Tanzania’s economy will grow by a median 6.7 per cent this year from 7.0 per cent last year, weighed down by chronic energy shortages, a Reuters poll showed on Wednesday.
The median forecast by a poll of 11 analysts showed gross domestic product would rebound to 7.1 per cent next year in east Africa’s second-largest economy.
“Downside risks to the growth outlook emanate mostly from the power rationing that has been going on in the country. It has compelled firms to resort to less productive sources of power,” said Phumelele Mbiyo, economist for Standard Bank.
Tanzania has said it would target average economic growth of 8-to-10 per cent annually over the next five years to revamp the agriculture, infrastructure and industrial sectors.
But the country’s heavy reliance on hydropower coupled with frequent power shortages during dry seasons make that unlikely.
The International Monetary Fund (IMF) cut its 2011 growth forecast for Tanzania to 6 per cent from 7.2 per cent in March, saying frequent power outages would hurt output while food and fuel prices could push inflation higher.
The poll showed headline inflation set to rise to a median 10.1 per cent this year and decline to 7.1 per cent next year.
Tanzania posted an inflation rate of 5.5 per cent in 2010 before leaping in July to 13 per cent, in line with double-digit inflation affecting the east African region.
The central bank has a medium-term target of 5.0 per cent.
“Inflation is still heading higher even though food inflation still remains relatively subdued compared with other countries in the region.”
“The depreciation of the currency presents some upside risks to inflation, but we believe inflation is close to peaking.” Mr. Mbiyo said.
Tanzanian Finance Minister Mustafa Mkulo said the country’s economic performance was dependent on prevailing global economic conditions, which have taken a battering with U.S. and euro zone debt woes.
The current account balance is seen with a deficit of 9.9 per cent of GDP for this year and next year.
“Tanzania’s perennial current account deficit will continue to be a structural weakness for the economy over the coming years,” said Matthew Searle, sub-Sahara Africa analyst at Business Monitor International.
Tanzania’s current account deficit widened to $2.6-billion (U.S.) in the year to May from $2.53-billion in the year-ago period, mostly due to an increase in the value of oil imports.
“Indeed, higher prices for oil – the country’s major import – will more than offset the benefit of elevated prices for its biggest foreign currency earner – gold – driving a growing deficit in the trade account.” Mr. Searle added.