
9.2
3.8
8.9
8.0
4.8
11.8
8.5
9.5
7.2
7.5
19.0
9.9
7.1
5.6
7.4
7.5
3.7
5.0
4.9
5.1
5.5
2.0
9.5
4.4
9.4
6.7
5.4
12.2
8.6
9.6
8.0
7.9
19.0
10.0
7.4
4.0
7.5
7.9
3.8
5.4
5.4
5.1
5.8
2.4
9.8
5.2
9.6
6.1
5.5
12.4
9.0
10.0
8.4
8.2
19.2
10.7
7.5
4.3
7.6
8.0
3.8
5.8
5.6
6.5
6.6
3.3
10.3
5.3
9.8
4.9
8.3
13.7
9.4
10.4
8.7
8.6
19.2
12.3
7.9
3.8
7.7
8.4
4.0
7.4
11.8
6.8
14.9
7.3
15.3
7.5
11.0
6.1
8.7
7.1
9.1
6.9
8.6
7.6
9.6
7.9
9.8
8.3
10.0
8.8
10.2
7.4
7.4
6.7
6.8
7.2
6.9
7.4
7.8
6.0
5.8
7.1
6.7
6.9
5.8
7.6
6.1
7.9
6.0
8.3
5.7
8.8
5.4
7.4
6.7
7.1
7.4
6.0
7.0
6.8
7.5
7.8
8.1
8.5
Crops
Livestock
Hunting and Forestry
Fishing
Industry and construction
Mining and quarrying
Manufacturing
Electricity, gas
Water supply
Construction
Services
Trade and repairs
Hotels and restaurants
Transport
Communications
Financial intermediation
Real estate and business services
Public administration
Education
Health
Other social and personal services
Gross value added before
adjustments
less FISIM
Gross value added at constant
basic prices
add Taxes on products
GDP at Constant 2001 market
prices
Source: Ministry of Finance
4
Projections as per FP and MACMOD exercise
69
Table 16: Share to Overall GDP (Percentage)
Actual
Projection
ECONOMIC ACTIVITY
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Agriculture, Hunting and Forestry
26.2
19.2
4.8
2.2
1.3
20.8
3.2
7.8
1.5
0.4
7.8
43.3
11.4
2.6
4.3
2.1
1.7
9.6
8.0
1.5
1.5
0.7
25.8
19.0
4.7
2.1
1.3
21.2
3.5
7.8
1.6
0.4
7.8
43.3
11.5
2.7
4.2
2.3
1.6
9.5
7.9
1.4
1.6
0.6
25.7
19.0
4.7
2.0
1.2
21.0
3.4
7.8
1.7
0.4
7.7
43.8
11.6
2.6
4.2
2.5
1.6
9.6
8.2
1.3
1.5
0.6
24.6
18.4
4.0
2.2
1.4
22.0
3.3
8.6
1.7
0.4
7.9
43.6
11.8
2.3
5.0
2.1
1.7
9.0
8.1
1.4
1.6
0.6
24.1
17.8
3.8
2.4
1.4
22.3
3.3
9.0
1.8
0.4
7.9
43.9
12.1
2.3
5.1
2.1
1.8
8.8
8.0
1.4
1.6
0.6
21.4
16.3
3.3
1.8
1.3
21.1
2.2
9.4
2.1
0.4
7.1
47.7
14.2
2.2
4.9
3.3
2.0
9.9
7.4
1.8
1.4
0.6
20.7
15.8
3.2
1.7
1.2
21.3
2.1
9.4
2.1
0.4
7.3
47.9
14.4
2.2
4.9
3.6
2.0
9.8
7.3
1.7
1.4
0.6
20.1
15.3
3.1
1.7
1.2
21.6
2.1
9.5
2.0
0.4
7.6
48.0
14.6
2.2
4.9
4.0
2.1
9.7
7.0
1.7
1.4
0.5
19.5
14.8
3.0
1.6
1.1
21.8
2.0
9.6
2.0
0.4
7.8
48.2
14.8
2.1
4.8
4.4
2.1
9.6
6.7
1.7
1.4
0.5
18.9
14.4
2.9
1.6
1.0
22.0
1.9
9.7
1.9
0.4
8.1
48.3
14.9
2.1
4.8
4.8
2.2
9.5
6.4
1.7
1.3
0.5
91.7
-0.9
91.6
-1.0
91.6
-1.0
91.6
-1.2
91.7
-1.1
91.5
-1.2
91.2
-1.2
90.8
-1.3
90.6
-1.3
90.2
-1.3
90.7
9.3
90.7
9.3
90.6
9.4
90.4
9.6
90.6
9.4
90.3
9.7
89.9
10.1
89.6
10.4
89.3
10.7
88.9
11.1
100
100
100
100
100
100
100
100
100
100
Crops
Livestock
Hunting and Forestry
Fishing
Industry and construction
Mining and quarrying
Manufacturing
Electricity, gas
Water supply
Construction
Services
Trade and repairs
Hotels and restaurants
Transport
Communications
Financial intermediation
Real estate and business services
Public administration
Education
Health
Other social and personal services
Gross value added before
adjustments
less FISIM
Gross value added at constant
basic prices
add Taxes on products
GDP at Constant 2001 market
prices
Source: Ministry of Finance
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Table 17: Nominal and Real GDP (Actual and Projection)
Tshs. Million
Actual
Calendar Year
Projections
2008
2009
2010
2011
2012
2013
2014
2015
GDP at Constant 2001 market prices
14,828,345
15,721,301
16,828,563
17,975,951
19,319,775
20,819,133
22,502,626
24,425,317
GDP at Current market prices
24,781,679
28,212,646
32,293,479
36,965,263
42,072,696
47,575,115
53,876,448
61,355,430
Fiscal Year
GDP at Constant 2001 market prices
