Country Report Tanzania May 2009

Outlook for 2009-10

• The president, Jakaya Kikwete, will continue to face the most challenging period of his presidency as economic growth is hit by the global downturn, but the fragmented opposition is unlikely to be able to pose a challenge.
• The ruling Chama Cha Mapinduzi (CCM) is likely to choose Mr Kikwete as its candidate in the 2010 presidential election. He is expected to win, but with a smaller majority on a lower turnout as the electorate expresses its discontent.
• The slowdown in the world economy will lead the government to revisit its economic policy assumptions and it may loosen fiscal policy. It will stick to its pursuit of market-orientated reforms but progress will be slow.
• The global slump will hurt the economy via a slowdown in foreign direct investment, trade and tourism. The Economist Intelligence Unit forecasts real GDP growth of 4.5% in 2009 and 5% in 2010.
• Inflation will ease as food priceswhich account for over 50% of the consumer price indexfall in line with global trends. We therefore forecast an average inflation rate of 10.3% in 2009 and 7% in 2010.
• The current-account deficit is forecast to narrow to an average of 10.4% of GDP in 2009-10 as a result of high gold prices, a strong performance from manufacturing exports and a slump in the oil price.

Monthly review

• An opinion poll conducted by a think-tank, Research for Education and Democracy in Tanzania, shows the president's popularity remaining strong but confidence in the CCM falling from 60% in 2006 to only 32.6% in 2008.
• The main reasons for diminished confidence in the CCM include a failure to fulfil its promises, the poor performance of its leadership and corruption, but the opposition remains unable to fully exploit these concerns.
• Tanzania has stalled negotiations on the East African Community (EAC) Com-mon Market Protocol over three points: the use of national ID cards as travel documents, permanent residency rights and, most contentiously, land access.
• The aim of an operational EAC common market by 2010 is now in doubt. The likely outcome is a two-speed system that allows the other four states to agree on a land-ownership clause while Tanzania signs up to everything else.
• In April the government announced that it had reached a preliminary agree-ment to borrow US$340m under the IMF's exogenous shocks facility, which is likely to be held as reserves rather than used to finance the fiscal deficit.
• There are signs that the inflation rate has peaked and, with reasonable rains so far in 2009, food prices are expected to ease from May onwards.

Source: Country Report