Tanzanian economic growth hampered more by inflation,deficits

Special Report:Global Financial Crisis

By Yi Gaochao

DAR ES SALAAM, Feb. 7 (Xinhua) -- Economists and analysts have warned that Tanzania's economic growth may well be affected by such adverse factors as inflation, current account deficit, low level of domestic revenue rather than reduced international aid inflow amid the ongoing financial crisis.

As government officials are blaming the global financial crisis for difficulties in implementing the 2008/2009 budget, economists from the University of Dar es Salaam (UDSM) have pointed out that the shortcomings in implementing the budget were more as a result of internal factors than the repercussion of the global meltdown.

UDSM scholar Haji Semboja argued that the governmental authorities should have taken enough precautions to contain the possible adverse effects of the financial crisis which actually started in 2007.

An International Monetary Fund report has warned that lower growth would dampen government revenues, suggesting that the current path of spending would lead to widening fiscal deficits and a financing gap.

The IMF has identified that the real weaknesses of Tanzania's economy was its huge current account deficit which averages 13.3 percent of the country's annual gross domestic product over the 2005-2011 period.

Local economists have added low level of domestic revenue as another adverse factor to affect the country's growth.

In the current fiscal year ending in June this year, domestic revenue is projected to account for 16 percent of the GDP. The ratio was 12.5 percent two years back.

Though local economists believe that foreign aid would not reduce only because of the ongoing financial crisis, the country's reliance on international aid has been criticised by local analysts and critics.

They have argued that after nearly half a century of donor assistance, Tanzania can still not finance either its budget or its balance of payments.

The country relies on foreign aid for above 10 percent of its GDP and on direct foreign investment for above four percent of its GDP so as to compensate for the gap left by more government spending than domestic revenue.

Local economists have even proposed that the Tanzanian authorities should forecast a gradual reduction in aid inflows and instead promote a steady increase in domestic financing, taxing and borrowing, and whip up a substantial rise in exports to narrow the trade gap.

Doctor Haji Semboja has recommended that the government's medium- and long-term strategies should be to reduce donor dependency and to do more by the country itself.