Question 21N.2.SL.TZ0.b
| Date | November 2021 | Marks available | [Maximum mark: 4] | Reference code | 21N.2.SL.TZ0.b |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | b | Adapted from | N/A |
Infrastructure projects in Tanzania
- In 2018, Tanzania’s gross domestic product (GDP) grew by 7 %. But the trade balance deteriorated, with exports declining and imports increasing. Moreover, limits on government current expenditure and lower levels of inward foreign direct investment (FDI) suggest that GDP growth will weaken to 5 % in 2019. Inflation will stay low through 2019, due to lower prices for food and raw materials.
- The government has promised reforms to improve the business environment and fiscal management. However, the budget deficit is forecast to increase from 2.3 % of GDP to 4 % of GDP by 2020.
- Government investment in large-scale projects, such as the construction of railway lines, dams for electricity generation, bridges, roads and airports, could lead to annual economic growth of 10 %. These projects, however, are financed mainly by loans from commercial banks with a short repayment period and high interest rates. Therefore, the national debt and the cost of debt servicing are increasing. The national debt has risen from US$22 billion in 2015 to US$28.6 billion in 2019.
- The Minister for Finance and Planning is optimistic that the debt is sustainable. “The debt assessment shows we can continue to borrow locally and abroad to finance development activities and pay off matured loans using our internal and external revenue,” he said. According to the central bank, the transport and telecommunication sectors received a greater share of the funding, accounting for 26.8 % of the debt, followed by social welfare, education, energy and mining.
- All the large infrastructure projects use some materials imported from abroad, such as steel. Therefore, the current account deficit will widen further due to increased imports of resources necessary for production. The government’s ability to use its expenditure to stimulate domestic production will be reduced, because funds are being sent overseas to external lenders and construction firms.
- Tanzania is undergoing a structural change with a higher proportion of the labour force working in the manufacturing and service sectors, while agriculture is employing fewer workers. Despite a reduction in the poverty rate, the absolute number of poor people is still high due to population growth. According to a World Bank report, almost half the population lives on less than US$1.90 per person per day. It concludes that the poor have benefited relatively less from recent economic growth, resulting in an increase in income inequality from 2015 to 2019.
- Further investments in human capital, targeted towards the poor, are needed to increase access to higher-skilled jobs. However, government efforts to expand public services, including education, health, and sanitation and clean water facilities, have been undermined by their declining quality as the population rises faster than the supply of the services. Therefore, the levels of education and basic services remain low, particularly for the poorest and those living in rural areas.
[Source: The World Bank, 2020. The World Bank In Tanzania [online] Available at: https://www.worldbank.org/en/country/
tanzania/overview [Accessed 29 September 2020] Source adapted.
The World Bank, 2020. Modest Reduction in Poverty in Tanzania: More Can Be Done to Accelerate Pro-Poor Growth
[online] Available at: https://www.worldbank.org/en/news/press-release/2019/12/11/modest-reduction-in-poverty-intanzania-
more-can-be-done-to-accelerate-pro-poor-growth [Accessed 29 September 2020] Source adapted.
Kabwe, Z., 2020. Tanzania elections: Life has got worse under Magufuli. We need change. [online] Available at:
https://africanarguments.org/2020/01/08/tanzania-elections-life-has-got-worse-under-magafuli-we-need-change/
[Accessed 29 September 2020] Source adapted.
Materu, B., 2020. Debt is within limits, says Tanzania [online] Available at: https://www.theeastafrican.co.ke/business/
Debt-is-within-limits-Tanzania/2560-5408196-10c4mla/index.html [Accessed 29 September 2020] Source adapted.]
Using an AD/AS diagram, explain how “lower prices for food and raw materials” might put downward pressure on inflation (paragraph [1]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS, the vertical axis may be price level or average/general price level.
The horizontal axis may be real output, real national output, real income, real national income, real GDP or real Y. Any abbreviation is acceptable.
A title is not necessary.
NB Candidates may alternatively draw a Keynesian AS curve shifting to the right.
Most candidates could establish that lower prices for food and raw materials would lead to lower cost-push inflation. In some cases, candidates shifted the AD and/or LRAS curves instead and could not be awarded marks for the diagram. Some candidates chose to illustrate the lower inflationary pressures on a Keynesian diagram. While that is a valid approach, the shift of the Keynesian AS was seldom adequate.
