Country Report Tanzania June 2008

Outlook for 2008-09

• The recent cabinet reshuffle is expected to boost the government's position. However, the centralisation of power around the president, Jakaya Kikwete, will limit the effectiveness of policy implementation.
• The two main parties will continue to seek a compromise over the future of Zanzibar: a referendum on a power-sharing agreement is the most likely solution.
• The government's pursuit of market-orientated reforms will include the promotion of private-sector growth by improving infrastructure and reforming the weak legal system, but progress will be slow.
• The economy is forecast to remain strong, with growth averaging 7.1% in 2008-09. Growth will continue to be supported by robust activity in construction, tourism and mining.
• Strong donor inflows will finance a large current-account deficit, which is forecast to be 12.2% of GDP in 2008. The deficit is expected to narrow slightly in 2009, to 10.9% of GDP, as rising tourist receipts boost the services account.
• Inflation will remain high, driven mainly by high food and fuel prices. It is forecast to average 7.8% in 2008, before falling to 6% in 2009.

Monthly review

• A mini-cabinet reshuffle took place following the resignation of the minister of infrastructure development, Andrew Chenge. The promotion of Celina Kombani to minister for local government was welcomed in the local media.
• The solution most likely to emerge from the stalled Muafaka  talks is a referendum on the formation of a government of national unity for Zanzibar, but organised by a body other than the Zanzibar Electoral Commission.
• The Union and Zanzibari governments have reached an agreement to share potential oil and gas revenues found in Zanzibari territorial waters. A consultant will draw up the terms of the agreement by August.
• A review of the current tax structure in the mining sector has been submitted to the president. The presentation of the budget in June is likely to include an announcement on a new tax regime for mining firms.
• A government committee is assessing the possibility of issuing a sovereign bond to fund infrastructure projects as Tanzania seeks to increase its financial autonomy and reduce its dependence on donors.
• Provisional data from the BoT show the current-account deficit widening from 9.5% of GDP to 12.3% of GDP in 2007. This was driven by a huge rise in imports, especially oil, which now comprises almost 30% of the import bill.