Tanzania Economy to Receive Government Bailout Package

The Tanzania economy is preparing to receive a bailout package from the government worth billions of shillings in an effort to save local companies that are suffering as a result of the global economic crisis; the plan was compiled by a team of experts led by the Bank of Tanzania and the exact figures are expected to be released later this week.

According to a report by the Citizen, the primary purpose of the bailout package is to keep the current economic growth on track and to provide a form of social security during a time in which there is a fear of job loss in the wake of impending company closures.

“The stimulus plan will target companies-mainly banks – to help them sustain their operations for a period of between six months and two years,” said the minister of Economic Affairs, Mustafa Mkulo, in a recent address to the Parliamentary Committee on Finance and Economy.

In addition, Mr. Mkulo went on to announce the approval of an advance of USD 224 million from the USD 336 million to be released from the International Monetary Fund (IMF) to the Tanzania Government in order to counteract effects of the global crisis.

The Citizen also reported Prof. Benno Ndulu, governor of the Bank of Tanzania (BoT), as saying that the Government’s purpose in activating a bailout package was to try to boost the economy so as to avoid the reversal of nearly a decade of economic growth in the country.

“The most crucial thing for us to do is to minimize the possible interruption in the growth process during the 2009/10 financial year, and to cushion workers against layoffs and high costs of food,” said Prof. Ndulu earlier this year.

The Central Bank chief went on to encourage increased cooperation between the Government and the private sector in additional attempts to counteract the effects of the crisis which is increasingly becoming a threat to the country.

According to the Citizen, Dr. Honest Ngowi, a lecturer at Mzumbe University, the bailout plan is important, but it must also be regulated so as not to instigate massive spending, which could lead to hyperinflation.

“While it is important to stimulate the economy through bailing out specific key industries, there is need to guard against the negative implications of such interventions,” he said.

The Citizen reported Prof. Ndulu as saying that the stimulus package would only be used to help organizations with systematic risks and whose failure would pose a problem for the overall economic well-being of the country.

“Beneficiaries of the stimulus package should be sectors, projects and organizations with systematic risks and whose demise will negatively affect the economy and lives of ordinary people,” he said.

Prof. Ndulu was the acting head of the team which drew up the stimulus package and, according to the Citizen, he indicated that the Government would be seeking to collaborate with the country’s banks in response to the current crisis.

In turn, these banks would be encouraged to open lines of credit to local horticultural, cotton, coffee and sisal farmers in particular in response to lowered exports as a direct result of the falling demand from the traditional European markets.

In addition to this function, the rescue plan will also work to promote infrastructure investments so as to improve the overall production of agricultural production and to attract new investments through the elimination or reformation of some of the current rules and regulations for investors.