The basic 1982/83 – 1984/85 Tanzanian economic policy objectives and guidelines were presented to the National Assembly on June 16th, 1982 in the budget speeches of the Minister of State for Planning, K.A.Malima and the Minister for Planning A.H.Jamal. The broad policy structure of reconstruction planning is set out in Structural Adjustment Programme for Tanzania. The initial time frame set is 1982/83 – 1984/85, but the accompanying Budget Speech which contains the first year’s resource allocations implies that the period may be as long as five years.

In terms of immediate action the Structural Adjustment Programme’s 1982/83 tranche shows no marked changes on 1980/81 policy. It is a set of retrenchment measures. These result in a sharper proposed cut in recurrent, as well as capital expenditure because the end of the security expenditure related to the Uganda war and the subsequent reduction in the size of the armed forces has allowed a one-third cut in budgeted expenditure for defence. The 7 to 8.5% rise in nominal recurrent spending by other Ministries and by Regions implies a fall in real recurrent services of 4 to 7%.

The very sharp increase in parastatal rehabilitation and subsidy expenditure estimates for 1982/83 (not necessarily an equally large increase over actual 1981/82 expenditure) is related to past agricultural and transport parastatal losses and to the unsustainably high prices set for several crops – notably cotton, tea and tobacco – in 1981. The absence of either a sharp increase in staple grain and flour prices, or a minimum wage increase to offset inflation, represent a change from the approaches to deficit and income management in 1980 and 1981 as does also the absence of any tax increases.

There are no tax changes, resulting in a very large and uncertain local borrowing requirement of Shs.4,376 million. The uncertainty arises because the logic of the Structural Adjustment programme includes substantial additional foreign resource inflows – including $210 million in IMF drawings and a World Bank Structural Adjustment credit – which are not as yet negotiated. If they are negotiated and received promptly a smaller deficit is likely, but if late or not at all a much larger one is certain.

The Structural Adjustment Programme is in part a consolidation of elements from three earlier Tanzanian forward planning exercises: the abortive 1980-83 Structural Adjustment Programme, which foundered on non-acceptance by the Bank and the 1981 coffee price collapse; the 1980 decadal development proposals to the UNCTAD sponsored “least developed” conference series (notable for lack of practical response) and the 1981 and 1982 National Economic Survival Programmes. Because the external economic context ‘has worsened substantially during the period 1980 to 1982, the present Structural Adjustment Programme is far more draconic in its implications – albeit remarkably non-specific on what actual cuts are seen as acceptable. The policy statements on exports, incentives and efficiency consolidate those of 1980/81 and 1962/82 in a somewhat more coherent way, but specific measures (at least in an applicable form) are less evident than in the earlier statements.

The stated commitment to maintaining achieved degrees of egalitarianism and levels of basic services reads somewhat oddly in the light of what the Budget does not include in votes and wage changes, though the sharper decreases in defence spending and •the capital budget have allowed some protection of health, education and water (the key basic service heads). Given the level of subsidies to agricultural products, probably over Shs.1 ,500 million or over 10% of recurrent estimates as a whole totalling Shs.14,144 million, increases in peasant real incomes are clearly dependent either on increases of output, reductions of transport and storage losses, or cuts in procurement, transport and marketing costs in both the private and public sector.

A substantial number of proposals for directions of change, new approaches and rehabilitation packages are made. These are less interrelated, detailed or costed than in previous Tanzanian planning exercises. This may be because of the short time that elapsed between receipt of the report of “Three Wise Men” chosen jointly by the World Bank and the Tanzanian Government (formally known as the Tanzania Assistance Group, with three experts and a supporting secretariat)* in April and the mid-June budget deadline for the presentation of a Tanzanian programme harmonising their proposals with existing Tanzanian strategy. It may also relate to the fact that the detailed elaboration of proposals and programmes dependent on foreign finance prior to having been able to negotiate agreement on that finance, at least in principle and in order of magnitude, is not necessarily very useful and runs a distinct risk of over optimism.

The section on parastatal performance notes the very uneven performance – from good to abysmal – and the negative effect of the weaker parastatals on the performance of others. It re-stresses the problems caused by inadequate accounting personnel and by the refusal of many parastatal managements to accept responsibility. It calls both for the enforcement of the existing legal rules on the preparation of parastatal annual capital and operating budgets and the approval of budgets by Planning and Finance, also for substantially greater worker power through strengthened Workers Councils and enhanced representation at board level.