GDP at Current market prices
Source: Ministry of Finance
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
14,315,097
15,274,823
16,274,932
17,402,257
18,647,863
20,069,454
21,660,880
23,463,971
22,865,041
26,497,163
30,253,063
34,629,371
39,518,980
44,823,905
50,725,781
57,615,939
Inflation
145. The food stocks from the 2009/10 crop season may keep food inflation on
check in the coming months. However, going forward, food supply is expected to
remain tight due to late and inadequate rains which are likely to result in lower than
normal crop production. In addition, fuel prices have taken an upward trend in the
recent past and likely to continue on account of instability mode in the Arab oil
producing countries. Power rationing which started in late December 2010 is also
expected to increase the cost of production in manufacturing and thus exert pressure
on inflation. It is on this background that inflation is projected to increase by around
8.0 percent in June 2011. In the medium term, it should be possible to contain
inflation in single digit on the assumption that monetary and fiscal policies will remain
prudent and global commodity prices (especially oil prices) and exchange rates will
stabilize. Other assumptions include prevalence of favourable weather conditions
and improved transport infrastructure.
Government Finance
146. The budget for 2010/11 includes plans to scale up spending on infrastructure
projects and maintaining social gains in education and health etc. However, the
current level of revenue collection is low, compared to the total resource needs for
the country. This call for more efforts to increase efficiency in the tax system as well
as reducing tax exemptions and looking for other sources of revenue (enlarging the
tax base) such as reinforcing effort to collect the property tax. The ongoing tax
71
policy reforms, modern tax administration, National Identity Project, MKURABITA
implementation, enforcement in non-tax collection measures are expected to
increase efficiency and thus boost revenue. Increasing infrastructure investment in a
sustainable manner will require not only mobilizing more resources, but also
improving expenditure management to enhance efficiency.
147. In projecting fiscal data, (i.e. revenues, expenditures and financing), it was
assumed that the current prudent macroeconomic policies pursued by the
Government will continue to be implemented and that there will be a rebound in
domestic economic activities, benefiting from the projected recovery in the global
economy. It is also assumed that development partners will continue to support
Government efforts.
Revenues
148.
In the medium term, emphasis will be placed on strengthening domestic
resource mobilization by widening the tax base and bringing the informal sector into
the tax net. Given the above assumptions, revenue is projected to edge upwards
from the current level of 15.2 percent of GDP in 2009/10 to 18.0 percent in 2015/16.
In the medium term (between 2011/12 and 2015/16), revenue collection will
average 17.5 percent of GDP.
Expenditure
149. Development
spending
will
target
and
seek
to
significantly
remove
infrastructural bottlenecks, especially through improving supportive transport and
communication
infrastructure
(roads,
railway,
ports/harbours
and
telecommunication); irrigational infrastructure; and reliable and affordable power
supply, consistent with the Five Year Development Plan Framework, as well as the
attainment of targets of Vision 2025.
