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WB Tanzania Economic Update 2024: Population Will Double by 2050, People Living in Poverty on The Increase, Smaller Families Needed

WB Tanzania Economic Update 2024 Population

The World Bank (WB) has recently released its 20th Tanzania Economic Update (TEU) under the title “Overcoming Demographic Challenges while Embracing Opportunities”. We provide a summary with the key takeaway points.

The TEU is a biannual report describing the recent evolution of Tanzania’s economy, and each edition highlights a subject of critical interest to policymakers.

This 20th edition focuses on demographic challenges and opportunities and explores the country’s progress toward attaining a demographic dividend, which refers to how improved health and reduced fertility can drive economic growth.

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The WB explains that while Tanzania has seen a rapid drop in infant and child mortality over several decades, there has been only a minimal decline in fertility. As a result, the population growth rate remains high, at 3%. At this rate, the Tanzania population will double in 23 years, increasing demand for social services outstripping the economy’s capacity to provide essential services, such as health and education, and create jobs.

Recent Economic Developments

Tanzania has managed to sustain its growth momentum despite the intensifying effects of climate change.

Tanzania’s real GDP growth rate rose from 4.6% in 2022 to 5.2% in 2023, as a stronger business climate and improved trade balances boosted aggregate demand, offsetting the damaging impact of droughts and floods on household income.

According to the Tanzanian National Bureau of Statistics (NBS), the services sector accounted for half of GDP growth during the first nine months of 2023, led by the strong performance of the financial and insurance, tourism, transportation, and accommodation subsectors.

Agricultural output increased in 2023, albeit at a slower pace, as recurrent floods and droughts destroyed livestock and farm fields, slashing the production of major staple foods.

The industrial sector also sustained its growth momentum, with mining, manufacturing, and construction each contributing about 30% to the sector’s expansion.

Meanwhile, the Bank of Tanzania (BoT) has implemented an effective monetary policy designed to curb inflation and alleviate mounting short-term demand pressure on foreign exchange.

As a result, Tanzania’s headline consumer price index (CPI) inflation rate declined from a five-year peak of 4.9% (y/y) at the beginning of 2023 to just 3% in December, while food inflation slowed from almost 10 percent to 2.3 percent.

Similarly, the cumulative headline inflation rate fell from 4.4% in 2022 to 3.8% in 2023, well below the B)T’s target of 5% for FY2023/24 and regional peers.

The managed growth of monetary aggregates also helped address imbalances in the supply and demand for foreign exchange. Tanzania operates a managed floating exchange rate regime; however, the exchange rate was more flexible to absorb external shocks, especially in the second half of 2023.

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Despite global headwinds, Tanzania’s current account deficit fell from USD 5.3 billion, or 7.7% of GDP, during 11M-2022 to USD 2.8 billion, or about 3.9% of GDP, during 11M-2023.

However, the improving current account balance did not alleviate pressure on the BOT’s foreign exchange reserves. Due to the limited flexibility of the managed float, gross reserves dropped from USD 5.2 billion, or 4.7 months of imports, at end-2022 to UD $4.5 billion, or 4 months of imports, at end-November 2023.

Demographic Challenges

While Tanzania’s recent economic performance has remained strong despite multiple shocks, progress on poverty reduction has been slow as the recent growth has been concentrated in sectors that employ few workers from poor households, limiting its impact on poverty.

The national poverty rate fell from an estimated 27% in 2022 to about 26.5 percent in 2023. However, income gains among poor households have not kept pace with population growth, and the number of people living below the poverty line has increased since 2018 and reached 15 million in 2022.

Moreover, the economic fallout from the COVID-19 pandemic and other exogenous crises have exacerbated poverty in Tanzania, with many workers returning to low-productivity agriculture as a survival strategy.

The vulnerability of Tanzanian households to shocks is the main cause of the economy’s slow structural transformation, underscoring the importance of building resilience by providing adequate healthcare and a robust social protection system, WB stresses.

With real GDP hovering around 5% (2023), the country’s fundamental challenge remains how to make growth more inclusive and how to create education opportunities and better jobs for all Tanzanians.

There is growing global recognition that rapid population growth can be an impediment to countries’ development prospects and aspirational goals.

With a 3% annual population growth rate, the population of Tanzania is estimated to double every 23 years, making it more costly to build human capital.

The size of the Tanzanian population projected under three scenarios will range from about 120 million to 141 million by 2050, depending on the fertility rate.

Economic Outlook

An improving business climate and the implementation of structural reforms are expected to boost annual GDP growth to 5.6% in 2024, 6.0% in 2025, and 6.4% in 2026.

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Increased public and private investment are expected to boost domestic demand and exports, while reforms to improve the business climate, and expanded government outreach to foreign businesses will further encourage investment in Tanzania.

The government has already approved new legislation designed to promote investment, including amendments to the law on public-private partnerships (PPPs), improvements in tax administration, and measures to reduce the cost of regulatory compliance.

GDP Growth is forecast to average about 6% over the medium term as demand strengthens while inflationary pressures ease and interest rates decline.

The headline inflation rate is expected to fall below 4% over the medium term as global commodity prices continue to ease, planned investments in agriculture bolster the domestic food supply, and the central bank pivots from monetary targeting to an interest-rate-based framework.

Meanwhile, the current account balance is expected to improve further and will be largely financed by concessional external borrowing and foreign direct investment.

Priority Reforms

While Tanzania’s recovery continues to accelerate, several serious threats cloud its economic outlook.

Key risks include the slow or incomplete implementation of structural reforms, the damaging effects of climate change on the agriculture and tourism sectors, and the possibility of a global recession caused by fiscal and monetary policy tightening in advanced economies and major emerging markets and developing economies (EMDEs).

To mitigate these risks, policymakers must accelerate structural reforms as part of a sustained effort to attract greater private investment and spur resilient and inclusive private-sector-led growth.

Over the longer term, one of the country’s key challenges will be to complete its structural economic transformation, which will require creating a more favorable business climate to support the growth of the industrial and services sectors while boosting agricultural productivity.

Another key long-term growth challenge will be achieving more balanced and inclusive growth. Good policies are needed to reap the “demographic dividend”, the economic benefit that can take place when a country undergoes a rapid decline in mortality, followed by a rapid decline in fertility, thus producing smaller, healthier families and a youth cohort that can be educated and empowered to enter the labor market with appropriate skills.

In this regard, the WB highlights that global evidence has shown that female education is the dominant socioeconomic determinant of fertility transitions. The Bank advises intensified efforts to expand access and strengthen the completion of secondary education for girls. To ensure that girls take advantage of the government’s strong commitment to secondary education, it will be important to pass legislation raising the minimum marriage age to 18 years.

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