The outcome of the 1982/83 – 1984/85 Structural Adjustment Programme (and any extension to 86/87) depends in the first instance on negotiations with the IMF and the World Bank as well as other sources of external finance. With exports covering less than half of essential (slightly over half of actual) imports, no workable medium-term economic strategy, including one aimed at raising the ratio of exports to import requirements, can be made to work without either a sharp increase for three to five years in concessional resource flows, or a sharp recovery in the terms of trade (now perhaps 50 on a 1972 base of 100 or 45 on a 1976/77 base). The latter appears quite out of the question as neither a 100% increase in the price of coffee, tea, cotton and cashew nuts, nor a 50% fall in those of manufactured goods and petroleum, are in the least likely. Whether the reiterated stress on exports, incentives and productivity – now apparently in large measure endorsed by the “Three Wise Men’s” report – will have more success in allowing access to Fund and Bank resources than in 1980 and 1981 remains to be seen.

* see Bulletin No.13, page 2.

The shortage of foreign exchange resources that Tanzania is able to generate by the sale of exports lies at the centre of Tanzania’s acute economic problems . As a result of this shortage, the purchase of consumer goods abroad has been drastically curtailed and of luxury goods virtually eliminated by government action with a view to concentrating such overseas resources as it is still able to command on capital goods, industrial spares and industrial raw materials. So acute, however, is the shortage of foreign exchange that it is doubtful whether Tanzania is able to hold the economy to its present albeit much reduced level of activity. The impression is created of an economy that is slowly running down.

The causes of the foreign exchange crisis are complex. Among the most obvious is the formidable increase in the sums claimed by petroleum purchases since 1974, despite a reduction of the volume consumed. Another is the world economic depression, the consequent flagging of demand for many Third World products and the resulting fall in prices, alongside the rising cost of imported manufactures caused by inflation. But the most fundamental cause of the crisis is the decline in the volume of exports(1). Between 1910 and 1979 merchandise exports from Tanzania, of which 90% consisted in primary products, fell in volume by an average of 6.6% per annum, in contrast to an average annual increase of 3.4% in the previous decade. The dramatic fall in world demand for sisal after 1910, Tanzania’s largest agricultural export in 1965, accounted for much of the decline, but the production of cotton and cashew nuts also fell substantially. Coffee production just held its ground and only tea and tobacco showed an increase. However, by 1980 tobacco exports had also sagged on account of an increase in home consumption.

The reasons for this general decline in exports are somewhat complex. The suggestion made in some quarters that government backing for primary exports was half-hearted on account of their association with colonial economic relationships is difficult to substantiate in the face of the close attention to measures to improve the export position found in the various Five Year Plans and in the budget speeches of economic ministers. A much more likely explanation is the growing preoccupation of government, especially after the years of drought 1913-4, with the serious problem of food production for the rapidly growing population, the restoration of food self-sufficiency and the avoidance of costly imports of food. The census of 1918 has shown a very high current rate of population growth of 3.4% per annum, representing a doubling of the population in 21 years and a projected total of 35 million in the year 2,000. Providing for such a population without recourse to external supplies will confront any government with formidable problems.

There are, however, other causes of the setback in the production of export crops. The World Bank (2) lays much emphasis on the inadequate compensation paid to producers and attributes this largely to inflated rates of exchange, resulting in a low shilling equivalent to sales income, and to inefficient and costly crop collection and transport. The Bank and the IMF have urged devaluation as a means of paying incentive prices to producers without financial cost to the government.

This argument may well contain some truth. The President’s remark at the Commonwealth Conference in Melbourne that industrial import prices reflect the costs of production, while the prices of exports are determined by market decisions in far away capitals, suggests that the market value of exports converted into shillings at current exchange rates are not enough to meet production costs. Depreciation could solve this problem by increasing the shilling proceeds of sales. It was in fact the expedient resorted to by the Tanzania Government in October, 1915 and January, 1919, but the adjustment of 15% was not enough to remove the wide B8.P between Tanzanian costs and world prices and was not, therefore, effective in providing for adequate rises in producer prices.

The other burden on producer prices, the growing percentage of earnings absorbed by inefficient transport and marketing organisations, notably the National Milling Corporation, has greatly exercised government and has led to strong measures in an attempt to rectify the situation. The causes of inefficiency are not all managerial, however, and stem in part from the cost and difficulty of administering a transport system with insufficient and deteriorating vehicles and fitful supplies of fuel.