150. The 5-Year plan has taken into account the declining trend in overall resource
envelope and recognizes the need to refocus expenditure on few key priority areas.
Thus, the overall expenditure is projected at 28.1 percent of GDP in 2011/12. Wages
72
and salaries are projected at about 6.0 percent of GDP consistent with the need to
expand public services, particularly social services. Expenditure on goods and
services will focus only on priority activities needed to facilitate delivery of adequate
public services. More resources will be allocated to locally financed development
expenditure, from 4.2 percent of GDP in 2011/12 to 5.5 percent by 2015/16.
Financing
151. In the medium term, the government will continue to rely primarily on
concessional borrowing to finance the scaling up of spending to address critical
infrastructure gaps. Borrowing decisions will be made within the framework of a
sound debt management strategy and a public investment management process to
help maximize returns on investments. The government will cautiously evaluate and
use non-concessional borrowing for key infrastructure projects designed to ensure
efficiency gains. The projects to be implemented include those aimed at increasing
capacity for energy generation, and construction and rehabilitation of roads and
railways that are critical for improving the integration of transportation networks
within the country and in the region. It is also expected that in the medium term,
more infrastructure projects will be developed through the Public Private Partnership
(PPP) arrangements.
152. Deficit (excluding grants) is projected in the range of 10-12 percent of GDP in
the medium term. With grants being estimated to cover between 5 and 6 percent of
GDP and domestic financing 1 percent of GDP, the government will need to borrow
between 4 and 6 percent of GDP from foreign sources (including non-concessional
sources) each year for the medium term. This is deemed to leave debt levels within
sustainable levels.
153. It worth noting however that the country’s dependence on donor resources
poses a risk to the budget. The large amount of contingent liabilities, both
outstanding and those in the pipeline, represent a significant risk to the government
budget. There is a risk associated with increasing borrowing without scaling up
investment particularly in infrastructure development. In overcoming these risks, the
73
government will diversify the financing sources and will increase market capacity to
help absorb such shocks. Furthermore, the government will continue to strengthen
the overall public financial management in order to control the scale of explicit
contingent liabilities.
Money and credit development
154. Consistent with the projected GDP growth and inflation targets, M3 is
projected to grow annually at 19.0 percent in 2011/12; 18.6 percent in 2012/13; and
18.1 percent in 2013/14. The ongoing second generation financial sector reform is
expected to improve further financial intermediation and accessibility to financial
services.
155. Growth of credit to private sector is expected to continue increase gradually
consistent with the expected increase in demand for money to meet the ongoing
expansion of economic activities. In this respect, annual growth of credit to the
private sector is projected at 22.2 percent by the end of June 2011 from 16.3
percent recorded in June 2010. The credit is expected to continue picking up in the
medium term.
External Sector
156. In the year 2010/11, the current account balance (excluding official transfers)
is estimated to record a deficit of 11.5 percent of GDP, slightly higher compared to
11.2 percent of GDP in 2009/10 largely due to anticipated increase in imports of
goods and services that will outweigh the effect of the increase in exports. However,
the ratio is projected to stabilize at an annual average of about 10 percent of GDP in
the medium term, largely due to higher projected growth of exports relative to
imports.
157. The ratio of export of goods and services to GDP in 2010/11 is projected at
29.5 percent. In the medium term, the ratio of exports of goods and services to GDP
is projected to remain high at an average of 35.1 percent.
74
158. The ratio of import of goods and services to GDP in 2010/11 is estimated to
increase to 40.8 percent from 36.6 percent in the preceding year largely due to
rebound of prices particularly of oil in the world market. In the medium-term, the
ratio is projected to stabilize at an average of 45.5 percent, consistent with the
anticipated GDP growth and price movements in major sources of Tanzania’s
imports.
5.0 CONCLUSION
159. The Government is determined to ensure that all what has been said above
will be implemented successful in collaboration with the private sector and
development partners in order to achieve the desired targets of MDGs, Vision 2025
and MKUKUTA II. If all parties play their roles effectively and efficiently, it is possible
to achieve the desired short, medium and long term goals as prescribed under the
Five Year Development Plan.
75