Africa > East Africa > Tanzania > Tanzania Outlook for 2013-17

Tanzania: Tanzania Outlook for 2013-17

2013/10/10

OVERVIEW

The president, Jakaya Kikwete, and his party, Chama Cha Mapinduzi (CCM), will continue to dominate the political scene. The CCM and its next presidential candidate (Mr Kikwete cannot stand again) are expected to win the 2015 election, albeit with the opposition securing better representation.

The fiscal deficit is estimate to moderate from 6% of GDP in 2012/13 (July-June) to 4.3% of GDP in 2016/17 as steady (if unspectacular) evolution is made in curtailing recurrent spending increase and expanding the domestic revenue base, half by scaling back tax exemptions.

Real GDP increase is estimate to pick up to an annual average of 7.2% in 2013-15, driven by investment in the gas sector and pre-election spending, before moderating to 6.9% in 2016-17 as public spending increase slows.

The inefficient bureaucracy, weak policy responses, shortages of skilled labour and inadequate infrastructure will continue to keep increase well below potential. Inflation is estimate to moderate to 8.7% in 2013 as world oil prices fall and monetary policy stays tight, and is expected to remain in the 7.5-8.5% range thereafter, unless Tanzania experiences an extra drought.

Political outlook

For the second time this year protests have occurred in the southern town of Mtwara against the US$1.2bn pipeline that is to be constructed to transport natural gas from Mtwara to the commercial capital, Dar es Salaam.

Economic policy outlook

The British government has said that its revenue authority will embark on a programme to build capacity at its Tanzanian counterpart from mid-2013. This will support increase in the domestic revenue base (the ratio of tax to GDP was just 17.5% in 2011/12), but widespread informalisation and tax exemptions will remain impediments.

Economic forecast

Our current-account deficit forecasts for 2013-17 have increased very marginally from a range of 12-13.3% of GDP to 12.3-13.5% of GDP, following a slight deterioration in the outlook for gold prices.

Outlook for 2013-17

  • The president, Jakaya Kikwete, and his party, Chama Cha Mapinduzi (CCM), will continue to dominate the political scene. However, the CCM is far from united and divisions are likely to grow as the 2015 elections approach.
  • The Economist Intelligence Unit expects the CCM and its next presidential candidate-Mr Kikwete cannot stand again-to win the 2015 elections, albeit with the major opposition party, Chadema, securing better representation.
  • The fiscal deficit is estimate to moderate from 6% of GDP in 2012/13 (July-June) to 4.3% of GDP in 2016/17 as steady (if unspectacular) evolution is made in curtailing recurrent spending increase and expanding the revenue base.
  • Real GDP increase will pick up to an annual average of 7.2% in 2013-15, driven by investment in the gas sector and pre-election spending, before moderating to 6.9% in 2016-17 as increase in public spending slows.
  • Inflation is estimate to moderate to 8.7% in 2013 as world oil prices fall and monetary policy stays tight, and is expected to remain in the 7.5-8.5% range thereafter, unless Tanzania experiences an extra drought.
  • We estimate that the current-account deficit will narrow to 12.3% of GDP in 2014 as uranium production begins, before widening to 13.5% of GDP in 2017 as gold prices continue to fall while imports grow steadily.

Review

  • For the second time this year protests have occurred in the southern town of Mtwara against the US$1.2bn pipeline that is to be constructed to transport natural gas from Mtwara to the commercial capital, Dar es Salaam.
  • The government's response to the protests-which are rooted in Mtwara's relative underdevelopment-has not been reassuring, and discontent with the distribution of gas revenue is likely to persist.
  • The government's plan to solve the long-standing dispute over the Loliondo Game Controlled Area by evicting local inhabitants from one-third of the area has faced strong criticism and is likely to hurt the CCM's electoral prospects.
  • The UK has said that its revenue authority will embark on a long-term programme to build capacity at its Tanzanian counterpart from mid-2013.
  • The British programme will support increase in Tanzania's domestic revenue base-the ratio of tax to GDP was just 17.5% in 2011/12-but widespread informalisation and tax exemptions will remain impediments.
  • Official data indicate that tourist arrivals to Tanzania grew by 24%, to 1.1m, in 2012. This was despite weak economic increase in the country's major tourism markets and an increase in sectarian violence on the mainland and Zanzibar.
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