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The East African : December 30th 2013
The EastAfrican NEWS DECEMBER 28, 2013 - JANUARY 3, 2014 KENYA arnings and mounting deficit could rain on parade Communication, construction set to drive growth TANZANIA Tanzania anticipates that its economy will grow by 7.2 per cent in 2014, according to Finance Minister William Mgimwa. Dr Mgimwa said new growth frontiers in communication, construction, electricity and mineral extraction, including natural gas, are likely to accelerate economic growth in 2014 and beyond. This year, the biggest contributors were information and communications, which expanded 20.6 per cent, and financial services, with 13.2 per cent growth. The World Bank says the growth of the communications sector has transformed how Tanzanians trade and do business, facilitating a revolution in banking. An estimated 45 per cent of Tanzanian adults use their phones to receive and transfer money, with the cumulative value of these transfers reaching an estimated $1.4 billion per month. Tanzania’s growth, economists argue, has also been buoyed by a steady increase in domestic demand, partly as a result of rapid population growth. “In the absence of major adverse effects from the global economy, the forecast is a real GDP growth rate of 7.2 per cent in 2014, up from seven per cent in 2013,” Dr Mgimwa said. Indeed, overall inflation fell to 6.1 per cent in September with core inflation (excluding food and fuel prices) settling at 5.8 per cent. However, all is not rosy for Tanzania as there are challenges that could slow down the economic growth. “The current account deficit declined somewhat, but remained large, at 13.5 per cent of GDP in July 2012-June 2013,” reads a statement by the International Monetary Fund mission to Tanzania. Fiscal pressures emerged during the past financial year (2012/13). Net domestic financing of the government was in excess of targets agreed under an IMF-supported programme, by about one per cent of GDP. For the current fiscal year (July 2013-June 2014), tax revenues are likely to fall short of initial projections. This will require sizeable adjustments to the budget in the upcoming mid-year review to align expenditure plans with available resources. The government has reaffirmed its commitment to the agreed fiscal deficit target of five per cent of GDP. To sustain economic growth and to stem fiscal pressures during the current and next financial years, priorities include mobilising additional revenues by reducing and simplifying tax exemptions and bringing the power sector to financial sustainability. “Key medium-term policy challenges include fostering continued strong growth through productive infrastructure investment, while preserving priority social spending, and maintaining debt sustainability; enhancing the institutional framework to ensure that possible future revenues from newly discovered natural gas deposits benefit all citizens; and improving the business climate,” the IMF statement said. The African Development Bank’s latest economic outlook also indicates that the main drivers of growth in Tanzania will be telecommunications, transport and financial intermediation, manufacturing and construction, and trade. “But continued emphasis on sound economic management and strengthening political governance could ensure that the newly found natural gas resources will indeed play an important role in Tanzania’s socio-economic transformation over the medium term,” states the report. Construction will grow Tanzania’s economy. Picture: File aid could pose a challenge to regional economies. Aid cuts in Rwanda and Uganda have slowed economic growth, with the impact being heaviest on Rwanda, which saw its growth slow down from a high of 8.2 per cent in 2012 to 6.6 per cent this year. The Bank of Uganda had estimated that the aid suspension would cut economic growth by 0.8 per cent, from a projected five per cent in the 2012-2013 financial year to 4.2 per cent. Currently, donors finance 40 per cent of the country’s budget, leaving it susceptible to the negative effects of aid cuts as seen in 2011 when donors slashed funding, leading to a drop in economic growth. “In view of the important investment spending that is needed, one of the main pri- Dr Mgimwa said the government also seeks to effect interventions to ensure GDP growth is propelled by key sectors, mainly agriculture, horticulture, coffee, cotton and cashew nuts, manufacturing, mining, infrastructure and tourism. orities will remain creation of fiscal space through accelerated domestic resource mobilisation and rationalisation of spending,” said the IMF. But despite the challenges, the region’s economy is expected to pick up. Rwanda’s economy is ex- pected to grow by the biggest margin in 2014, by 7.5 per cent up from 6.6 per cent this year, from recovery in the ag- riculture and service sectors. The African Development Bank (AfDB) projects the Ugandan economy will grow by 6.25 per cent in 2014, up from 5.5 per cent this year, driven by a strong recovery, stronger private activity in the telecommunications sector and the continued implementation of investment projects. “The economic outlook is favourable. With low inflation and higher growth, market confidence is set to induce some recovery in credit to the private sector. At the same time, significant investment in hydropower and road projects is expected to stimulate employment and help bring output closer to potential beneficiaries while addressing critical infrastructure bottlenecks,” said the IMF in its latest review of Uganda’s economy. Burundi’s economy is ex- pected to continue with recovery, growing by 4.7 per cent in 2014, up from the current growth of 4.5 per cent, reflecting the implementation of large infrastructure projects, improvements in electricity generation and a rise in tourism. Kenya and Tanzania’s economies are projected to grow by 5.5 and seven per cent respectively, aided by a strong tourism performance and infrastructure projects. The economy remains vulnerable to external shocks, particularly fluctuations in commodity prices. World Bank’s review of the tanzanian economy “Kenya’s growth pros- pects are favourable, with growth expected to pick up in the years ahead. Activity will benefit from the boost to private-sector confidence, following largely peaceful elections in 2013. Inflationary pressures should remain modest given the favourable weather outlook,” said Razia Khan, head of Africa research at Standard Chartered Bank. Nonetheless, there are concerns raised by the IMF and 5 the World Bank. The two institutions say the growing tendency by governments to overshoot budgets, added to low tax bases and poor fund utilisation, could pose serious challenges to regional growth. In the 2012/13 financial year, for example, Kenya spent only 45.8 per cent of its total development budget. Overall, out of the country’s 2012/2013 total budget of Ksh1.4 trillion ($16.4 billion), the government will only be able to spend 72 per cent. The low utilisation is a problem as government spending plays a huge role in stimulating demand, and by extension economic growth. Thus, for governments to maintain the growth targets into 2014, they have to find the equilibrium between revenues and expenditures. “To support this outlook, the authorities have to find the right balance between encouraging growth and avoiding crowding out private sector activity by resisting rising spending pressures and strictly adhering to the budget,” said the IMF.
December 23rd 2013
January 6th 2014