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.