Economists caution on cost-cutting

Tanzania's President John Magufuli delivers a speech during his swearing in ceremony in Dar es Salaam, on November 5, 2015. PHOTO | DANIEL HAYDUK | AFP 

JAFFAR MJASIRI

SOME economists have cautioned on the benefits of austerity measures being enforced by the government, calling for proper monitoring of the cost-cutting drive to ensure broader national goals are not compromised.

Professor of Economics Mzumbe University, Honest Ngowi told the’Sunday News’ that despite the good intention of the government to cut down unnecessary spending the measures have to some extent adversely affected a number of businesses. He advised that austerity measures should be taken cautiously with the vision to attain national goals.

“Such measures should not be taken for the sake of taking austerity measures just to please the president, ministers and regional and district bosses,” he cautioned. President John Magufuli has implemented a series of austerity steps since he was sworn in on November 5, including cancelling Independence Day (December 9) festivities and restricting foreign travel by public officials.

As part of belt-tightening measures the State House early last month announced that officials will not be allowed to send out the usual government printed Christmas and New Year greeting cards. It said: “The funds set aside for the cards should be used to pay off debts that government ministries, departments and institutions owe citizens and other creditors for goods and services rendered or should be directed towards other priority areas."

Since November 5, the presidency has issued a raft of instructions to curb government spending, winning praise from citizens, local and foreign institutions including the International Monetary Fund (IMF).

There has for long been widespread concern about officials who are said to have abused office, engaged in grand corruption, profligate spending and outright theft.

Prof Ngowi, however, cautions that some local institutions have already been affected, due to the austerity measures introduced by the government. “I have not done any research on the performance of such entities in the market, but there are media reports that have indicated that hotels, airlines and others have experienced slowdown in their businesses,” he explained.

He also said that some institutions organising conferences abroad may hesitate inviting Tanzanian participants due to fear of travel restrictions. “An institution in Zimbabwe that trains on microeconomic development issues has experienced low participation of Tanzanians. I am afraid this might stop institutions inviting Tanzanians,” he explained.

“Some government employees probably feel stressful to apply for such trips because of the cumbersome process of acquiring permit to travel abroad,” he said.

In the same context the philosophical foundation of Adam Smith, an authority in austerity measures, explains that in economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. “Austerity is a state of reduced spending and increased frugality in the financial sector.

Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to curb budget deficits,” says the Adam Smith Institute on its website.

While on the other hand the contemporary Keynesian economists argue that budget deficits are appropriate when an economy is in recession, to reduce unemployment and help spur GDP growth.

According to them, an economy, one person’s spending is another person’s income. In other words, analysts argue that if everyone is trying to reduce their spending, the economy can be trapped in what economists call the paradox of thrift worsening the recession as GDP falls.

In another development, an independent economist who preferred anonymity commended the government on the measures taken so far to reorganise the economy. He described the measures taken by the government as a step in the right direction. He said: “Government expenditure should be able to push the economy

. Where the expenditure is realistic it does have impact to the economy by creating demand.” He was optimistic that this shift of government spending directed to the regions and districts will definitely stimulate and accelerate economy.

Another government employee based in Dar es Salaam working in one of the local banks, Mr Steven Kibo, said employees should team up to demand for salary increase and reduction of income tax, instead of focusing on allowances.

A survey conducted by this paper in the three Municipal Councils namely Ilala, Kinondoni and Temeke indicated that supermarkets have been running smoothly despite the austerity measures. A sales clerk at the Game Shopping centre in Mlimani City, Mr Juma Hassan, said that sales were running smoothly, except that in the month of January most families reduced spending for their domestic consumption.

One of the shoppers who was at Nakumatt, Ms Husna Juma, told this reporter that in January mostfamilies were tightening belts because of some overhead costs such as school fees and other back to school requirements.

But recent reports show that some airlines, hotels had their business plummet. It is understood that the government spending has shifted to regions and districts.

Such places have now created demand and the suppliers have reasons to increase production. Some hotels including New Africa Hotel, Holiday Inn, Kilimanjaro Kempinsky Hotel declined to respond to the survey, saying they were avoiding to be the centre of political debate on public spending. Meanwhile, some showrooms selling vehicles attributed reduction of sales to inflation, saying that the economic crunch has turned away many customers, adding that the shift in expenditure could also have contributed to the slowdown in sells.

“The depreciation of shilling affects the price pegged on the vehicle since those who have saved for the purchase because of the crunch have to top up what they have to make the purchase,” said a prospective customer, Christopher Masanja who was at the showroom conducting market survey.

Another businessman, who identified himself as Khamisi Nassor, running one of the showrooms in Kariakoo complained that the increase in vehicle import levy to five million shillings this year, from four million last year, has affected the price tool, deterring customers from making purchases because of increase in prices. Some teachers who spoke to this paper said that they praised the shift in expenditure from unnecessary spending, while giving priority to education and health sectors.

“We all know that teachers were not paid, as well as deficiency of doctors in regions and districts. The government is getting rid of unnecessary demands and expenses and improving the provision of basic services such as health and education,” said a secondary school teacher, Mr Joseph Anthony in Temeke.

IMF recently commended Tanzania for instituting costcutting measures, saying it also welcomed adjustment of the 2015/16 budget to prevent building up of arrears.

The Breton Woods institution welcomed the austerity measures by the government as a necessary measure to contain accumulation of arrears, cautioning, however, that implementation of the 2015/16 budget faced challenges arising from possible shortfalls in financing and revenue and unbudgeted expenditures carried forward from 2014/15.

“Against this backdrop, early action to adjust the budget is welcome and will help prevent further arrears accumulation,” IMF Deputy Managing Director and Acting Chair, Mr Mitsuhiro Furusawa, said in a statement after completion of the Third Review of Tanzania’s economic performance under the programme supported by the Policy Support Instrument (PSI).

IMF said macro-economic performance remained strong and medium-term prospects are favourable although there were mixed performance on implementation of programmes under the Policy Support Instrument (PSI), which slowed ahead of the October 2015 elections.

Recently the World Bank has commended President John Magufuli’s austerity measures including his efforts to increase internal revenue collection, cut unnecessary government expenditures and what the global financial authority described as “his determination to improve the people’s welfare.”

World Bank Country Director for Tanzania, Burundi, Malawi and Somalia Bella Bird made these remarks when she paid the courtesy call on President Magufuli at the State House in Dar es Salaam