July 18, 2019 / 7:47 AM / a month ago

World Bank contradicts Tanzania's growth estimates

NAIROBI, July 18 (Reuters) - Tanzania’s economy expanded 5.2% in 2018, the World Bank said on Thursday, the second major report this year from a multilateral financial institution contradicting rosier government figures.

Tanzania’s finance minister had told parliament last month that growth was 7% last year

In a report, the World Bank, which makes its calculations based on state data, also forecast 2019 growth at 5.4% - again lower than the government’s estimate of 7.1%.

Last year’s growth was affected by a decline in investment, exports and private lending, the report said.

“Data related to consumption, investment and net trade suggest that growth softened in 2018,” it said.

President John Magufuli embarked on an ambitious programme of industrialisation after coming to power in 2015, investing billions of dollars into infrastructure, including a new rail line, reviving the national carrier and a hydropower plant.

But government interventions in mining and agriculture have led to declining investment in east Africa’s third largest economy. Foreign direct investment has more than halved since 2013, while private sector lending growth plummeted to less than 4% in 2018, far below the 20% average between 2013-16.

The World Bank report follows an unpublished International Monetary Fund (IMF) report in April that also raised questions over Magufuli’s handling of the economy.

A leaked version of the report, seen by Reuters, accused the government of undermining the economy with “unpredictable and interventionist” policies, saying medium-term growth would be around 4-5 percent, again below official forecasts.

In its report, the World Bank said investment growth was subdued partly because of government struggles to meet spending targets in development projects.

The economy could grow to 6% by 2021 “with a modest improvement of the business climate and a pick-up in [foreign direct investment] and other private investment,” the bank said.

Other economic indicators also point to a slowing economy.

The current account deficit widened to 5.2% percent of GDP in the year ending January 2019, up from 3.2% a year earlier, the bank said. The value of exports dropped nearly 4% last year, partly because the government banned cashew exports, a major foreign exchange earner, due to low prices.

On the other hand, the construction of the standard gauge railway and expansion of Dar es Salaam port helped drive up the value of imports by 7.8%, the World Bank said.

The government should minimise economic risk by improving the business environment and fiscal management, it recommended.

Globally, Tanzania is also vulnerable to weaker demand, tighter financing conditions, and higher international energy prices, it said. (Reporting by Omar Mohammed; Editing by Katharine Houreld and Andrew Cawthorne)

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