Tanzania looks to further boost growth, intensify poverty reduction efforts
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Since the mid-1990s, Tanzania has made major strides in restoring macroeconomic stability and creating an environment conducive to private sector-led growth. These efforts, aided by two successive financing arrangements with the IMF, have positioned the country to make more ambitious structural reforms. On July 28, the IMF approved a new three-year financing arrangement under its Poverty Reduction and Growth Facility (PRGF). Volker Treichel, Senior Economist in the IMF's African Department, describes Tanzania's considerable progress to date and outlines the steps the country is now embarking on to ensure that higher growth also translates into greater employment opportunities and reduced poverty.
During 1996-2002, Tanzania translated several major achievements on the policyPage 222 front into impressive economic progress. The country boosted average annual real GDP growth for the period to about 5 percent- roughly doubling the average rate recorded for the preceding five years. From 1999 onward, annual inflation dipped to roughly 5 percent-a sharp decline from the nearly 30 percent a yearinflation experienced during 1990-95 (see table below).
What has accounted for the country's marked turnaround? Clearly, sustained liberalization efforts, in particular in the agricultural sector, helped invigorate the economy, as did the start-up of large-scale gold mining and tourism projects. Also, construction and manufacturing activities picked up in response to the government's efforts to improve the business environment.
On the fiscal side, budgetary restraint was central to achieving macroeconomic stabilization. Tanzania's adjustment and reform program also drew strong donor support, which provided sizable financial assistance that all but eliminated the government's domestic financing needs (a major source of inflationary pressure in the past). In addition, tightened expenditure controls-notably the adoption of a centralized payment system and limiting spending to cash availability-further improved public finances.
In parallel with these reforms, the government undertook a wide range of measures designed to replace remnants of Tanzania's socialist economy with a more market-oriented economy that could help stimulate private sector activity. In this context, the trade regime...
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