In the face of the foreign exchange crisis the Bank and the Fund lay great emphasis on depreciation as a remedy for declining exports. But such a policy overlooks the grave repercussions on imports and therefore on the replacement and maintenance of machinery and transport. Depreciation raises import costs and cannot fail gravely to exacerbate the already formidable struggle to maintain the country’s physical assets. The Bank’s solution to this problem is to impose still stricter controls on imports (3) and to direct them still more rigorously towards productive purposes; but Tanzania has long introduced a regime of the strictest priorities emphasising industrial and agricultural needs and the scope for a further curtailment of imports must now be insignificant. The Bank’s emphasis on measures to stimulate exports, moreover, can only significantly increase export earnings in the comparatively long run owing to the time taken for new planting to bear fruit, depending on the crop. Thus, the Bank’s prescription must mean still greater austerity during the period taken for export stimuli to take effect and such austerity must greatly accelerate the rundown of the economy and place further obstacles in the way of recovery of exports by inflicting further damage on transport vehicles and roads, the supply of fertilisers and protective chemicals and the smooth operation of processing factories.

So far as Tanzania is concerned, the remedies favoured by the Bank and the Fund would be more practicable if it could be assured of a ‘massive transfer of resources’ as advocated in the Brandt report. This would entail sums larger than are needed to compensate for the higher cost of imports over the next few years. For a radical rehabilitation of transport and maintenance systems and the restoration to full working order of industries serving agriculture are essential ingredients of the export recovery process. Without such assured support, it is difficult to see how Tanzania can accept devaluation as the answer to the export crisis.

J. Roger Carter

(1) This decline was common to many countries in Africa and in fact 19 African countries had negative export growth rates in the seventies, including Kenya, Uganda, Zambia, the Sudan, Ethiopia and Mozambique.

(2) in Accelerated Development in Sub Saharan Africa: an Agenda for Action: The World Bank, 1981.

(3) Tariff terriers are preferred to direct import controls, but this is a separate issue.

Relations with the International Monetary Fund and the World Bank
The special edition of the Bulletin on the economy (No.11) described the breakdown of Tanzania’s negotiations with the International Monetary Fund (IMF) and the terms of a subsequent standby agreement (upper credit tranche) for a loan of about $233 million to be paid quarterly over a period of two years provided that certain conditions were met, the most important being the requirement to keep its government borrowing within a set limit and to reduce overseas debts. Tanzania considered these conditions inappropriate, but accepted them as part of a compromise in the expectation that agreement would rapidly be reached with the World Bank for the provision of a long term structural adjustment loan. This key loan has not yet materialised and as Tanzania was unable to meet the IMF conditions it was not allowed to draw further on the standby facility.

The lack of foreign exchange and the level of external debts, which make it exceptionally difficult to obtain credit, are a major cause of inflation and depression in the economy. A steady flow of spares and essential materials would allow factories to make use of idle capacity, which would reduce their unit costs, help to meet the demand for goods and increase government, revenue. New negotiations have now begun with the IMF for a different form of assistance (extended fund facility). However, it seems likely that Tanzania will be under renewed pressure to accept the previously rejected terms. President Nyerere used his Peasant’s Day speech at Kigoma on 6th. July to explain why the government had rejected the advice to devalue, remove import controls, abolish price controls, freeze wages and increase interest rates. In his budget speech on 18th. June, Finance Minister Amir Jamal criticised the IMF for its rigidity, its preoccupation with the needs of industrial countries and its lack of understanding of the needs of agricultural developing nations.

The IMF has agreed to a credit of about $19.5 million as a compensatory financing facility in respect of an export shortfall in the 12 month period ended 30th. March 1980 predominantly caused by falls in the price of primary products. In this case the only condition is cooperation with the fund.

The World Bank has agreed, after prolonged negotiations, to provide a loan of about $50 million to finance imports necessary to improve the production of three agricultural export crops. This is welcome, but it must be seen in the context of the estimated $80 million needed for imported fuel and spares for this sector of the economy during 1981-82.

