Tanzania has sufficient cash flow to spur growth

There is enough money circulating in the economy to encourage growth, the central bank said, reiterating
its stand that policy settings remain appropriate for the time being. This announcement came on the heels of the information circulating around that there is in-sufficient cash in the circulation. Dr. Suleiman Missango, Senior Economist at Bank of Tanzania (BoT), said.

“The BoT continues to see monetary policy as appropriate given the continued growth of the economy and the good prospects for the rest of the year,” said Dr. Missango. Also, the central bank believes there is no reason to cut key interest rates to further spur demand. The central bank economist added that there is sufficient liquidity in the economy while domestic credit remains supportive of growth. Reacting to growth data, the economist noted that the domestic economy remained in “good shape,” despite the novel COVID-19.

Much attention had focused on reports of government spend- ing in the first phase, echoing the disbursement problems that held back growth in the last five years. The dim performance of the exports sector, which contributed to the weak expansion, was due to a temporary cooling of international demand for Tanzania-made goods. He said growth numbers should improve in the coming months as spending issues are addressed,
while investments and remittances, which fuel consumer spending, rise.

The IMF predicts that growth is set to slow from 6.3 per cent in 2019 to 2 per cent in 2020. But the largest contributors to growth are the state’s construction, infrastructure and social services projects, said Imani Muhingo, Head of research and analytics at Orbit Securities in Dar es Salaam. “There is no indication that the government will slow down in its projects.”

According to the Economist Intelligence Unit (EIU) in London, economic growth will slow to 2.7 per cent this year. But, the EIU says, prospects to 2024 are supported by a growing services sector and planned pub- lic investments in infrastructure. Major projects include construction of the $11bn Bagamoyo Port and special economic zone, extension of Dar es Salaam port, a new liquefied natural gas plant at Likong’o-Mchinga worth $30 billion, and a new electric railway line between Dar es Salaam and Dodoma, where a new international airport is being built.

The challenge, Muhingo noted, is that the projects are mostly han- dled by foreign contractors and require imported capital goods. The EIU forecasts a rebound to 4.8 per cent growth in 2021, and expects that public and private in- frastructure investment will sup- port annual average real GDP growth of 5.8 per cent in 2022-24. According to Muhingo, the state is in a stronger fiscal position than in the past, due to increased collection of taxes and improved efficiency in government operations.

An increased budget deficit can be absorbed by higher debt for which domestic appetite is still high. The national debt is still highly sustainable. The East African country had a fiscal deficit of only 2.9 per cent of GDP in 2019, compared with an average of 6 per cent for the East Africa Community.

Tourism is geographically concentrated in the Arusha and Kilimanjaro regions, which account for just over 9 per cent of GDP. So the collapse in tour- ism revenue may have less impact than expected, said David Cowan, Citi analyst. Likewise, stalled remittances will act as a drag on Kenyan and Uganda growth, Cowan writes, but Tanzania is less dependent. The country is also expect- ed to remain a net recipient of both direct and portfolio foreign investments, which tend to boost job creation.