It has been accepted that the world financial crisis and economic downturn have affected various sectors of the economy, leading to the revision of projected GDP growth rates.
As observed by the President, the growth rate for 2009 has been reversed from expected 7.5 to 5-6 per cent. According to the economists, the growth rate will be 4 per cent while the International Monetary Fund (IMF) projects at only 3.5 per cent.
The sectors adversely affected are tourism, textile and leather, mining, horticulture, agricultural exports, foreign direct investment and decline in domestic revenue including various tax revenues like customs duty. VAT and excise duty.
The President announced a financial stimulus of Tsh1.7 trillion, which is not intended to replace the annual budget or other development programmes, but is intended to address transitional problems and emergencies, especially liquidity problems caused by the global financial crisis.
It is perceived to be a comprehensive plan to revive all the sectors affected by the global recession. The financial rescue program targets to protect jobs and income generating opportunities and enhance food security as well as sustain investment in the key sectors of the economy .
Due to the decrease in demand for commodities such as cotton, buyers including cooperatives and 24 private buyers in the cotton industry have suffered losses because of a fall in prices from 82 cents per kilo in 2008 to Tsh40 cents per kilo in 2009.
These buyers have fatten loans from commercial banks, which have not been repaid. This means the banks would be unwilling to extend loans for crop purchasing in the coming cotton buying season and farmers would not be able to sell their crops.
The measures taken include the commitment by the government to compensate the companies for losses incurred, amounting to Tsh21.9 billion. It also involves to guarantee some banks. Some of the other measures taken is to guarantee outstanding loans at a ratio of 1:5, meaning in case of possible default the government will pay 20 pc of the bad and doubtful debts owed to banks by cooperatives and other enterprises.
This will not involve debts incurred before the onset of the global economic recession. The amount guaranteed is Tsh270 billion, which means the loans will be repaid after two years during which compound interest will not be charged.
The Government is expected to pay Tsh45 billion for the guarantee of 70 per cent of the loans owed by the ailing enterprises to CRDB and other commercial banks.
The mining sector will, in the two years' period of the rescue package, get a tax holiday in repayment of royalties and this amounts to a loss of 500, 000 in lost royalties and the goal is to prevent them from closing their operations.
As a result of the global economic down turn to all sectors of the economy, 48,000 jobs have already been lost, especially in tourism, horticulture and mining industries as well as leather and textile sectors.
A few years ago credit guarantee schemes were started by the government and these include the SME Credit Guarantee Scheme and Export Credit Guarantee Scheme to enable banks to lend to SMEs and companies involved in export trade.
The SME Credit Guarantee Scheme has been increased to Tsh60 billion and Export Credit Guarantee Scheme to over Tsh250 billion. The export credit guarantee scheme lent to a maximum of Tsh161.5 billion while the SME Credit Guarantee Scheme lent to a maximum of Tsh6.5 billion. This involved the amounts contributed by the government and the banking sector to the schemes.
The scheme also targets to facilitate commercial banks, lending at lower and affordable interest rates to the companies so get cheaper working capital. The Government will lend Tsh80 billion to the banks at an interest rate of two per cent and the banks will be required to lend 1 ½ times of this amount for working capital of enterprises, which amounts to Tsh120 billion, bringing the total to Tsh200 billion.
This means commercial banks and financial institutions in Tanzania have lending rates of up 15-21 per cent to hedge against default to repay the bank loans. The central tenet of the proposed economic resume package is to ensure that there is increased production of food.
To ensure increased loans to farmers, the Tanzania Investment Bank will be recapitalized by Tsh20 billion. A further Tsh20 billion will be given to the Bank of Tanzania (BoT) for importation of tractors and other farm implements.
There will be a Tsh40 billion credit from India for importation of tractors. Subsidized fertilizers through use of the voucher system will be expanded to benefit more farmers with a proposed injection of Tsh46 billion by the Government. That amount will be increased to Tsh92 billion as the world bank is expected to contribute Tsh46 billion to Agricultural inputs funds.
The funds for the strategic grain reserves (SGR) will be increased in order to buy grains to stabilize food prices. Expert banks of ford have not worked because neighbouring countries are offering higher prices for maize and this will be an additional task for the SGR to ensure they buy market prices for farmers' crops equal to those offered by smugglers.
TASAF will get an increase of Tsh30 billion to implement its projects while the Agricultural Sector Development Programme will get a boost of Tsh30 billion. The Chinese Development Bank will cooperative with the Government of Tanzania to establish the proposed Agricultural Development Bank estimated to start with an estimated capital of US$500 million (Tsh660 billion).
The funding of infrastructure development is expected to be sourced domestically possibly through the issue of bonds, considering that there is a lot of money in the hands of the people considering the over subscription in the initial public offer of NMB, DCB and many other companies in the DSE.
The success of the Tsh1.7 trillion package depends on the fact that the recession will not last by more than two years and become bigger in impact. There is a need to re-examine past economic policies because some of these problems are not a result of global economic recession only.
The objective of the proposed fiscal stimulus is to boost production in various sectors of the economy. Other goals are to boost domestic revenue which has declined by ten per cent and create more jobs and income generating opportunities as well as to boost exports and foreign exchange earnings.
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