Tanzania Economic Outlook

  • The United Republic of Tanzania’s economy grew by 7.3% in 2013, driven by continued strong performance in most sectors and supported by public investment in infrastructure, with growth projected to remain above 7% in the medium term.
  • The draft new constitution proposed by the Constituent Assembly in October 2014 preserves the existing two-government union structure, with a Union government for the mainland and Zanzibar and a separate government of Zanzibar.
  • Spatial exclusion is high in Tanzania, mainly due to regional disparities, but inclusion could be increased by boosting agricultural productivity, supported by rural infrastructure investments and improved connectivity between rural and urban areas.

The Tanzanian economy has continued to perform strongly, recording growth of 7.3% in 2013, up from 6.9% in 2012, driven by information and communications, construction, manufacturing and other services. Medium-term prospects are favourable, with growth projected to remain above 7%, supported by public investments in infrastructure, particularly in the transport and energy sectors. Agriculture remains the mainstay of the economy, employing the majority of the workforce, but the sector is plagued by infrastructure gaps and low productivity. Despite Tanzania’s impressive macroeconomic achievements, growth is not sufficiently broad based, and poverty levels remain high. A recent household budget survey indicates that 28.2% of Tanzanians are poor, and poverty remains more prevalent in rural than in urban areas.
Inflation has stabilised at single digits over the past year, declining to an annual average of 6.8% in 2014 due to prudent monetary policy, a favourable food situation and declining fuel prices. Export performance remains strong, driven by gold and tourism/travel receipts. But the import bill has grown, mainly due to imports of capital and intermediate goods, particularly oil, keeping the current account deficit wide at around 11% of GDP. The foreign reserves position has remained healthy, with 4.1 months of import cover.
Tanzania has continued to maintain a healthy fiscal position, keeping the deficit at sustainable levels and managing expenditure growth in line with the broad objective of sustaining macroeconomic stability. In the medium term, the fiscal deficit is projected to be maintained at around 5-6% of GDP, while expenditures and government net lending are projected at around 25% of GDP, in line with targets of the Policy Support Instrument programme. Financing uncertainties emerged in the first half of fiscal year 2014/15 due to delayed disbursements of budget support funds by development partners, partly resulting in the frontloading of government domestic borrowing to finance development projects.
Spatial inclusion remains problematic in Tanzania, mainly due to regional disparities. The poorer regions are predominantly rural and their economies are much less diversified. Agriculture is the main economic sector in these areas, with low productivity and low-paying employment. As a result, per capita incomes in these regions are less than half that of Dar-es-Salaam, the wealthiest area. And the poverty rate is eight times higher than in Dar-es-Salaam. To increase spatial inclusion, Tanzania needs to boost earning opportunities for the rural population, mainly through improved productivity in agriculture supported by rural infrastructure investments, particularly rural roads, and improved overall connectivity between rural and urban areas.