Tanzania’s middle-income status based on solid growth: IMF envoy

Tanzania has for more than a decade now maintained steady economic growth averaging around seven per cent per annum. And since President John Magufuli came to power in 2015, his government has maintained the momentum, with particular focus on the country’s industrialisation. In July, the country joined economies in the lower middle-income category ahead of the projected year, 2025. In this interview with our Senior Special Correspondent COSTANTINE MUGANYIZI, the new IMF Resident Representative in Tanzania, JENS REINKE, sheds light on the middle-income state development and other related issues, such as the impact of Covid-19 pandemic on the national economy.

QUESTION: What was your last station and job before coming to Tanzania and what impression did you have of the country and the one thing you knew better about it?

ANSWER: From 2014 to 2018, I was the IMF Resident Representative in Albania. Then I returned to the IMF headquarters in Washington, DC, and worked in the European department until I was selected for my current position in Tanzania. Albania and Tanzania are two very different countries, but they have more in common than expected. Both countries were very poor only a generation or two ago, but are now rapidly developing and both have reached middle income status. The challenges are similar too: building stronger institutions and improving the governance of the economy, improving competitiveness, investing wisely in education, accelerating industrialisation and promoting exports. There’s something else the people have in common: both Tanzanians and Albanians are very hospitable and know how to have a good time.

For how long have you been around as IMF Resident Representative, and from the people you have so far met and the places you have managed to visit, what is your take of the country in terms of its people, leadership and growth prospects?

I came to Tanzania for my current assignment in January 2020, but my fascination with Tanzania was ignited when I came as a young volunteer for the Lutheran Church, over 30 years ago, to spend time in a small village in Mwanga District. Since then, I have regularly visited the country, for work and personal reasons, spending time in Dar es Salaam and several regions. What strikes me now is how far Tanzania has developed in one generation and how much potential the country still has. In the late 1980s, there was little to buy in the shops and people had no money to buy the little there was. People are busier now and it is much easier to get around. There is a new urban middle class and more opportunities for many. Unfortunately, however, poverty still persists. With its people, its natural resources and hard work, Tanzania can and must go much further in development.

How is the management of the national economy viewed by the IMF head office in Washington?

Current policies build on the macroeconomic successes of the past and address some weaknesses that have emerged. First, the focus on fiscal and macroeconomic stability continues.

Although the level of government revenues in relation to the GDP is relatively low, there are efforts to raise the revenue base and improve tax administration. We support these efforts with technical expertise. Public debt levels remain manageable - we consider Tanzania at low risk of debt distress. Tanzania has established a strong external position and an adequate level of foreign exchange reserves.

The current government identified the need to improve governance, notably through fighting against corruption and eliminating non-priority or wasteful fiscal spending. We also see a renewed focus on public infrastructure investment, which has become a new driver of economic growth. These measures will improve the rule of law and raise Tanzania’s growth potential if implemented well.

To sustain long-term growth and generate additional employment, private sector development will also be crucially important. In our view, the business environment could be improved with more vigor, for example by accelerating implementation of the “Blue Print”. The Tanzanian government tends to approach reform in a cautious way, but urgent challenges (such as the pandemic’s impact on economic growth) call for more rapid action.

For many years, Tanzania was regarded the “darling of development partners,” What is your view of the government’s resolve and stance to cut and ultimately do away with donor dependence?

From the perspective of the IMF, we have a strong and robust relationship with Tanzania - we are permanently engaged bilaterally and through the East African Community.

We also have a regional center for capacity building in Dar es Salaam, which is a sign of our confidence in the country. The IMF is a membership-based organization, much like a SACCO, and Tanzania is one of our members. It is my personal goal during my tenure here to help Tanzania reap maximum benefits from its membership in the IMF.

Tanzania’s aid dependence is indeed diminishing. I see this as a positive effect of the country’s economic and social development. Continued cooperation with international partners, including multilateral agencies and bilateral donors, nonetheless remains important. I strongly believe that the big challenges facing us – poverty, climate change, or the current pandemic – can only be solved through global cooperation.

Tanzania has now joined the club of lower-middle-income states ahead of the envisaged time. Comment on what that stage of economic development and pivotal step in ending abject poverty in the country entails and signifies.

Let me point out that Tanzania has enjoyed a record of strong economic growth and stability for over a decade now. Every Tanzanian who worked hard for this achievement can be proud, including wananchi, workers, business and political leaders. In my view, it is less important if an arbitrary benchmark has been passed today or tomorrow. What really matters is that the economic lives of Tanzanians are getting better in an equitable and sustainable way.