Negotiations with the Bank on a broader, multi-year structural adjustment programme have been proceeding slowly since early in 1980. An independent expert team with its own secretariat is being considered to help in reaching agreement on Bank support for major aspects of Tanzania’s restructuring programme and to provide ideas on re fining and elaborating the programme. Such a team and secretariat will be jointly appointed by Tanzania and the Bank, work with the Ministry of Planning for up to three months, review the situation and programmes for redressing it and report their findings and recommendations to Tanzania •and the Bank early in 1982. These, it is hoped, will form the basis on which final negotiations for a structural adjustment programme credit can be pushed to a speedy conclusion.

National Economic Survival Programme
In March this year it became evident that the foreign exchange shortage had reduced Tanzania’s ability to operate and maintain existing productive capacity to a crisis point. Further, by its impact on transport, procurement and processing, this critical situation, by reducing the ability to procure and ship exports, was thus further reducing foreign exchange earnings and import capacity. The situation was also exacerbated by the fact that 1981 was the third year in a row of relatively poor weather and by the loss of potential grain reserves, or their export to avert spoilage, as a result of poor handling and inadequate storage.

During March and April intensive discussions were held with the object of defining a short to medium term economic programme concentrating on areas in which action could raise export earnings (import capacity) and production and on reallocating scarce resources in support of those areas. The programme – under the title National Economic Survival Programme – was adopted in May and its 1981-82 component was embodied in the budget and the Annual Plan.

In his June address to the budget session of the National Assembly the Minister of Planning, Kighoma Malima, summarised the NESP as follows:

“Firstly, we have to increase our foreign exchange earnings from our productive sectors… The specific target is to raise, through our own concerted efforts … at least shs.6,000 millions in 1981.

“Secondly, we must utilise with the utmost care the limited foreign exchange which we generate. Therefore, our foreign exchange earnings will in the first place be used to import inputs, equipments, raw materials required in our production and transport sectors. An even higher priority will be placed on those sectors and activities which enhance our capacity in generating more foreign exchange.

“Thirdly, 1981 and 1892 must be declared to be the years when the problem of food shortages in Tanzania must be solved …. by assigning ourselves targets for different food crops and by ensuring that there is effective follow-up and implementation … hand in hand with a systematic programme of early purchasing of food crops from farms for cash payments… The Programme for Survival also calls for the establishment of food crop zones” (drought resistant or maize) “in accordance with environmental and weather conditions.

“Fourthly, our development plans must effectively take into account the Programme for Survival. For this reason, therefore, during the coming two to three years our development plans will put more emphasis on fully utilising the already existing production and investment capacities before starting new projects” and therefore “will emphasise: ongoing projects, whose results will be realised in the short run and which will correct sectoral imbalances,… food; … foreign exchange earnings will be given special priority … projects which will bring about restructuring of our economy … projects which are not in line with the above priority will be scrutinised again and where possible they will be postponed until the economic situation permits.”

The 1981-82 budget and plan presentations – including those by Ministries – indicate a substantial number of changes in priorities and programmes as a result of the NESP. For example, in constant price terms the development budget estimates are a quarter below the 1980-81 total, with very few new projects, and the only constant price increases in the recurrent budget relate to rehabilitation and restructuring of the weaker parastatals (especially the National Milling Corporation, the Railways and the Airways). The controversial sugar price increase is designed to restore a significant positive cash flow at the Arusha Chini and Kilombero estates (Mtibwa is already in surplus) to finance rehabilitation of plant and the extension of irrigation. The Ministry of Industries has for the first time set export targets for the main manufacturing firms and the second half of 1981 foreign exchange plan – also for the first time – makes substantial raw material import allocations specifically tied to achieving specified levels of export performance.. .

The NESP does not assume successful completion of IMF, or World Bank structural adjustment programme, negotiations in 1981-82. This is in part a decision (unlike 1980-81) to budget on the basis of the worst likely result, so that deviations from the projection are positive, not negative. However, in the case of the IMF it also represents real pessimism that agreement can be reached.

While the outlook for a Bank structural adjustment programme credit is seen as more promising, with a jointly appointed expert team and secretariat to review the situation and report to Tanzania and the Bank early in 1982, it is unlikely that substantial real resource transfers could be received before mid-1982. This may seem ironic in that both President Nyerere and President McNamara perceived such a programme as urgent in February, 1980, but it is not an atypical example of the speed with which multilateral assistance negotiations proceed.

