AfDB Nods on Tanzania, Ethiopian Economic Miracles
*4/1/2018, Tunis, Tunisia*
BEING one of the three drivers of East African economy, Tanzania gears towards the East Africa’s best investment destination in 2019 with the region’s lowest inflation rate.
The annual inflation rate in Tanzania fell to 3.0 percent in November 2018 from 4.3 percent in the corresponding period in 2017.
While it is the lowest in the East African region, it is a record low inflation on record, mainly due to a slowdown in cost of food and non-alcoholic beverages.
The other countries featuring in the African Development Bank (AfDB) report as key driver of East African growth are Uganda, Kenya and Ethiopia.
Uganda’s inflation rate stands at 3.3 per cent and Kenya’s, the closest Tanzania’s competitor at 4.8 per cent.
Low inflation has many benefits for the country’s overall macroeconomic stability. Inflation stabilizes the economy, making it predictable which becomes a breed ground for improved investment climate hence an important attraction.
It is a very important factor and indication of a country’s improved economic performance. Apart from Tanzania’s performance, the region’s inflation is expected to slow to single digits at 8.9 percent in 2018 and 7.8 percent in 2019.
Anticipated monetary tightening in Ethiopia, Tanzania, and Uganda, and a neutral monetary policy in Kenya, as well as fairly stable exchange rates in all countries, are expected to slow inflation in the coming two years.
Such low inflation, observed in most countries, with Tanzania leading in the region in 2017, is also expected in 2018 and 2019.
*2017 Country GDP growth rates*
Scanning the 2017 GDP growth, it is Ethiopia that takes the lead at 8.1 per cent, ahead of Tanzania with a growth rate of 7.1 per cent.
Rwanda comes up third in line with 6.2 per cent growth. The report unveils that Kenya and Uganda experienced 5.1 per cent growth each.
However, the African Development Bank (AfDB) notes that Ethiopia’s growth is projected to slow down in 2019. If everything remains constant, Tanzania will step up to take over as the region’s top fastest growing economy.
The report released in December 2018 by AfDB did not detail much on the forecast but Ethiopia’s cost of borrowing could be one of the factors for the slump.
Tanzania’s Smaller Deficit and Sustainable Debit
Owing to African governments’ drive for high growth, investment remained greater than domestic savings in all counties in 2017.
The domestic resource gaps led to considerable current account deficits. Large current account deficits are a major challenge for Burundi, Djibouti, Ethiopia, Rwanda, Seychelles, and Somalia. But Eritrea, Kenya, South Sudan, Sudan, Tanzania, and Uganda faced smaller deficits.
When trade did not provide the resources needed to push growth, the East Africa countries resorted to external resources (FDI, remittances, aid, and borrowing), to address these resource gaps.
Borrowing from both traditional lenders and nontraditional ones (in particular China) is raising debt in the region considerably, affecting the countries’ capacity to repay.
There has been unverified reports on the social media that China was likely to take over properties like airports (Zambia) and Ports (Kenya) for defaulting. However, the alleged reports were refuted but they sum up the situation.
The AfDB report observes that debt affected many countries in 2017 and will continue to do so in 2018 and 2019.
It mentions Ethiopia’s risk of external debt distress raised from low to moderate in 2015 and remained moderate in 2016.
“Ethiopia’s debt reached 54.2 percent of GDP in 2016, and external debt about 32 percent, due to stagnating export revenue and a large gap between imports and exports (about 18.6 percent of GDP),” reads the report.
In Kenya, the debt-to-GDP ratio has increased for the past three years. Currently it stands at 56 percent, higher than the 2010–14 average of 45 percent and the 2015–16 average of 52 percent.
AfDB says the only exceptions to the regional trend are Tanzania and Uganda. Tanzania’s debt is sustainable in both the short and medium term, and the risk of debt distress remains low.
Similarly, Uganda’s current debt is well below the sustainability threshold, and debt remains sustainable in the medium and long term.
Fiscal and current account deficits and sources of finance
In Uganda, public investment in infrastructure created fiscal stress. To contain it, the government began reforms to strengthen government agency capacity to plan and execute infrastructure projects.
Tanzania is widely accepted as a regional infrastructural hub. There are widespread infrastructural projects than many East African countries comparable to Ethiopia. The East African nation looks at 2018 with a laugh.
AfDB, however, is translated as viewing Tanzania as a model in fiscal policy.
