Tuesday, March 1, 2011


By Alawi Masare
The Citizen Reporter

Dar es Salaam. The Bank of Tanzania (BoT) says the economic growth projection of seven per cent this year will be attained despite persistent power problems.But some local economists accused the central bank of underestimating the devastating effects of power cuts attributed to a drastic fall in generation capacity.

The power crisis has led to the closure of 50 factories, according to industrialists, but the BoT says in a statement that the risk posed by load shedding, increased power tariffs, drought and high oil prices will be overridden by the global economic recovery, “which will lead to the strengthening of economic activity in the second half of 2010/11 fiscal year”.

“Economic activity is expected to strengthen further in the second half of 2010/11, as the global economy continues to improve. This will provide room for increased revenue collection and also higher levels of credit growth,” says part of the Monetary Policy Statement (MPS) released this week.

But economists, who spoke to The Citizen, said the BoT was being “too optimistic” in such a difficult time for the economy and had underestimated the influence of the prevailing challenges on economic growth this year.

Dr Honest Ngowi of Mzumbe University Business School said the acute electricity shortage would “definitely” hurt industrial production and consequently lead to massive losses to businesses.“I don’t see the economy growing at that level. The power rationing and tariff increase will not only affect operating industries, but is also likely to scare away new investments,” he said.

Dr Haji Semboja, a lecturer at the Economics Department of the University of Dar es Salaam, described the BoT’s assessment as “unrealistic”, saying the prevailing challenges could not lead to good economic performance.

“How can the economy grow while production is declining and some industries are closing down?” he asked.
The BoT says in the report, which is published twice annually, that the recovery of the global economy is expected to boost revenue collection and increase credit to the private sector.

The central bank, however, warns that the prevailing challenges may pose a risk to the expected economic improvement in the second half of 2010/11.“The Bank of Tanzania’s policy in the second half will be mindful of these challenges and take appropriate measures to mitigate them,” it says.

The executive director of Research for Poverty Alleviation (Repoa), Prof Samuel Wangwe, cautiously agreed with the BoT’s assessment.“The projection of the seven per cent growth has taken care of the prevailing challenges. If we did not have these electricity problems, the economy would have grown more than that,” he said.

But Dr Ngowi said security issues such as last week’s munitions explosions in Dar es Salaam were a threat to the economy as they could scare away investors and tourists.According to the BoT, the economic performance and outlook for Tanzania remain strong and following the good performance in the first half, the projected growth of seven per cent for 2010 is likely to be attained.

The fiscal policy statement also indicates that real gross domestic product (GDP) grew by 7.1 per cent in the first half of 2010 compared to 4.3 per cent recorded in the corresponding period of 2009.The higher growth rate emanated from strong performance in agriculture, construction, manufacturing, transport and communications, fishing and real estate.

Growth of credit to the private sector continued to improve following recovery of banks’ confidence in the economy after the global financial crisis. In the year ending December 2010, credit grew by 20 per cent far above 9.6 per cent recorded in the corresponding period a year earlier, and slightly higher than the target of 19.2 per cent for last December.

On the fiscal side, the statement shows that total domestic revenue collections for the first five months of 2010/11 reached Sh2 trillion, equivalent to 93.6 per cent of the target of Sh2.2 trillion for the period, while foreign programme assistance for the first half of 2010/11 was $878.6 million compared to the projected level of $643.0 million.


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