Poverty profile Tanzania's Economic Recovery Program initiated in the mid-1980s has improved growth and reduced poverty. Household income surveys show that the headcount rural poverty index fell from 65 percent in 1983 to 51 percent in 1991, and remained broadly the same during 1991-95. About 92 percent of the poor are rural residents; about 40 percent of urban dwellers outside Dar es Salaam are poor. The poor tend to have large families, and they are more likely to be illiterate and isolated from markets. Female-headed households are not likely to be poorer than male-headed households. While women may have access to productive assets, such as land, their ownership is often limited.
Income distribution is uneven. The average adult equivalent expenditure of the top quintile was 6.24 times greater than that of the bottom quintile in 1993; however, the top quintile income group is by no means wealthy; it has a per capita income of US$540 in 1993, almost equivalent to the average per capita income for low and middle income Sub-Saharan African countries. The quality of land, cash and export crop production, and access to education and infrastructure were the main factors contributing to household incomes.
Incentive and regulatory framework The reforms restored incentives, which had been distorted by decades of socialist controls. Controls on agricultural markets and prices were abolished. Restrictions on exports and export receipts and quantitative import controls were lifted. Taxes were simplified; the number of sales tax rates dropped from seven to two in the 1990s. Official exchange rate controls were phased out, and a market-determined system was established in 1994. Interest rate controls and restrictions on private banking were removed. Investments were deregulated, and a about a third of parastatals privatized or liquidated under a reform program initiated in 1993.
With the reforms, GDP growth more than doubled to an average of over 4 percent, reversing the decline in per capita income. The growth was led by agriculture, which expanded at an average annual rate of about 5 percent since the mid-1980s, more than twice the average for African countries. The informal sector expanded faster than official GDP. The share of the urban informal sector in total GDP rose from 10.3 to 14.5 percent between 1985 and 1991. Real export growth averaged about 4-5 percent.
Public resource management Persistent fiscal deficits are a serious threat to sustaining the progress made. The fiscal deficits reflect an underlying ineffective public administration: weak tax administration and weak expenditure management and control, as well as debt overhang. Financially weak state-owned banks and inefficient parastatals add to the fiscal pressure.
Social expenditures are low, despite considerable efforts made to provide more resources to support them. Social indicators stagnated when the economy and revenues declined in the late 1970s and early 1980s, and they remain poor. Private delivery of the social services was restricted until recently.
Safety nets Extended families constitute the principal safety net in Tanzania. In 1991, private transfers accounted for no less than 18 percent of total household income for the poor and very poor. The main government safety net programs (for unemployed youth, orphans of AIDS, elderly and marginalized women and children, the handicapped, and the homeless) are not well targeted on the poor. Given the fiscal crisis, greater focus needs to be put on income generating activities rather than subsidy programs. Offseason, labor-intensive rural infrastructure programs being currently pilot-tested need to have priority.
Poverty strategy Despite the progress, about half of the population still lives in poverty, and the current 4 percent growth rate will not provide dramatic improvements in poverty. At that growth rate, and if income distribution is unchanged, about 35-40 percent of the population will be living in poverty a decade from now.
"Pro-poor" growth policies would give top priority to rural and agricultural development based on small farmer activities. Access to extension services and to markets, water resource development and application of modem inputs would raise productivity and incomes. The new Land Policy stands to strengthen security of tenure, if implemented with close participation at the local level. In the immediate term, the strategy stresses revenue and expenditure measures to attain a stable fiscal stance. Human resource development would stress resource flow to the social sectors, private and local level participation in social service delivery, and selective targeted programs for girls based on income. The strategy would foster private sector development and capacity building emphasizing civil service reform, financial sector reforms and infrastructure development.
Statistical system Official data understate economic activity. Per capita income is estimated officially at US$100, but household surveys indicate a figure closer to US$200. As the private sector expanded with reforms, data provided by parastatals, which used to gather information, no longer reflect overall economic activity. Informal sector activities have flourished with liberalization, but are not adequately documented. Technical assistance being provided for the Bureau of Statistics should help to improve the situation.
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