THE ECONOMIC RECOVERY PROGRAMME – PROGRESS AND PROSPECTS

In his budget speech on June 16, 1988 the Minister for Finance, Economic Affairs and Planning summarised the situation reached at the end of the second year of the three year Economic Recovery Programme as being ‘generally on track’, though some fundamental economic programmes persisted and would take time and perseverance to overcome. For the second year running the economy as a whole grew faster than an increase in population estimated at 3.3% p.a. Growth at 3.9% indeed fell short of the rate 4.5% envisaged in the Programme, still more of the 5% average rate assumed in the Five Year Development Plan beginning in July 1988.

There is, however, a possibility that the official calculation of growth rate (GDP) underestimates the true position owing to the emergence of small scale and informal activities, which are not adequately represented in the published statistics.

Important Gains
At this stage certain important gains can be recorded. The production of food crops is substantially greater than in previous years and the prospects for further growth are good if the weather holds. Consumer goods are again widely available. A tentative start has been made with the rehabilitation of industry, with textile production increasing from a very low level by over 20% above the previous year, rubber products by 49% and cement by 15%. Industry’s contribution to export earnings, though still modest, rose by nearly 75% between fiscal 1986-87 and fiscal 1988, partly stimulated by the search for foreign exchange to finance industrial raw materials (the ‘Export to Import’ scheme). A beginning has also been made with the rehabilitation of internal transport by giving priority in the allocation of foreign exchange to the purchase of spare parts for the railways and for road vehicles and the procurement of 1,040 new lorries. In general, expectations appear to remain buoyant.

Communications Infrastructure
But against these positive manifestations of recovery some very serious problems lie ahead. Long stretches of the main trunk roads are in a deplorable condition and deteriorating, necessitating in some areas complete relaying and exacting a fearfull toll on vehicles. Parts of the central railway line are in a poor state, resulting in derailments and the number of locomotives in working order fell from 134 in 1986 to 111 in 1987. In view of the critical importance of communications in Tanzania the rectification of this situation is clearly an urgent necessity

The grave difficulties in the way of closing the gap between imports and exports have been explained in some detail in Bulletin No. 28. The programme envisaged an increase of 11.6% in export earnings in 1987; in fact the foreign exchange income from this source during 1987 remained almost the same as in 1986, though it appears that in the following half year an improvement was recorded, showing a 9.3% increase in fiscal 1987-88 over the previous year. It seems, therefore, that the measures taken to boost export earnings, such as the ‘Export to Import’ scheme and the ‘Own Funds’ scheme may be yielding some results. Nevertheless, the trade deficit of $ 745 million remained at nearly twice the size of export income. These figures probably deserve some correction owing to the unrecorded income believed to have slipped through under the trade liberalisation scheme.

Agriculture
Export volumes of all the main items traded except cotton, sisal and tea fell during 1987, due in large measure to the deterioration of roads and vehicles, and a serious reduction in earnings was only averted by a dramatic rise of 37% in the volume of cotton exported, resulting in a 37% increase in dollar earnings from this source. Sisal, on the other hand, despite a 50% increase in the volume exported, suffered an 8% reduction in earnings on account of a 39% fall in world price. In the case of coffee, a 20% fall in the volume exported encountered a 39% drop in world prices, producing a fall in dollar earnings of 51%. This reduction has been attributed to the coffee berry disease, an insufficient supply of fertilisers and a shortage of vehicles. These experiences well illustrate how unsatisfactory it is to rely predominantly on the traditional commodity markets and demonstrates the urgency of export diversification.

Cotton provides a typical example of the difficulty. Production in 1987 was unexpectedly high and the prospects for further enhanced production encouraging. But processing was held up by the inability of the ageing ginneries to operate at full capacity and delivery was impeded by tbe shortage of lorries and rail wagons. As a result, raw cotton has cluttered up the warehouses and village stores, getting in the way of the 1988 crop. The UK Government has offered help with the improvement of ginning capacity in the hope of getting the 1987 crop out of the way before the 1988 harvest.

The increase in stocks also had its implications for the money supply. Substantial funds at high rates of interest had to be found to finance these stocks, with the result of a large and unwelcome increase in bank credit fuelling inflation. It is indeed a paradox that any increase in export commodities is liable to make fresh demands on the money supply and to counteract the government’s efforts to bring inflation under control. The only solution to this problem lies in increasing dramatically the supply of consumer goods, but the concentration of resources on export industries and the rehabilitation of the infrastructure renders such measures highly unlikely for the time being. As in so many aspects of economic policy, the Government has had to seek a balance between competing objectives.