The Budget
The Minister of Finance, Amir Jamal, presented the budget for 1981-82 to the National Assembly on 16th. June, stressing that the international economic situation was for Tanzania more difficult than it had been in the previous year. Moreover, the targets for the previous financial year had not been met and the planned deficit of shs .331 million had quadrupled to shs.1,372 million. This was due to the continuing cost of keeping troops in Uganda and a fall in income from customs and sales taxes. In addition, export taxes on coffee, sisal and tobacco had been removed to encourage production by maintaining prices to producers. The country’s external deficit had risen to shs.2,600 million. In an effort to reduce expenditure and increase revenue the budget provided for a reduction in the subsidy for sembe (maize meal, the basic food of most people), increasing its price from shs.1-25 per kilo to shs.2-50, and increases in the rates of customs duty and sales tax.

An increase in expenditure which was considered essential was civil servants’ pay. There had been no increase above the minimum and other wage levels for seven years and their living standards had dropped very sharply The lowest wage was increased by 25% to shs.600 a month, higher levels by 2o%. Changes in income tax result in about a 25% post tax increase at the bottom and 19% at the top, so that the ratio of the lowest to the highest salary will decline slightly.

The proportion of expenditure on new projects fell from 23% in 1980-81 to 5.8% reflecting a recognition of the need to maintain and conserve rather than undertake further development.

The Food Situation
In most places the rain was late or very late and its distribution was very uneven. By March the situation was desperate with a prospect of starvation before the end of the year facing many people. Fortunately, once the rain did come it continued into June and even the worst areas are expected to have some harvest. With the surplus expected in other areas and some imports there is now no fear of famine, but there will be nothing with which to start rebuilding reserves.

The Dakawa rice project in Morogoro costing shs.200 million provided by the African Development Bank is expected to start production in November, 1981 and have an annual output of 12,000 tonnes. Together with the existing projects at Mbarali in Mbeya and Ruvu output will still not meet the National Milling Corporation’s annual sales of 90,000 tonnes

The Fourth Five Year Plan, 1981-81 to 1985-86
The new Five Year Plan, the first to include Zanzibar, is now to be implemented after a delay due to the severe economic problem and the war in Uganda. The plan is part of a twenty year strategy aimed to make Tanzania self-sufficient in manufactured goods and food. The plan shows evidence of the disillusion among officials with the long term prospects for a sustained increase in peasant: production. The first priority will be the industrial sector, which is to receive 25% of planned investment in order to expand the production of processed goods for export and local consumption and to provide essential inputs for other industries. Stimulation is to be given to industries which use local resources of coal, iron, wood and sisal. Agriculture has second priority with emphasis on large state farms using irrigation to grow maize, rice and wheat.

One of Tanzania’s great assets is its reputation for honest government. Its impressive record in obtaining overseas aid from both governments and voluntary organisations has been achieved because those providing the funds know that in Tanzania money and equipment will be used to good purpose and in accordance with agreements. Even the IMF has accepted that loans to Tanzania are well administered.

It is sometimes difficult for outsiders to appreciate the strengths of the pressures against honest government. Much of the writing on Tanzania over the past decade has described and deplored the growth of a privileged class of government and party officials, well paid, with access to cars, houses and luxuries, which set them apart from the majority of the people. This picture is a half truth. Clearly anyone who receives a regular salary and works in an office is in a more comfortable position than a peasant who depends on what the labour of his family can produce from the land available subject to the hazards of rainfall, crop disease, pests and world markets. However, in comparison with their counterparts in most other African countries Tanzania’s civil servants and party officers are not well paid. The 1981 budget gives them their first increase since 1973 (see Bulletin No.5) and in the face of sharply rising prices civil servants have experienced dramatic and painful falls in their living standards. Since many of the more senior civil servants are required to live in the larger towns and are subject to frequent and sudden transfer to other posts, they have little opportunity to grow their own food.

Over the past decade, Tanzania has faced one economic crisis after another, while shortages and problems of distribution have increased. Everyone wants scarce resources to be allocated to their organisation or area. Shortages multiply as bottlenecks produce delays. For example, the country may have produced enough food, but lack of vehicle spares and fuel can hinder distribution and result in urban food shortages.

Speaking in a Reith Lecture twenty years ago Galbraith made the point that countries with plentiful resources can afford good administration, which prevents resources being wasted, whereas countries with scarce resources cannot afford to make mistakes, which waste resources, and also cannot afford the efficient administration, which can prevent mistakes.

