Tanzania: Bright outlook for further growth, poverty reduction

• Pages: 226-227

Page 226

Tanzania has made great strides in improving its economic performance over the past decade, pursuing an ambitious program of economic reforms supported by official development aid and other assistance from the international community. A recent IMF Working Paper concludes that prospects are favorable for Tanzania to achieve the UN Millennium Development Goal of halving the proportion of people living on less than $1 a day by 2015, if reforms of the rural economy are intensified. Volker Treichel of the IMF's African Department discussed his findings with Jacqueline Irving of the IMF Survey.

IMF SURVEY: The IMF's projections for Tanzania indicate that a continuation of recent policies would allow the economy to grow at 5 percent a year over the medium term.What policies and other factors are driving Tanzania's substantially improved growth performance since the mid-1990s?

TREICHEL: Tanzania's strong growth record over the past decade has largely been the result of three pillars of domestic policy.

The first pillar is macroeconomic stabilization-appropriate fiscal and monetary policies-which has produced a rapid decline in inflation. The second pillar is broad-based liberalization, including liberalization of external current account transactions, the foreign exchange market, and agricultural prices. The third pillar is large-scale privatization.

All of these pillars of policy have had direct, positive effects on economic activity and have, in addition, contributed to higher foreign direct investment [FDI]. And higher FDI has translated into growth in sectors such as mining, tourism, construction, and services in general, and also manufacturing, which has been growing fast, albeit from a very low base (see table). Over the medium term, Tanzania must intensify these policies in certain areas-notably, the agricultural sector and the business environment-to yield more broadbased growth that benefits other sectors of the economy.

IMF SURVEY:Why has poverty declined more in urban than in rural areas since 1995?

TREICHEL: The main reason is that economic growth has been much higher in urban than in rural areas because the three pillars of policy have had larger effects on sectors of the economy predominant in urban areas. For example, the services, construction, and manufacturing sectors are all based in Dares- Salaam, in particular, and have a strong presence in some other cities. Although there are no separate national accounts for the...