Tanzania’s fiscal policy was expansionary in 2017. The revenues leads to a lower-than-budgeted fiscal deficit of about 3 percent of GDP, compared with the planned deficit of 4.5 percent.
It projects this prudent fiscal policy stance is expected to prevail in 2018 and in 2019 with many East African countries borrowing a leaf from Tanzania.
Domestic resource mobilization
Most African countries do not have a prudent history of innovatively collecting tax as a primary source of financing development. Most nations extended their hands from the Western nations for aid-to-development.
Most of the poorly collected taxes were barely enough to meet their recurrent budgets. Tanzania’s President John Magufuli introduced reforms in Tanzania by broadening tax base and ensuring the collection systems were effective. This way, Dr Magufuli was able to mobilize domestic resources.
Probably this is what makes Tanzania shines on this category. It is termed the second revolution. 2018 has been a great year for Tanzania’s performance.
Nevertheless, the fiscal deficit across the region’s countries, results partly from a weak domestic resource mobilization. With the average regional domestic saving at 12.8 percent of GDP and the investment-to-GDP ratio at 24.2 percent, the domestic resource gap in 2017 stood at about 11 percentage points.
Given the considerable gap between investment and saving, several countries have embarked on a concerted effort to raise saving, enhance tax collection, avoid tax evasion, and increase efficiency of public spending.
In Tanzania, the government continues to mobilize domestic resources by increasing the efficiency of public expenditure.
Dr Magufuli is renowned for his Model, termed Management Efficiency. This is the cornerstone of his reforms in Tanzania. It pays off. Africa needs to improve efficiency in all areas to make a difference.
Former South African President Thabo Mbeki entreats other African countries to emulate Tanzania’s strategy in fighting graft. AfDB says Tanzania reduces corruption, tax evasion and improves tax revenue administration.
Tanzania will also be able to mobilize international resources when it obtains a credit rating. The Bank sees resource gaps persist across countries despite efforts at domestic resource mobilization.
Finance Minister Dr Phillip Mpango says Tanzania continue to formulate and bolster strategies to finance own budget owing to increasingly unmet conditions contrary to Tanzania’s cherished values.
This is the way for Africa’s growth. Africa is the next global economy. This will never happen on a handout economy. Tanzania’s resolve is the way for Africa.
_*This article is a translation from an original analysis that was published in French on 31st December, 2018*_
*4/1/2018, Tunis, Tunisia*
BEING one of the three drivers of East African economy, Tanzania gears towards the East Africa’s best investment destination in 2019 with the region’s lowest inflation rate.
The annual inflation rate in Tanzania fell to 3.0 percent in November 2018 from 4.3 percent in the corresponding period in 2017.
While it is the lowest in the East African region, it is a record low inflation on record, mainly due to a slowdown in cost of food and non-alcoholic beverages.
The other countries featuring in the African Development Bank (AfDB) report as key driver of East African growth are Uganda, Kenya and Ethiopia.
Uganda’s inflation rate stands at 3.3 per cent and Kenya’s, the closest Tanzania’s competitor at 4.8 per cent.
Low inflation has many benefits for the country’s overall macroeconomic stability. Inflation stabilizes the economy, making it predictable which becomes a breed ground for improved investment climate hence an important attraction.
It is a very important factor and indication of a country’s improved economic performance. Apart from Tanzania’s performance, the region’s inflation is expected to slow to single digits at 8.9 percent in 2018 and 7.8 percent in 2019.
Anticipated monetary tightening in Ethiopia, Tanzania, and Uganda, and a neutral monetary policy in Kenya, as well as fairly stable exchange rates in all countries, are expected to slow inflation in the coming two years.
Such low inflation, observed in most countries, with Tanzania leading in the region in 2017, is also expected in 2018 and 2019.
*2017 Country GDP growth rates*
Scanning the 2017 GDP growth, it is Ethiopia that takes the lead at 8.1 per cent, ahead of Tanzania with a growth rate of 7.1 per cent.
Rwanda comes up third in line with 6.2 per cent growth. The report unveils that Kenya and Uganda experienced 5.1 per cent growth each.
However, the African Development Bank (AfDB) notes that Ethiopia’s growth is projected to slow down in 2019. If everything remains constant, Tanzania will step up to take over as the region’s top fastest growing economy.
The report released in December 2018 by AfDB did not detail much on the forecast but Ethiopia’s cost of borrowing could be one of the factors for the slump.
Tanzania’s Smaller Deficit and Sustainable Debit
Owing to African governments’ drive for high growth, investment remained greater than domestic savings in all counties in 2017.
