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  • Publication | 2023

Tanzania Economic Update - The Efficiency and Effectiveness of Fiscal Policy in Tanzania

Global Food and Nutrition Security

Highlights:

  • Global growth is projected to slow significantly in 2023 as continued monetary tightening constrains the credit supply.

  • Tanzania’s economy has performed relatively well despite a challenging external environment. The GDP growth rate reached 4.6 percent in 2022 and is expected to rise to 5.1 percent in 2023, supported by an improving business climate and the implementation of structural reform.

  • Tanzania has enjoyed a strong post-pandemic recovery, but recent growth has been concentrated in sectors that employ few workers from poor households.

  • The anticipated recovery of agricultural output, coupled with an expanding services sector, is expected to stimulate growth and poverty reduction over the medium term. The government has significantly increased the budget for the agricultural sector, which employs nearly 70 percent of rural workers. As the regional drought subsides, the sector’s growth rate is expected to rise from 3 percent in 2022 to 5 percent in 2025. Greater agricultural output will
    boost household incomes in rural areas, with positive implications for poverty and inequality.

  • Tanzania has several macroeconomic advantages that could support a successful transition to middle-income status. It is one of the few economies in the region that did not experience a contraction in 2020. Its modest risk of debt distress offers some space to prudently utilize debt financing. The government’s fiscal position remains relatively strong and stable, and international reserves are at a comfortable level.

  • Tanzania’s fiscal system substantially reduces income inequality, while public spending on social services more than offsets a moderate increase in poverty. By international standards, Tanzania’s fiscal system has a highly positive impact on inequality, and the modest observed increase in poverty is consistent with the experience of comparable countries.

  • Tanzania’s conditional cash transfers are progressive, as are public education and the healthcare services provided at outpatient facilities. Consistent with their core purpose, conditional cash transfers are the most progressive government expenditure.

  • Tanzania’s most urgent reform priorities include measures to improve efficiency and effectiveness of expenditure programs and boost tax-revenue mobilization.