HIGHLIGHTS OF THE 1988-89 BUDGET
– wage increases; new Government minimum wage Shs 1,644;
– Reductions in income tax; minimum taxable income Shs 1,500;
– No duty on agricultural inputs and drugs;
– 100% duty on luxurious and conspicuous consumption goods;
– day school fees up (Shs 750 to 1,500 p.a.); boarding Shs 3,000;
– beer up Shs 5 to Shs 91; cigarettes up Shs 1 per packet;
– airport service charge increased to Shs 300;
– increase in cost of visas, plane charters, road tolls;
– new tax of Shs 20 on each video rental;
– price controlled items reduced from 22 to 12.

Inflation and Defence Against its Effects
The choice for the government is further complicated by the dangers inherent in the continuing 30% annual increase in the cost or living experienced by urban dwellers in mainland Tanzania. With the continuing slow drift downwards in the value of the shilling some inflationary pressures are inevitable, but the level of the index is much more dependent on the price of food and consumption goods, many of which are now outside the scope of controls. The target inflation rate of 25% by June 1988 in the Economic Recovery Programme has not been reached. High inflation increases costs, jeopardises efforts at industrial Rehabilitation, whittles away the incentive advantages of increased Producer prices for agricultural products and, finally, and most seriously, threatens whole populations with destitution unless countervailing measures are taken. The government has taken some steps to mitigate the effects of inflation on urban dwellers. First, on two occasions, reductions in income tax have left all wage earners with more take home pay and further changes in the tax structure will raise the tax threshold to Shs 1,500 per month. Secondly, a 20% increase in the lowest salaries has been announced, with smaller percentage increases in the higher ranges culminating in a 10% rise in salaries above Shs 6,000 a month. Thirdly, following the recommendations of the Nsekela Report, fringe benefits will be paid to government servants consisting of a Rent Assistance for those not in government houses amounting to 10% of salary and a Transport Allowance for government workers in Dar es Salaam of Shs 350 per month. These measures will help significantly to offset the higher cost of living for the time being.

However, the most important defence against the effects of inflation has consisted of measures taken by the people themselves by seeking extra opportunities for employment (moonlighting), or by cultivating a patch of ground. It is striking how far such measures are being espoused by middle and upper income employees, who have benefited least from a succession of salary changes. Such activities gain in importance as inflation bites into spending power and even causes troublesome absenteeism during office hours. No government can ignore these effects and the dangers of social unrest that may result from inflation. On the other hand. too generous a compensation for a fall in the standard of living could seriously unbalance the budget and generate new inflationary pressures. Here again, government must seek a middle path.

On the whole, in spite of disappointments, the Minister was justified in describing the Economic Recovery Programme as ‘on track’. Where performances fell short involved important aspects of government policy, such as export generation and the control of inflation. But the experience of the programme so far has drawn attention to three aspects that must be kept in mind. First, there is the development of unexpected consequences like the side effects of a healing drug. The log jam in the processing and transport of cotton and its effects on the inflationary trend is a case in point. Secondly, it is always hard to estimate the time scale involved in the implementation of policy decisions. At this two-year juncture in the Programme many developments are in train that have not yet been revealed in the official figures. One example is export promotion, the results of which are only just beginning to show up in the statistics of foreign exchange earnings. Breaking into foreign markets with new products is always a tricky business and in Tanzania the necessary skills are in short supply. Diversification calls for what may a:most be described as a cultural shift and such changes in outlook are not encompassed quickly or easily. Thirdly, no new decisions about exports can be taken in isolation from decisions in other spheres. Money for export may be flowing from the hives but the flow may be wholly dammed up by the absence of special export containers. Cotton may be there in profusion, but the bounties of nature will not reach the ports unless something is done about the ginneries.

SUMMARY OF UK AID – £70 MILLION SINCE THE IMF AGREEMENT
– Spare parts and equipment for road and rail transport;
– Veterinary drugs and agricultural chemicals;
– Rehabilitation of the Tanzania Railways Corporation;
– Second Phase of the Southern Region Health Project;
– English language teaching programme;
– Links between British and Tanzanian universities;
– Maintenance of the Songea-Makambako road;
– The medium term National AIDS Plan;
– Help to improve ginning capacity;
– Land planning, crop storage, pest control, agricultural research.

With all these considerations in mind, the impression remains that the government is managing the Economic Recovery Programme with skill and fortitude in the face of intense difficulties. One essential component is of course the support from outside, which has so far been generous in intention, but in some cases slow and cumbersome in implementation. The reduction of bureaucratic delays and further steps to relieve the debt burden (Bulletin No. 30) will notably assist in securing a successful outcome to the government’s efforts. It is hoped that these improvements in the performance of the international community will be forthcoming.
J. Roger Carter

RSS feed for comments on this post · TrackBack URL

Leave a Comment

You must be logged in to post a comment.