The domestic resource gaps led to considerable current account deficits. Large current account deficits are a major challenge for Burundi, Djibouti, Ethiopia, Rwanda, Seychelles, and Somalia. But Eritrea, Kenya, South Sudan, Sudan, Tanzania, and Uganda faced smaller deficits.
When trade did not provide the resources needed to push growth, the East Africa countries resorted to external resources (FDI, remittances, aid, and borrowing), to address these resource gaps.
Borrowing from both traditional lenders and nontraditional ones (in particular China) is raising debt in the region considerably, affecting the countries’ capacity to repay.
There has been unverified reports on the social media that China was likely to take over properties like airports (Zambia) and Ports (Kenya) for defaulting. However, the alleged reports were refuted but they sum up the situation.
The AfDB report observes that debt affected many countries in 2017 and will continue to do so in 2018 and 2019.
It mentions Ethiopia’s risk of external debt distress raised from low to moderate in 2015 and remained moderate in 2016.
“Ethiopia’s debt reached 54.2 percent of GDP in 2016, and external debt about 32 percent, due to stagnating export revenue and a large gap between imports and exports (about 18.6 percent of GDP),” reads the report.
In Kenya, the debt-to-GDP ratio has increased for the past three years. Currently it stands at 56 percent, higher than the 2010–14 average of 45 percent and the 2015–16 average of 52 percent.
AfDB says the only exceptions to the regional trend are Tanzania and Uganda. Tanzania’s debt is sustainable in both the short and medium term, and the risk of debt distress remains low.
Similarly, Uganda’s current debt is well below the sustainability threshold, and debt remains sustainable in the medium and long term.
Fiscal and current account deficits and sources of finance
In Uganda, public investment in infrastructure created fiscal stress. To contain it, the government began reforms to strengthen government agency capacity to plan and execute infrastructure projects.
Tanzania is widely accepted as a regional infrastructural hub. There are widespread infrastructural projects than many East African countries comparable to Ethiopia. The East African nation looks at 2018 with a laugh.
AfDB, however, is translated as viewing Tanzania as a model in fiscal policy.
Tanzania’s fiscal policy was expansionary in 2017. The revenues leads to a lower-than-budgeted fiscal deficit of about 3 percent of GDP, compared with the planned deficit of 4.5 percent.
It projects this prudent fiscal policy stance is expected to prevail in 2018 and in 2019 with many East African countries borrowing a leaf from Tanzania.
Domestic resource mobilization
Most African countries do not have a prudent history of innovatively collecting tax as a primary source of financing development. Most nations extended their hands from the Western nations for aid-to-development.
Most of the poorly collected taxes were barely enough to meet their recurrent budgets. Tanzania’s President John Magufuli introduced reforms in Tanzania by broadening tax base and ensuring the collection systems were effective. This way, Dr Magufuli was able to mobilize domestic resources.
Probably this is what makes Tanzania shines on this category. It is termed the second revolution. 2018 has been a great year for Tanzania’s performance.
Nevertheless, the fiscal deficit across the region’s countries, results partly from a weak domestic resource mobilization. With the average regional domestic saving at 12.8 percent of GDP and the investment-to-GDP ratio at 24.2 percent, the domestic resource gap in 2017 stood at about 11 percentage points.
Given the considerable gap between investment and saving, several countries have embarked on a concerted effort to raise saving, enhance tax collection, avoid tax evasion, and increase efficiency of public spending.
In Tanzania, the government continues to mobilize domestic resources by increasing the efficiency of public expenditure.
Dr Magufuli is renowned for his Model, termed Management Efficiency. This is the cornerstone of his reforms in Tanzania. It pays off. Africa needs to improve efficiency in all areas to make a difference.
Former South African President Thabo Mbeki entreats other African countries to emulate Tanzania’s strategy in fighting graft. AfDB says Tanzania reduces corruption, tax evasion and improves tax revenue administration.
Tanzania will also be able to mobilize international resources when it obtains a credit rating. The Bank sees resource gaps persist across countries despite efforts at domestic resource mobilization.
Finance Minister Dr Phillip Mpango says Tanzania continue to formulate and bolster strategies to finance own budget owing to increasingly unmet conditions contrary to Tanzania’s cherished values.
This is the way for Africa’s growth. Africa is the next global economy. This will never happen on a handout economy. Tanzania’s resolve is the way for Africa.
_*This article is a translation from an original analysis that was published in French on 31st December, 2018*_