Scarce resources mean that decisions have to be made about their allocation and that some people and organisations will have to go without. Under pressure sometimes the wrong decisions will be made; Tanzania’s decision makers are under constant pressure. Undoubtedly it sometimes happens that decisions are influenced by considerations of political advantage, family loyalty, or personal financial gain. The real cause for concern is that so many Tanzanians have come to believe that a significant number of decisions are now subject to such influences.

Government and party leaders are acutely aware of the damage that just the belief that corruption exists can do to national morale at a time when most people are suffering from a shortage of necessities and when many items of everyday use are unobtainable. The Central Committee of the party (Chama cha Mapinduzi- CCM) began to investigate the misapplication of public funds in January. The first consequent dismissals were reported in the last issue of the Bulletin. Subsequently, the chairman and all members of the Tanganyika Pyrethrum Board were suspended for bad financial management – they had used money loaned for crop purchase to pay the Board’s administrative costs. All these cases, it must be emphasised, have involved mismanagement, not corruption.

Personal gain does seem to have been the motive at Tanzania Elimu Supplies, where it was found that stationery had been sent to private shops while TES shops had no supplies. The general manager and Dar es Salaam zonal manager were dismissed and other officials in the organisation demoted. Party leaders have not been exempt from enquiry. The Mwanza Regional Commissioner, Abdulmum Suleiman, was dismissed by the President after local party members had complained of his activities and had asked ‘relieve us of this burden’.

The Central Committee continues its investigations, although since February its findings have not been made public. It can be argued that publicity would increase public confidence, but most enquiries now concern breaches of the Arusha Declaration leadership code and these are not crimes.

A recent scandal that has raised great public indignation concerns the Sugar Corporation (SUDECO). Sugar has been very short in Tanzania this year. Dar es Salaam had been short of sugar for several weeks when it became known that there were large stocks in a store just outside the city, which were being ruined because the store roof did not keep out the rain. It was then discovered that the leaky store had been purchased for a price much in excess of its assessed value. To the sugarless citizens of Dar es Salaam the story seemed to confirm their belief that the shortage was being engineered for somebody’s profit. A statement has been made to the National Assembly and a subcommittee set up by the Assembly, but it seems that the full facts have yet to emerge and it may be a case of one problem leading to another. Sugar distribution had been disrupted when floods damaged a road bridge and sugar piling up at the refinery threatened to halt production. When the bridge was repaired SUDECO was allocated transport and instructed to clear the backlog by a deadline. Storage near Dar es Salaam had to be found urgently. The only available store was privately owned and the owner would not rent, only sell, and SUDECO management had to make a rapid decision. The decision might have been wrong, especially in not undertaking responsibility for repairs rather than leaving it with the former owner, but it has yet to be shown that it was dishonest.

This case illustrates the government’s dilemma. If administration is to function in a country the size of Tanzania, initiative and the taking of responsibility must be encouraged. If organisations and individuals are to be disgraced when they make a mistake, they will be discouraged from taking any decisions. Tanzania cannot afford the mistakes that are being made. The problem is to ensure that proper care is taken before decisions are made while encouraging initiative. The government’s policy is clear. Corruption is unacceptable and it will be fought wherever it appears. It is important that friends of Tanzania should make the distinction between corruption and mismanagement, even if Tanzanians themselves sometimes find the practical effects indistinguishable.

This article is based on data and other material that has appeared in the press and in Ministerial statements and contains nothing that may have come to the author’s notice on a confidential basis during his recent service as consultant to the Tanzanian Treasury. It is, therefore, in no sense an official Treasury record or statement of the situation. Ed.

Until 1974 Tanzania had good relations with the IMF, perhaps because she had no need of its facilities. During the economic crisis of ’74 and ’75 Tanzania drew on IMF credits to meet costs of importing food. Since the problems were caused by events outside of Tanzania’s control (drought and the first round of oil price rises), these credits were offered with minimal conditions.

Over the next two years the boom in coffee prices enabled Tanzania to start to repay its borrowings, but imprudent relaxation of import controls in ’78 and the collapse of the coffee boom made another approach to the Fund necessary. This time there was disagreement over the conditions with the IMF pressing for a 25% devaluation. A small devaluation early in ’79 was matched by modest IMF credits. War with Amin und rising oil prices worsened Tanzania’s economic position but no agreement could be reached on further credit facilities and negotiations broke down dramatically in October.

