The Bank of Tanzania's management of the broad economic picture stands up well to close scrutiny.
In Tanzania, they say that there is no great virtue in hurrying (haraka haraka haina baraka in Swahili). So it is with the country's macroeconomic policy: slowly but surely, over the six years of the Mkapa administration, this former socialist country has achieved an enviable monetary stability, reduced inflation to the lowest level in 28 years and racked up a steady annual average growth rate of four percent.
For its faithfulness to economic reforms, Tanzania has endeared itself to international financial institutions and donors and in 2000 qualified for massive debt relief under the World Bank and IMF enhanced Highly Indebted Poor Countries (HIPC) initiative.
"We have done more than at any other time since independence," says Bank of Tanzania Governor Daudi Ballali, himself a veteran of the IMF, spending 25 years stationed in Washington. Ballali, a self-deprecatory 58-year-old, was heavily involved in the structural adjustment program for Ghana on the west coast of Africa and is determined that Tanzania will not, as happened to a limited extent there, give up its hard won macroeconomic gains.
It has not been an easy journey. Under the "Ujamaa" (meaning village communal life) socialist policies of former president, the late Julius Nyerere, Tanzania's economy nearly fell flat on its face. Monolithic state-run industries in backbone sectors like agriculture, mining and tourism collapsed, undermined by inefficiency, corruption and falling commodity prices in overseas markets.
Tanzania's invasion of Uganda to oust former dictator Idi Amin in 1977 also took its toll on state coffers. Indeed many Tanzanians will never forget what they described as the most traumatizing period of their lives, characterized by long queues for basic necessities like bread and sugar. Nyerere resigned almost a decade later in 1985, and although credited with creating one of the most harmonious states in Africa through his introduction of Swahili as the national language, was gracious enough to concede that his experiment with socialism, through "Ujamaa", was an economic failure.
His successor, Ali Hassan Mwinyi, launched the country on a capitalist path with the help of the World Bank and the IMF, but the liberalization went awry when Mwinyi failed to rein in corruption, notably in the case of the now infamous "tax exemptions", which prompted Western donors to cut aid.
"The government lost micro-economic control," says Ballali. "The donors walked away and people thought Tanzania would be in limbo for another 5-10 years. But luckily in the election of 1995, we got President Mkapa." It's Mkapa's commitment to good governance and transparency that has made him a darling of the West. His admission that corruption was a cancer and his subsequent probe into graft in government helped establish his credibility.
Western donors and international businesses feel they can do business with a man who has committed himself to macro-economic stability — keeping inflation at single digit levels, cutting back on government spending and developing an investor friendly climate.
The economy is now expected to grow at around 5.3 percent in 2001 (July 2001/June 2002 fiscal year), jumping to six percent in 2002. Inflation, at around five percent, is well on its way down and is expected to fall to 4.5 percent by December 2001. Broadening the tax base and higher revenue collection are also targeted, as the current average of 12 percent of GDP is low compared with its neighbors. In sub-Saharan Africa, revenue collection is between 16-18 percent.
The government is counting on additional funds when it reaches completion point under the HIPC program. Once these funds kick in, Ballali says the government's external debt servicing burden would be halved with HIPC freeing up funds for spending in critical sectors like health, education, rural roads and water.
Although there is a general consensus among Tanzanians that the government has done well in achieving macroeconomic stability, disappointment that few of its benefits have trickled down to the country's mostly peasant farming population poses a danger to the consensus behind reform in the country. Other sectors of the working population have been hard hit by retrenchments following the government's mass privatization program.
"It's people not seeing the benefits coming — we have created high expectations," says Ballali, adding that further liberalization needs to be undertaken in the agricultural sector, as the mainstay of the economy, employing 80 percent of the country's 35 million people.
Despite its enormous natural wealth, Tanzania has the disadvantage of starting from the bottom rung — per capita income is a mere $270. The country is ranked among the world's 10 poorest nations with half of the population living on less than a dollar a day, and 16 percent of those in abject poverty of less than half a dollar.
Future macro-economic and monetary policy will continue to target low inflation, aiming for two to three percent but much of the stimulus for growth will have to come from foreign direct investment. The most promising sectors seen driving the economy forward in the next five years are tourism, mining and manufacturing for export. Ballali reckons Tanzania needs to attain a real GDP growth rate of eight percent before the benefits can trickle down to ordinary people. Other critical changes include reforms to land laws, needed to pave the way for commercial farming and to encourage bank lending.
A larger productive formal sector should pump up revenue which in turn will mean the country becomes less donor dependent. Donors currently finance around 40 percent of the country's fiscal budget. But most of all, Tanzania's hope lies in its people, long shackled by socialism which their leaders say created a culture of dependency, and now learning a new way to support themselves and their families and live life independent of the state.
www.bot-tz.org (Bank of Tanzania)
