The World Bank (WB) has recently released its 2021 Tanzania Economic Update (TEU), a biannual report describing the recent evolution of Tanzania’s economy.
In this 15th issues titles “Raising the Bar – Achieving Tanzania’s Development Vision”, the WB explains that while the Covid-19 pandemic plunged the global economy into a recession in 2020, Tanzania has fared relatively well compared to its regional peers, although economic growth has slowed significantly.
Tanzania 2020 GDP
The real GDP growth rate fell from 5.8% in 2019 to an estimated 2.0% in 2020, and per capita growth turned negative for the first time in over 25 years.
The global economic slowdown has adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment.
Gold has been the sole export to benefit from the crisis, as international gold prices rose sharply between 2019 and 2020.
Although the government did not impose stringent mobility restrictions, the pandemic prompted firms and consumers to adopt precautionary behaviors, hindering domestic economic activity.
Meanwhile, steep declines in production, consumption, and imports have significantly reduced fiscal revenue.
The pandemic has also compounded preexisting challenges in the financial sector, and the share of non-performing loans on bank balance sheets continues to be high, while the growth of credit to the private sector has slowed.
Tanzania’s Economic Outlook in 2021
According to the WB, Tanzania’s economic outlook remains highly uncertain. The annual GDP growth rate is projected to rise to 4.5% in 2021, but this forecast hinges on a strong and consistent recovery in global economic activity.
The epidemiological trajectory of COVID-19 continues to evolve, and a resurgence in infection rates is being reported across much of the world.
Even if Tanzania contains its Covid-19 domestic outbreak, a worldwide health crisis that continues well into 2021 could continue to suppress economic activity.
Tanzania’s tourism sector is especially vulnerable to a downside scenario in which the pandemic persists.
Moreover, capital inflows—including foreign direct investment—remain sensitive to both the economic uncertainty engendered by the crisis and the increasing fragility of global financial markets driven by the sharp rise in debt-financed stimulus spending.
Economic Recovery After 2021
The success of the government’s efforts to improve the investment climate will largely determine whether robust growth can be sustained beyond 2021.
Tanzania has several macroeconomic advantages that favor a swift recovery. It is one of the few economies in the region not to experience a contraction in 2020.
The country’s low risk of debt distress offers some space to prudently utilize
debt financing, and the government’s fiscal position has improved over the last four years, with the fiscal deficit averaging around 2.0% of GDP.
International reserves are relatively high at about five months of import coverage, while a combination of high gold prices and low oil prices is
bolstering the terms of trade.
To capitalize on these advantages and lay the foundation for robust and sustainable long-term growth, the government should seize the opportunity to advance its structural reform agenda.
Structural Reforms
The government has already approved several important measures, including the Blueprint for Regulatory Reform and the Arrears Management Strategy.
Accelerating the implementation of these initiatives while taking additional steps to improve the business climate for domestic and foreign investors will position the Tanzanian economy to capitalize on the anticipated global recovery.