In reply to Nyerere’s protests, the Managing Director of the IMF denied that the Fund had ideological biases or political motivation. New negotiations began this year with new teams of officials from both sides. There were strong pressures to reach an agreement. The IMF’s reputation had been damaged by the breakdown of talks with Tanzania and Jamaica while the Brandt Report had been highly critical of the Fund’s criteria, procedures and lack of sensitivity.

While Tanzania had demonstrated that it could hold out for a time without IMF support and several Governments had responded to its appeal for help, shortage of foreign exchange had drastically reduced manufacturing output, arrears on payments for commercial imports were rising to £100m and substantial repayments of earlier IMF loans would fall due in 1980/81.

The 1979 breakdown concerned eight points of principles

– Devaluations the IMF suggested 25%; Tanzania considered that any devaluation would only worsen matters. (1)
– Higher interest rates to be introduced in place of Tanzania’s system of credit control.
– Reduction in the real level of Government expenditure, especially on Health and Education.
– Wage freeze to be continued to reduce real value of wages.
– Price controls to be abolished.
– Relaxation of Import Controls to allow in more imports on a less selective basis.
– Economic efficiency to be improved. Obviously Tanzania favoured this, but there was a wide difference on what the words meant.

Whatever the Fund intended, the proposals would have meant dismantling planning and repudiating the strategy of transition to socialism. They would also have worsened the trade deficit by more than the Fund credit provided, accelerated inflation, increased inequality of income distribution and reduced marketed food production. hardly a recipe for economic recovery, even in orthodox capitalist terms.

The outcome of the 1980 negotiations can be deduced from Press statements and from Ministerial speeches in the National Assembly.
– There has been no devaluation.
– Credit control has remained and there have been no important changes in interest rates.
– The Budget, voted on before agreement was reached with the Fund, aims to reduce Government’s recurrent deficit, but not at the expense of Social Services.
– Price Controls have been retained and enforced more effectively.
– Import Controls remain central to planning, although additional foreign exchange has allowed larger allocations to reduce production and transport bottlenecks.
– Minimum wages have been increased by 26% for urban and 36% for rural workers. This increase was announced on the day the IMF team arrived. Salaries have not been increased.
– Economic efficiency: work began, on Tanzanian initiatives, in problem areas before the arrival of the IMF team, in particular in the re-organisation of the National Milling Corporation, which had been making massive losses, and the development of an export strategy.

The conditions which Tanzania has had to accept and which could cause difficulty are limits on Government borrowing, bank lending and arrears of external payments. As targets, these limits are probably close to those of the Tanzanian Government; problems can arise, because if the limits are exceeded, the IMF standby credit automatically stops. The limits are set for each quarter year, but Tanzania works on an annual budget and has big seasonal variations in government borrowing and foreign exchange income. However, it seems that the limits were not exceeded for the September quarter.

The total credits made available by the IMF come to about £100m. (2) Of this only 35 – 40% will actually be available to pay for additional imports, allowing an increase of 4%. The balance of the credits will be used to reduce the arrears of unpaid import bills and repayments of earlier IMF credits. It is not easy to forecast whether the agreement will provide sufficient help to see Tanzania out of its difficulties. Keeping within the quarterly limits will depend on world oil prices and inflation rates, the weather and food supplies. If the IMF limits cannot be kept, the question of the exchange rate is certain to be re-opened, with no prospect of either side changing their view.

Tanzania clearly regards the outcome of the 1980 negotiations as only an interim arrangement and not a real resolution of differences. The problems are not peculiar to Tanzania but originate in the structure of the IMF. It was therefore appropriate that Tanzania should be the host for the South-North Conference on the International Monetary System held on 30th. June to 3rd. July, 1980; this resulted in the ‘Arusha Initiative’, sharply critical of the Fund, proposing major interim changes and, in the longer term, total reconstruction. Minister of Finance Jamal was also able to use his position as Chairman of the 1980 Meeting of the IMF Governors to spell out the Third World’s criticism of the Fund and the changes which were required.

Reginald Herbold Green.

(1) It is well known that increased exports, particularly of primary products, depend on structural and technical changes within Tanzania and cannot be achieved in any marked degree by price manipulation in the short run. The effect of devaluation would therefore be to increase the cost of imports and hamper the changes and adjustments needed in the export industries without yielding any substantial benefits in increased export earnings. The IMF prescription of devaluation rests on the wholly erroneous assumption that export surpluses already exist that could readily be sold abroad if prices were lowered. Ed.

