tanzania economic outlook 2015 diving deep · 2020-05-19 · in october 2015, the current...
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Tanzania Economic Outlook 2015Diving deep
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Economic Outlook 2015 | 3
Preamble
Our publication incorporates changes in legislation introduced by the 2015 Budget speech and other subsidiary legislation. It also includes references to changes in the practice of the Tanzania Revenue Authority where they are significant. Some changes may arise when the Finance Bill and subsequently the Finance Act 2015 are published.
This publication constitutes only a brief guide and is not intended to be a comprehensive summary of the Tax law and practice. While all reasonable care has been taken in the preparation of this guide, Deloitte and its associates accept no responsibility for any errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused, or sustained by any person that relies on it.
June 2015
4 | Economic Outlook 2015
Tanzania Economic Review
Economic OverviewTanzania’s growth is set to become more broad-based as more people are pulled into the boom. The 2012 National Household Survey had revealed that the rate of incidence of poverty declined from 34% to 28% in the period from 2007 to 2012, highlighting that economic growth was trickling down to the poor. According to the 2013 FinScope Tanzania survey, financial exclusion has almost halved since 2009, from 55% in 2009 to 27% in 2013. Going forward, increased focus on deepening financial inclusion to reach out to the unbanked in rural areas will play a key role on Tanzania’s development.
The recent rebasing of Tanzania’s national accounts by the National Bureau of Statistics (NBS) has shown that the country is close to achieving middle income status. The World Bank has estimated the total value of Tanzania’s economic output value at approximately one-third larger than was previously estimated, with the current average per capita income at USD 948, as opposed to the previous USD 695. Economist Intelligence Unit (EIU) forecasts the real GDP growth to rise by 6.9% in 2015, driven by a loose fiscal stance ahead of the elections and rising investment in the natural gas sector. Investments in the natural gas sector are expected to continue propelling Tanzania’s real GDP growth in all remaining years until the onset of significant gas production after 2020.
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2015F20142013201220112010
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F = ForecastSource: IMF, International Financial Statistics and Economist Intelligence Unit
5.8
Political overviewIn October 2015, the current president, H.E. Jakaya Kikwete, will step down as his second term ends. His party, Chama Cha Mapinduzi (CCM), will nominate the next presidential candidate who will be chosen in June 2015 by the CCM‘s National Executive Committee, following a nomination process involving party members from each region. In October 2014, the national referendum to ratify the draft constitution was approved by the Constituent Assembly however it was postponed because of problems with the new biometric voter registration system. No new date has yet been set however it seems likely that the referendum will now be deferred until after the general election. In terms of Tanzania’s international relations, several key donors suspended their budget support, in the wake of a major scandal in the energy sector last October. There have recently been some signs of a softening of decision by donors on the level of their support for the 2015/16 (July-June) fiscal year and this is likely to be made conditional on further efforts by the Tanzanian authorities to improve transparency and strengthen accounting procedures.
Chart 1: Tanzania real GDP growth rates (%)
10% 9.5
5.1
8.2
7.06.9
6.5
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Most of the sectors are expected to grow in line with the growth in the economy. Annual average growth in agriculture – which contributes approximately one quarter of GDP and employs approximately three quarters of all Tanzanian workers – is estimated at 5%, owing to continued dependence on rain-fed agriculture and limited use of modern farming techniques. The business services sector is forecast to record high growth, driven by telecommunications, transport and financial services. Going forward, growth in the financial services sector will mainly be driven by increased investment in the oil and gas sector and continued development of the technology sector, exacerbated by growth in mobile banking. The manufacturing sector is also expected to grow as further progress is made in boosting local processing of commodities, albeit as less skill-intensive, resource-based manufacturing due to the deficiency of skilled labour that restricts progress up the value chain. Growth in the construction industry will be supported by investments in the gas sector and related infrastructure, including a possible USD 14 billion liquefied natural gas processing plant, as well as in transport, power and urban property development. However, despite ongoing government attempts to encourage increased investment in the minerals sector, growth in mining is expected to be held back by weak gold prices.
The government is expected to maintain fiscal consolidation aimed at expenditure and debt management, as well as a tight monetary policy to anchor inflation. However, fiscal policy will be expansionary in the lead-up to the elections in October 2015 but will moderate as the government recognizes the need to bring the public finances under control after the elections. In 2014, there was a general decline in lending rates that was instigated by the government as a stimuli to promote growth in the private sector. Private sector credit grew by 19.4% in 2014 compared with 15.3% in 2013. Although BoT lowered reserve requirements with effect from January 2015 in an attempt
to boost agricultural lending, it is expected to maintain a generally cautious monetary stance over 2015. BoT‘s reserve-targeting policy will lead to significant volatility in short-term lending interest rates but not to commercial lending rates as they are less sensitive to changes in monetary policy. As such, BoT expects to shift gradually to a formal inflation-targeting system – one that be anchored by changes in interest rates, rather than relying on money-supply targeting.
Tanzania’s headline inflation continued to fall consistently from a high of 16.1% registered in 2012 to a low of 4% as at January 2015, below the Bank of Tanzania’s (BoT‘s) medium-term target of 5%. The decline in inflation rates over 2014 was mainly attributed to favourable domestic weather conditions which led to decline in food prices, lower global food prices and decrease in global oil prices (oil remains one of Tanzania’s largest imports). Food and fuel prices are the biggest drivers of inflation in Tanzania. However, headline inflation rose to 4.5% year on year in April 2015, up from 4.3% in the previous month, highlighting a pick-up in prices of some key local staple food items. The expansionary fiscal stance ahead of the elections coupled with the weak Tanzanian shilling are expected to lead to a further acceleration in the year-on-year rate of inflation in 2015. The EIU expects average inflation to average 5.7% in 2015 and continue increasing towards 2019 due to the renewed rise in global food and oil prices coupled with continued currency depreciation.
6 | Economic Outlook 2015
Tanzania’s currency was stable in the beginning of 2014 owing to BOT’s overall prudent fiscal and monetary policy, and increased foreign capital inflows off-setting devaluation pressures. However, 2014 and first four months of 2015 saw the Tanzanian shilling falling 9% and a further 12% respectively against the US dollar. This sharp depreciation has been attributed to Tanzania’s large trade deficit, reduced inflows of aid and a strong US dollar. Many have also attributed the weakness of the currency to nervousness ahead of the elections. The EIU projects the Tanzanian shilling to recover slightly after the elections but to maintain a downward spiral to average TZS2,425:USD1 in 2015 as the fiscal and current account deficits weigh on the currency.
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Chart 2: Tanzania inflation rate (%)
Chart 3: Tanzania monthly exchange rates (%)
Source: Economic Intelligence Unit
Source: Economic Intelligence Unit
Monthly Exchange rate
(Tzs/USD)
Monthly Exchange rate
(Tzs/POUND)
Monthly Exchange rate
(Tzs/EURO)1,564
2,0732,035
2,0862,162 2,163
2,235 2,243
2,088 2,082
1,910
2,186
2,553
2,411 2,438
2,581 2,5962,699
2,8012,686 2,672
2,626
3,040
1,584 1,597 1,596 1,5711,621 1,642
1,657 1,714
1,777
1,989
7.3
12.7
16.1
7.9
4.85.7
Economic Outlook 2015 | 7
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