|President Magufuli of Tanzania(R). |
Heavy-handedness paying off?
TANZANIA's economic growth, which slowed down in the first half of last year compared to previously, could be revised down after weaknesses in the compilation of national accounts data are addressed, the International Monetary Fund (IMF) has revealed.
Economic growth was subdued in the first half of last year compared to previously, raising concern among some opposition politicians about the direction of the national economy.
But the IMF now reckons that an ongoing review of the government's method of computing the gross domestic product (GDP) figure, will likely reveal that the economy actually grew at a slower speed than the already reported 6.8 percent in H1 2017.
The IMF said in a new report that its East Africa Regional Technical Assistance Centre (East AFRITAC) is currently working with the state-run National Bureau of Statistics (NBS) to help review the GDP growth figures.
"The East AFRITAC is assisting the authorities in addressing weaknesses in national accounts’ compilation, which is likely to lead to downward revisions to the published growth number for the first half of 2017," IMF said in its latest 55-page country report for Tanzania released this week.
The officially published GDP growth figure for the first half of 2017 is 6.8 per cent, down from 7.7 percent in H1 2016.
However, the IMF warned that a review of data compilation for the national economy will probably reveal that the economy grew at a slower speed than the reported 6.8 per cent in the first half of last year.
"A decline in private sector credit, a sharp increase in non-performing loan (NPL) ratios, and weaknesses in tax revenue collections would suggest a deceleration in economic growth," it said.
The IMF said Tanzania's economy, which has been growing at around 7 per cent annually over the past decade, will now probably miss its GDP growth targets.
"Based on recent developments of the leading indicators of economic activities in the first half of 2017, the (government’s) targeted growth rate has been revised downwards to 7.0 per cent against the initial estimate of 7.1 percent," it said.
The World Bank said in November last year that Tanzania’s full-year GDP growth would likely decline to 6.6 percent in 2017 versus the government’s revised growth target of 7.0 percent.
The IMF said in its report that while Tanzania's economy grew at around 7.0 percent in fiscal year 2015/16, GDP growth will likely slow down to 6.0 percent in 2016/17.
According to IMF projections, Tanzania’s GDP growth will likely grow by 6.2 percent in 2017/18, followed by 6.5 percent (2018/19), 6.8 percent (2019/20) and 6.7 percent (2020/21).
"The deteriorated perceptions regarding the business climate may become a drag on economic activity by failing to unlock new investment opportunities and deterring private sector participation in the major infrastructure projects," the IMF warned.
A decline in investor confidence in Tanzania over the past two years due to the uncertainty of government policies was hurting the economy, said the fund.
"Some recent events have increased private sector concerns about heavy-handed and arbitrary enforcement of rules, increasing uncertainty and negatively affecting private investment," the IMF noted.
"These include, for example, an export ban on mineral concentrates, heavy-handed changes to the mining laws and the delayed repayment of value-added tax (VAT) refunds."
According to the IMF, only 58 billion/- in VAT refunds were paid in 2016/17, compared with a staggering 570 billion/- paid in 2015/16 due to "broad and protracted audits of related claims."
"A continued low rate of execution of public infrastructure spending would have a negative impact on economic activity in the near term and reduce the growth potential going forward," it said.
"Additionally, a prolonged slowdown in private sector credit growth could affect economic activity."
The IMF said the fundamentals of Tanzania's economy remain robust, but the government needs to urgently address warning signs from key economic indicators.
"Although GDP data point to continued strong growth, other high-frequency data suggest a weakening economic activity. Tax revenue collections are lower than expected and credit growth has stagnated reflecting in part banks’ rising NPLs. Inflation remains moderate, and international reserves have increased substantially," it said.
"Strong growth and job creation are needed to address high poverty and a large underemployed youth population. Infrastructure gaps and the business climate have also become increasingly challenging and require a response. Sustained reforms will be needed to achieve the strong private sector-led growth envisioned by the government’s development plan."
Additional domestic revenue needs to be mobilised through tax policy and administration reforms while improving the functioning of the VAT refunds system, said the IMF.
Despite forecasts from both the IMF and the World Bank of slowing GDP growth in Tanzania, the government remains bullish that it will meet its revised 7.0 percent economic growth target for 2017.
The Minister for Finance and Planning, Dr Philip Mpango, said last month that Tanzania remained one of the fastest-growing economies in Africa, driven by construction, transport, communication and financial services sectors.
From the Sunday Guardian
From the Sunday Guardian