- Tanzania is experiencing its strongest and longest economic growth period since independence, with annual growth rates between six and seven percent. But while the economy booms, poverty remains "high and pervasive," official sources admit.
According to the latest macroeconomic analysis of Tanzania by the International Monetary Fund (IMF), the East African country is experiencing an impressive economic development. But despite an entire decade of solid growth, little has been achieved when it comes to reducing poverty.
Since 2000, real GDP growth has averaged 6.3 percent per annum, thus being one of the highest in sub-Saharan Africa, according to the IMF. "Growth has been broad-based, led by the mining, construction, retail/trade and manufacturing sectors," the Fund's analysts said in their latest Tanzania report.
But for many reasons, most of this economic growth has not reached the poor majority of Tanzanians. According to the Dar es Salaam government, annual population growth still stands at around three percent, thus "eating up" around half of GDP growth. By around 2025, Tanzania's population is expected to double.
Also, economic growth in the sector employing most Tanzanians - agriculture - has been erratic during the last decade. "Agricultural growth has been affected by recurrent droughts," the IMF noted, referring to data provided by Tanzanian authorities.
While economic growth among the poor therefore has been very limited, the population over the same time has been subjected to price hikes in essential sectors, especially energy. Recent droughts have markedly reduced Tanzania's hydropower-generating capacity, forcing many businesses and consumers to rely on high-cost thermal generators. With world fuel prices trebling over the same period, the high cost of electricity squeezed businesses and consumers.
"With a GDP per capita of less than US$ 340 and widespread poverty, Tanzania still has a long way to go to reach its Millennium Development Goals, and will therefore require continued donor financing for many years to come, particularly, in the areas of education, health, and infrastructure," the IMF analysts therefore conclude.
Despite the poor results in fighting poverty, the IMF and Tanzanian authorities take joy in positive macroeconomic parameters in almost all other sectors. From 2004 to 2006, annual GDP growth was at 6.7 percent, slowing down a little bit to 6.2 in the current year, according to estimates by the IMF.
Exports and domestic revenues keep rising and the only cloud in the sky is a growing inflation, now set at 6.7 percent. "Going forward, strong rains and full recovery in hydropower production are expected to help boost growth and dampen inflation," the IMF however estimates.
The IMF holds that structural reforms have had their positive effect. "Exceptional improvements in tax and customs administration and public expenditure management have both reinforced development partner confidence," the Fund says, in addition to increasing "the effectiveness of government expenditures." Since 1999, government revenues and donor support have, respectively, risen by 4.5 and 6.5 percentage points of GDP, allowing government spending to grow strongly.
In conclusion, the IMF "commended Tanzania's strong overall economic performance in recent years, which has been grounded on a sound macroeconomic policy framework, progress on structural reforms, and substantial donor assistance." But major challenges remained, "including the high and pervasive poverty, significant capacity constraints in the public sector, and insufficient infrastructure and human capital."
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