(2) The credit consist of a standby arrangement of SDR 179.6 million during the period to 30th. June, 1982, and a compensatory financing facility of SDR 15 million to help to meet outstanding import costs in the year ending 12th. March, 1980. The value of these credits is roughly £100 million and £8.5 million respectively. The outstanding obligation to the IMF amount to SDR 72.1 million, or roughly £40 million.

1980 is being described as the worst year since Independence. The economy continues to suffer from the effects of the war in Uganda and a poor harvest due to inadequate rain. These problems come on top of the steady decline in the production of export crops and stagnant or falling world prices. From her declining earnings of foreign exchange, Tanzania has to pay increased prices for imports, particularly for oil, which this year is expected to take about 45% of the country’s foreign exchange earnings. In 1972, Tanzania spent 29 million dollars on oil. In 1978, the figure was 278 million dollars.

Petrol is rationed and its sale restricted. In March, the price per litre was put up to sh.7-90. Then, in the budget in June, pump prices were put up between 10 and 50 cents more. As a result of higher prices and controls on sales, consumption in the country of diesel oil and petrol fell by 11.4% between August, 1979, and April this year.

Despite these measures and strict import controls, the value of imports continues to run ahead of exports and the delay in external payments has now reached the equivalent of nine months’ imports. Serious interruptions continue to occur in fuel industrial sector due to shortages of spares and raw materials.

It is now clear that this year’s harvest will be seriously deficient. The short rains, which should have come last November and December, failed, or were insufficient, in 10 out of the 19 Regions and the long rains were very late. The situation has been aggravated by a shift in cultivation from drought resistant crops in some areas, such as cassava and millet, to crops dependent on a reasonable rainfall, such as maize.

Many appeals have gone out for assistance from both the developed world and the oil producers. Tanzania has received some help from OPEC, but nothing approaching the sums OPEC members have received from Tanzania in increased oil payments. Of the oil producers individually, Algeria has lent 30 million dollars at only 3% interest specifically to help Tanzania to recover from the cost of the war with Idi Amin. Algeria was one of the few countries in Africa to come out openly in support of Tanzania’s action. And Iraq has granted a low interest loan of 8 million dollars. Iraq has also guaranteed Tanzania the oil supplies that it needs. Iraq lent Tanzania 30 million dollars last year.

It is interesting to note that in Sweden, Tanzania has now replaced Vietnam as that country’s most favoured aid recipient. Between July, 1980, and July, 1981, Swedish aid to Tanzania will total 95 million dollars. West Germany is to give Tanzania a grant of 732 million shillings to finance a number of development projects during the next financial year. The grant will finance a water project in Arusha town and the reinforcement of bridges on the Central Railway line, the purchase of railway engines for TAZARA (the Chinese-built railway) and road construction in the Usambara hills. Under an agreement signed in Dar es Salaam on 25th. April, the Netherlands granted Tanzania a loan of 420 million shillings for water, livestock, sugar and industrial development projects.

May Day was marked in Tanzania by the announcement of new policies to boost productivity. Chama cha Mapinduzi (the Party) announced that in future workers’ pay would depend on results. For example, if a state owned factory made a loss, none of its workers or managers would be eligible for a pay rise or promotion. Workers might even be liable for pay reductions. But bonuses would be payable where there was increased productivity and profits. The new policy is intended to answer the criticism that Tanzanian socialism offers no incentives. The CCM statement said that financial rewards would be given to scientists and others who made discoveries that boosted economic growth and that workers or managers who failed to perform specific tasks would be penalised.

The National Price Commission has been ordered to scale down the many items on which it controls prices and allow a free market to operate. Meanwhile, the President announced a 20% rise in the national minimum wage to shs.480 a month for an urban worker and shs.340 a month for a rural worker.

In the June Budget, taxes on beer, cigarettes, petrol, spirits and soft drinks were put up. Beer now sells at Sh. ll.OO per half litre. Budgetary expenditure in the coming year will total Sh.l6,382.8 million. Sh.9,342 million is earmarked for development expenditure; the rest is recurrent.

At the meeting of the National Executive Council of the CCM in May a 20 year plan for Tanzania was approved. The plan is scheduled to commence in July next year. Between 1981 and 2001 the CCM plans to increase the GNP from Sh.42,334 million to Sh.136,032 million. Per capita average annual income wi11, it is hoped, be increased from Sh.2,423 to Sh.3,845, and life expectancy is to be raised from the present 47 to 55 years.