Tanzania 
Growing incomes and expenses for Tanzanians in 2003

afrol News, 7 January - The growth of the Tanzanian economy is estimated at around 6 percent annually in 2002 and 2003, as the agriculture, mining, trade and tourism sectors are pushing growth forwards. Tanzanians can expect increased wages and improved access to credits, but also increased spending on taxes and their water and electricity bills in 2003. 

In its annual so-called "Staff report for the 2002 Article IV Consultation," the International Monetary Fund (IMF) reviews the economic trends in Tanzania. The 92-pages report, which was written in November 2002, was made public today. It includes government correspondence, praises the macroeconomic development in the country over the last years and outlines the policies for 2003.

Real GDP grew by 5.6 percent in 2001 and was expected to have grown by 5.9 percent in 2002, the report says. The sources of this assumed growth were "continued strong activity in tourism, construction, and the mining sector, and a further improvement of performance in the agricultural sector." Real GDP is projected to grow by 6.3 percent in 2003, according to the Tanzanian Minister for Finance, Basil Pesambili Mramba.

Notwithstanding a deterioration of the outlook for the terms of trade of traditional agricultural products, this sector had grown by over 5 percent in 2002, "with most of the growth emanating from food crop production and fishing," the Ministry says. Favourable weather in 2001 had also contributed to this growth. The agricultural sector still accounts for almost half of Tanzania's GDP.

The growth of the mining sector had remained strong at 13.2 percent and its contribution to GDP had increased to 2.5 percent. Wholesale and retail trade (including tourism) rose by 7 percent in 2001. This was mostly reflecting the commencement of large-scale gold mining operations and new tourist projects in the 2002/01 fiscal period. Further, industrial output rose by 6 percent. 

The IMF report holds that the "substantial progress" Tanzania has experienced since the mid-1990s is a product of the macroeconomic stabilisation and structural reform, prescribed by the IMF and the World Bank. GDP growth during the last years was now "resulting in a small increase in per capita incomes," and inflation has declined to below 5 percent. 

The Tanzanian government also had significantly improved its financial situation. Government revenue during fiscal year 2001/02 was shilling 1,043 billion, slightly above the estimate of shilling 1,025 billion, according to Minister Mramba. "Fiscal consolidation has been central to the success in macroeconomic stabilisation," the IMF comments. "As donors have provided sizable financial support of Tanzania's reform program, the government's domestic financing needs have all but been eliminated."

Also government expenditure had been better controlled. This particularly had been achieved by cuts in the government's wage bill - following the reduction in the size of the civil service and the privatisation of two-thirds of the parastatal enterprises since 1992 - and by improving the planning and execution of poverty-reducing programs.

Social costs
The social costs of these structural reforms were barely mentioned in the IMF's report. During the downsizing of the public sector, many skilled Tanzanians lost their jobs. In addition to the labour consequences of the commercialisation of public utilities, Tanzanian consumers have had to pay higher prices. For example, "a sharp increase in electricity tariffs in April [2002] explains about 80 percent of the step increase in non-food inflation," the report laconically mentions.

Also the government's improved tax revenues have mostly been collected from middle-class Tanzanians. "The better than projected performance can be largely attributed to higher than budgeted collection on income taxes, which benefited from the establishment of the Large Taxpayers Department," the Finance Ministry admits. 

For 2003, the government plans further increase in revenues, mainly to origin from tax payers. "The government seeks to strengthen revenue collection efforts," Minister Mramba says. The large size of the informal economy including the dominance of peasant agriculture, coupled with the high level of poverty, in large part, explained the narrow revenue base, he lamented. But, in the 2002/03 budget, "measures intended to reduce leakage, curb tax evasion, improve voluntary compliance and expand the tax base" were a "top priority." Further commercialisation and privatisation probably also will lead to higher electricity and especially water bills.

Improvements in 2003
However, the foreseen GDP growth and government's planned enhanced revenues were also to benefit Tanzanians in 2003. "The 2003/03 budget foresees an increase in the allocations for poverty-reducing measures in line with the priorities spelled out in the poverty reduction strategy," the IMF writes. This means enhanced spending on health care, education and infrastructure.

Those civil servants still employed also may look forward to a more prosperous year. "In context of the civil service pay reform, we have raised the average wage by 15 percent, which will allow, for professional and senior staff, a further reduction in the gap relative to the private sector," Minister Mramba announces. This measure is also meant to curb corruption and raise efficiency.

Further reforms that may affect many Tanzanians starting in 2003 are related to the financial sector. The government plans to address various impediments to bank lending, in particular by "preparing measures to unblock the use of land as collateral for bank loans." This would also include "a possible amendment of the Land Act which would be presented to Parliament during the February 2003 session," the IMF notes. The IMF staff in particular recommended that these measures "should be accelerated."

There were also plans to "encourage microfinance by submitting a draft law establishing the legal, regulatory, and supervisory framework for microfinance operations to Parliament in February 2003." Finally, there were plans to order the Bank of Tanzania to increase its domestic sales of foreign exchange.

The IMF staff generally concludes on a "continued pursuit of sound macroeconomic policies and structural reforms" by the Tanzanian government, "notwithstanding serious capacity constraints and a sometimes adverse external environment." It therefore recommends further IMF and World Bank support for the Tanzanian government.

Export processing zones
The clearest critique against Tanzanian government policy was articulated in regard of the recently adopted act on export processing zones (EPZ Act). This was "not consistent with" other government policies, the report says. In view of the IMF staff, generous tax incentives for these zones "could lead to leakages from the existing revenue base." 

The authorities had explained that the EPZ Act was intended to favour only new foreign direct investment - with consequent employment and wage tax gains - with specific emphasis placed on the export opportunities offered by US and EU import policies. The IMF staff on the other hand held that "because of the very broad eligibility provisions of the EPZ Act, it may not be possible to exclude even existing businesses from gaining EPZ status." 

These generous incentive packages "may weaken the payment discipline of other taxpayers," the IMF staff holds. The EPZ Act had also committed the government to providing costly infrastructure and to fast-tracking for EPZs many reforms that had long been awaited by the business community at large. 

In response to the IMF's critical voice, "the authorities agreed to delay the coming into effect of the EPZ Act, and to review its provisions so as to target benefits more narrowly to the intended purposes." The Tanzanian Finance Ministry confirms it is "reviewing this legislation," in a language remarkably close to the IMF staff's appraisal.

Sources: Based on Tanzanian govt, IMF and afrol archives

© afrol News.    You can contact us at mail@afrol.com