The Tanzania Economy
Tanzania is one of the poorest countries in the world, with a per capita income
estimated at about $250 per year. Tanzania is a resource-rich country with an
area of 945,000 square kilometers, larger than France and Germany combined,
and a population of about 33 million, growing at about 3% a year.
The economy is heavily dependent on agriculture, accounting for 50% of GDP
and providing 85% of exports and 80% of employment. Agricultural products are
primarily coffee, cotton, tea, cashew nuts, sisal, and tobacco. Industry accounts
for some 15% of GDP and is mainly limited to processing agricultural products
and light consumer goods. The mining sector has great potential, but has yet
to be fully and carefully developed. Tourism has also tremendous potential and
has become one of Tanzania's most dynamic sectors, showing significant growth
in recent years. The service and informal sectors are also growing rapidly and
are increasingly important sources of employment.
The current Government has maintained a strong focus and commitment to improving
fiscal performance and instituting structural reforms to underpin both strong
growth and poverty alleviation. These reforms have focussed on increasing allocations
to social/priority sectors through:
- building administrative capacity for improving development management
- maintaining a stable fiscal position and using public resources more efficiently
- promoting the private sector by deregulating investments and divesting parastatals
- providing greater support for primary education and basic health care, and
reducing allocations for low priority activities
- supporting the development of basic infrastructure, especially to give impetus
for rural agricultural development
- restructuring the financial sector to respond to the needs of the private
sector.
These reforms have contributed to an average real GDP growth rate of 5% in
recent years, a significant improvement compared to the 3% growth realised in
the early 1990s. This is a strong result, especially given the negative impact
during this period of falling commodity prices, the slowdown in the world economy,
and more recently, declining world tourism. Simultaneously, many of the distortions
that existed in the 1990s have been dealt with - markets are freer and the public
sector is smaller. Inflation is also down from over 30% in 1995 to 5% in 2000.
Real GDP growth is realistically projected to be at 5.5% through the medium
term, with agriculture, mining and the tourism sectors the driving forces.
Tanzania has received considerable support for its economic, institutional
strengthening, and poverty alleviation programmes from the international community,
who are especially active in the social sectors, public sector capacity building,
civil service reform and governance issues. Most significantly, in April 2000,
IDA and the IMF reviewed Tanzania's Poverty Reduction Strategy Paper (PRSP)
and approved its eligibility for interim debt relief under the Enhanced Heavily
Indebted Poor Countries (HIPC) Initiative framework. In November 2001, Tanzania
reached the HIPC completion point - only the fourth country to do so, following
Bolivia, Mozambique and Uganda.
Prior to the HIPC Initiative, Tanzania's external debt stood at around US$7
billion. As a result of the HIPC Initiative, the net present value of Tanzania's
external debt is reduced by some 54% and debt service payments will be reduced
by an average of 47% over time. Looking at the HIPC benefits another way, prior
to HIPC, about 20% of government revenue was spent in paying external debt;
after HIPC, less than 8% of revenue will be spent on debt service during the
period through 2010. Under the HIPC, resources saved from debt service are allocated
to key anti-poverty programs, including education, health and infrastructure,
as outlined in Tanzania's Poverty Reduction Strategy Paper.
Notwithstanding Tanzania's positive economic performance under the 3rd Phase
Government, a number of challenges remain. Economic growth needs to accelerate
beyond 6% pa to have any significant impact on poverty reduction, unemployment
remains high, infrastructure continues to constrain growth, institutional capacity
needs strengthening, and a constant policy environment is needed to encourage
investors. Thus, despite the positive performance of Tanzania over the past
decade, major challenges remain.
A major concern for donors in Tanzania, as elsewhere in the developing world,
is the issue of accountability, transparency and institutional capacity to manage
public services. Tanzania, together with the international community, is addressing
these issues head on. Significant programmes are under way to turn the tide
on corruption in Tanzania. But, the international community needs also to recognise
that culture does not change over night. The on-going and nation-wide public
sector reform process, together with the poverty alleviation programmes and
efforts to enhance the role of the public sector in Tanzania, provide a strong
basis for assuming that Tanzania will be successful. This outlook is firmly
underpinned by Tanzania's long-standing political stability and democratic traditions.
