By CHRISTOPHER KIDANKA
In Summary
Economists predict a gloomy year ahead as the private sector
continues to shrink due to austerity measures by President John
Magufuli’s government, which is keen on procuring goods and services
locally.
Prof Honest Ngowi, an economist at Mzumbe University, says
Tanzanians should expect high tax rates, increased nuisance tax and
declining lending by banks.
The government has already barred its institutions from
depositing their funds in commercial banks, with Tsh500 billion ($231.5
million) already withdrawn from 54 banks and deposited in the central
bank.
Prof Ngowi told The EastAfrican that the current cash crunch will continue to bite.
“The government is the biggest buyer of goods and services, and
the directive to trade locally will continue to bite as long as it
stands,” he said.
Recently, the Magufuli administration issued a directive to all
central government and local government authorities, public institutions
and statutory corporations to engage in government-to-government
business dealings, a move analysts say could negatively affect private
sector companies.
According to the guidelines for the preparation of the
government budget for the year 2017/18, issued by the Ministry of
Finance and Planning, accounting officers of all public entities are to
stop buying goods and services from private firms and instead deal with
state-owned enterprises.
Prof Ngowi cited poor rains, which will hurt food security and
accessibility of energy as hydro-power generation dams are likely to
experience a decline in water levels — as another danger sign.
“The weatherman’s warning on low rains next year is of concern
because it will not only bring about food insecurity but also a power
crisis as the nation depends on it for 48 per cent of electricity
generation,” he said.
Prof Ngowi added that the economic situation will also depend on
other issues such as new administration in the US and how China’s
economy performs in 2017.
“There is a direct link between China’s economy and Tanzania’s
and we will need to see how the new president of the US will behave on
aid and trade with Africa,” he said.
Prof Ngowi said government-to-government dealing will adversely
affect the private sector and lower its capacity to employ and pay tax.
As a result, government revenue will suffer.
The Economic Partnership Agreement (EPA) with Europe is also on the cards as an importation factor in how the economy performs.
“Should Tanzania and Burundi endorse the EPAs by January, it
means that trade with Europe will ease, giving way to other cooperation
that will affect the economy directly,” he said.
Prof Haji Semboja, an economist with the University of Dar es
Salaam envisages no change in Magufuli’s administration style, as the
2016/17 budget is just six months gone — or halfway through its
duration.
He said the administration’s priority is infrastructure
development such as ports, railway and government buildings for the
Dodoma relocation project.
“This means that most cash will go to these projects and there
will be no direct effect on the people who will feel the benefits
later,” he said.
He said Magufuli’s purge of corruption will strengthen revenue collection and control spending and wastage in civil service.
“For poor economies, the public sector is a very important
pillar of the economy, but the private sector drives the economy in rich
countries. This means that the private sector in countries like
Tanzania must be innovative and engage in value addition in sectors such
as agriculture, processing, tourism and hospitality,” he said.
President Magufuli’s style of governance has elicited mixed
reactions from Tanzanians as he has embarked on a spirited
anti-corruption battle, cutting government spending and instilling
discipline in the public service, leaving many who used to get “easy
money” without cash.
His emphasis on investing in infrastructure and mega projects
procured from other economies has resulted in low money circulation,
with citizens banking on benefiting from long-term benefits of projects
such as the standard gauge railway, reviving the national airline and
strengthening performance of the country’s gateway – Dar es Salaam port.
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