IMF Sees Tanzanian Growth Being Spurred by Public Spending

DAR ES SALAM, Capital Markets in Africa: Tanzania’s economy is expected to grow 7.2 percent this year, driven by public spending and President John Magufuli’s efforts to curb government waste, the International Monetary Fund’s resident representative said.

Investment in roads and power plants, along with upgrades to ports and airports, a drive to boost government revenue and lower oil prices all support the expansion of the economy, Bhaswar Mukhopadhyay said in an interview Sept. 16 in the commercial capital, Dar es Salaam.

“Tanzania remains a bright spot on the continent,” he said. There is “a broad range of things that the government wants to undertake and all of those should spur growth in the country.”

East Africa’s biggest economy after Kenya expanded 5.5 percent in the first quarter of 2016, compared to 5.7 in the same period in the previous year, according to Tanzania’s statistics agency. The government is confident projected growth will be attained this year, as spending on infrastructure projects starts, central bank Governor Benno Ndulu told reporters on Sept 14.

Failure to implement the planned projects and the possibility of lower-than-normal rains may pose risks to growth, Mukhopadhyay said. Meteorological authorities expect less rain over the October-December season, which could curb Tanzania’s rain-fed agriculture.

“One of the things we have seen in past years is that often the public investment program has not been implemented to the extent that was planned and that’s because the resources needed to implement the program have not been available to the country,” he said.

Economic Risks
Major projects expected to start this year include the construction of a $7 billion standard-gauge railway to the country’s western border and a $4 billion crude pipeline from Uganda to the Tanzanian coastal town of Tanga.

While the government’s efforts to increase domestic revenue in the $44.9 billion economy appear to be bearing fruit, the nation will still need to raise some money externally, Mukhopadhyay said.

“The environment for raising that is actually much weaker than it was a few years go, so there is a risk over there,” he said.

Magufuli has won much praise for trying to improve government efficiency and to cut waste. However, his opponents say that the democratic space has shrunk since the man nicknamed “bulldozer” took charge of the the nation, which has natural gas reserves of about 57 trillion cubic feet, in November.

The president’s efforts to fight corruption would increase government revenue and underpin growth, Mukhopadyay said.

Tanzania still requires reforms to improve its business environment and needs to increase government expertise to assess borrowing risks, according to Mukhopadyay. The nation should also increase the amount of revenue from taxes and clear arrears while avoiding raising new ones, he said.

Rate Caps
The IMF will assess the impact of Kenya’s decision to cap commercial-lending rates on the region’s financial system, Mukhopadhyay said. East Africa’s biggest economy now requires banks to charge a maximum of 400 basis points above the benchmark rate that’s currently at 10.5 percent.

Kenyan banks including KCB Group Ltd., Equity Group Holdings Ltd. and Co-operative Bank of Kenya Ltd. operate units in the East African Community member countries including Tanzania, Rwanda, Burundi, South Sudan and Uganda.

“It’s unclear at this point as to what impact that initiative in Kenya will have through the banking system,” Mukhopadhyay said. “Given the size of the Kenyan banks, off hand it’s hard for me to see that there will be a very significant impact of that measure here.”

Source: Bloomberg Business News