A bright prospect for Tanzania’s economy post Covid-19 pandemic - MTAA KWA MTAA BLOG


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Monday, August 8, 2022

A bright prospect for Tanzania’s economy post Covid-19 pandemic

By Esther Maruma, Head of Markets, Absa Bank Tanzania

The Covid-19 pandemic has been quite a significant challenge to the global economy. Many countries continue to grapple with effects of the epidemic to date, with the level of global GDP in 2022 still punching below pre-pandemic projections and Per capita GDP among many emerging markets and developing economies anticipated to remain below pre-Covid-19 peaks for an extended period.

Despite the East African region maintaining a growth edge over its Sub-Saharan and global peers, as measured by the “lost opportunity”, Covid-19 has cost East African countries an estimated 4-10 per cent of output.

Cause for optimism

Tanzania economic outlook is very promising, with the country having been less impacted than regional peers through the turbulence caused by the Covid 19 pandemic. While many regional economies contracted during 2020 due to Covid-19, Tanzania’s economy showed littles signs of contractions and seemed to be pulling ahead of its peers. This is evidenced by the just-released panoramic and comprehensive analysis of the local economic prospects.

Tanzania’s economy is expected to continue to improve post Covid-19 pandemic helped by the government’s vaccination efforts, supportive macro-economic policies, and favorable financial conditions.

Even though Tanzania was late in rolling out Covid-19 vaccinations, the government has made tremendous efforts, through mass campaigns, in driving Covid-19 inoculation within the country’s population.

According to the Ministry of Health Covid 19 Situation Report, as of March 18, 2022, a cumulative total of 2,955,650 people had been fully vaccinated, with the government continuing to sensitize more people to take the shots. The increased population immunity against Covid-19 is expected to have positive impact on the economy with most of the population remaining healthy and productive.

For two years, mining has been the strongest performer, with tourism maneuvering a buoyant come-back from under the pandemic turmoils to take an upward swing.

Mining grew at 10% in 2021, up from 6.6% in 2020. during the same period year-on-year, construction showed a decline to 4.3% from 8.7%, transport slowed to 3.5% from 8.4%,manufacturing expanded to 5.1% from 4.5%. On the other hand, agriculture contracted to 3.1% from 4.9% as trade showed a recovery to 4% from 2.1%. Food and accommodation, which was struggling at -14.1%, rejuvenated to cruise at 6.7%.

The Tanzanian environment is supportive despite Covid challenges. There have been key interventions in health, education, water and sanitation, tourism, and SMEs.

Another area of intervention is social protection – improving targeted poor household’s access to income earning opportunities and social services, spearheaded by monthly bail-outs to households via Tanzania Social Action Fund (TASAF).

In addition, there have been accommodative macroeconomic and financial policies to moderate pandemic fallout and support economic recovery, featuring some bold expansionary fiscal and monetary measures.

These include boosting health-related spending, Discount rate cut and minimum reserve lowering, special loan facility to banks for on-lending, relaxation on the policy limiting loan restructurings.

The government is also continuing to carry out structural reforms to improve the business environment, a move that wields potential to upgrade the Doing Business in Tanzania index and magnetise Foreign Direct Investment.

Investment continues to support long-term economic growth. It is estimated that total investment as percentage of GDP is forecast to grow at about 36 per cent in 2022.

There is also a broad infrastructure push, looking to improve transport links, access to water and energy availability. Among the flagship projects that has been driving investment tempo in Tanzania include Mchuchuma-Coal and Liganga-iron, standard gauge railway line, crude oil pipeline project from Uganda, LNG plant in Lindi, Ruhudji Hydropower project, Nickel Mine and soda-ash projects and the blue economy.

Tanzania’s credit growth is showing a sharp recovery better than the global average, looking at on year-on-year basis. In January 2021, private credit growth was about 3 per cent, but has since soared along an upward trajectory to perch at about 13 per cent in January 2022.

Headwinds to watch out for

There are several factors to watch that are likely to affect the outlook of our economy. These include the inflationary impact of the Russia/Ukraine conflict, trajectory of the Covid-19 pandemic globally and domestically, and the path towards vaccination, global growth and commodity prices, geopolitical concerns, volatile weather conditions, Budget development, LNG discussions and EACOP (pipeline) construction.

Global growth is projected to slow down from 6.1% in 2021 to 3.6% in 2022 and 2023 as a result of economic turmoil from the Russia-Ukraine conflict, the ongoing conflict between Russia and Ukraine is expected to affect the global economy via impact of financial sanctions, higher commodity prices and supply-chain disruptions.

Higher inflation and higher US policy rates together are likely to see regional interest rates rise. Even with policies to ease the pass through of higher fuel and food prices, inflation is expected to jump higher, with ultra-low policy rates set to shift higher. In early June, the MPC appear to indicate that it is maintaining the current stance given its expectations for inflation to remain within target.

We expect the current accommodative stance to be maintained through much of 2022 although rising inflation and a further strengthening of economic conditions could see a policy rate hike by year-end.

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