Despite the success we are celebrating now, much remains to be done. Continued reforms in economic governance are needed to sustain high growth rates. Poverty has not always been reduced as quickly as high GDP growth rates would suggest, and future growth should be more inclusive in this respect.

While Tanzania’s many young people are part of the country’s wealth, they need to have access to good, modern education so they are ready for working in an industrializing economy. The business environment needs further improvements to enhance competitiveness, to benefit export performance and consumers. Tanzania is a richly endowed country with the potential for strong development. Some of the potential has however yet to be unleashed.

Do sceptics who claim that the national growth statistics provided by the authorities should be independently verified have a point? If their claim is valid, why is it important?

At the IMF, we remain closely engaged with the National Bureau of Statistics (NBS). We discuss their data and provide technical assistance and training to improve the accuracy and timeliness of data as well as the scope of statistics. Yet when discussing data, some humility is advisable. Nobody knows as much about Tanzania’s data sources and compilation practices as NBS. National accounts statistics are by necessity estimates. They are frequently revised when additional data become available. To those who doubt Tanzania’s growth record, I offer the following observation: every couple of years Tanzania (like other countries) rebases its GDP estimates, and, like other countries, it has often found that the GDP was actually higher than previously known.

Before the recently approved US$14.3 million debt relief under the Catastrophe Containment and Relief Trust (CCRT), the last time Tanzania accessed IMF financing was about 12 years ago. Why was that so?

The IMF engages with its member countries through three activities: capacity building, which includes technical assistance and training, policy dialogue, and, when in need, lending. Tanzania has for many years availed itself of many services we offer. There is a very active capacity building programme, with regular technical assistance to government and the Bank of Tanzania, and Tanzanians participating in training both regionally and at our headquarters in Washington, DC.

We maintain a robust policy dialogue, including at times through non-financial programmes (policy reform programmes of the government that we support through the provision of expertise). At other times, the Tanzanian government has found it beneficial to borrow from us through financial programmes (policy reform programmes of the government that we support also through loans). Tanzania’s strong economic record in recent years has reduced its need for financial support. Nonetheless, we stand ready to support Tanzania, like any other member country, through lending when requested.

Would debt cancellation not have been much better instead of the CCRT? Does the country have what it takes to weather the dire Covid-19 socio-economic effects?

Tanzania is in a strong position to deal with the economic consequences of the Covid-19 pandemic but could do more to soften the impact on vulnerable people and sectors.

The public health impact of the pandemic appears to have been comparatively low, but the global economic dislocation is inevitably affecting Tanzania. Low prices on imported oil and high gold export prices are providing a cushion against losses in business and foreign exchange earnings in other sectors. Nonetheless, several sectors, particularly the travel and tourism industry, are suffering sharp drops, thus affecting their staff, suppliers and the wider economy. Employment is likely to fall and poverty could rise as a result.

The government has faced difficult choices in recent months. Measures to strengthen the public health response and helping the economically vulnerable added to the spending pressure on the government, while lower economic growth made revenues harder to raise.

The government therefore had to be rigorous in focusing on priority spending while strengthening efforts to improve fiscal revenue performance. Tanzania also has many friends who stand ready to support the country when in need. To leverage this goodwill, transparency and cooperation with international partners could be further improved.

In the latest IMF country report, it is stressed that structural reforms remain crucial to support robust economic recovery. Can you shed more light on that and expound on the areas the government should focus on for that to quickly happen, namely addressing arrears on VAT refunds and government expenditures, enhancement of human capital and betterment of the business environment, as well as improvement of affordability of bank credit?

Tanzania has enjoyed exceptional growth for many years. Maintaining such a pace calls for radical actions. You already mentioned the core reforms that are necessary. They generally focus on a more efficient state, a more competitive private sector, and a more productive workforce. In the area of tax, revenue levels should be raised in a sustainable way while making the Tanzania Revenue Authority (TRA) more customer-friendly with more predictable and faster processes.

Government arrears, both from tax refunds and from the acquisition of goods and services, should be avoided. More robust investment planning (including transparent cost/benefit analyses) and strengthened expenditure control will give the government better value for its spending, something that the current government is very interested in.

Regulation and the requirement for permits and licences and associated fees should be streamlined and simplified. This would reduce the costs of operation to enterprises, making them also better placed to compete internationally.

Free universal primary education was an important step in the right direction, but access to further education and its quality also need to be improved. Tanzanian schools, colleges and vocational training institutes do not always equip young citizens with the best skills for a modernising economy. To put it simply, maintaining high growth rates calls for hard work!