Macroeconomic adjustiment, income distribution and poverty in Tanzania: An empirical Investiment of Altenative Demand Shocks and Domestic Policy Changes Using SAM/CGE Approaches

The Government of Tanzania has laid down development strategies towards the achievement of a broad-based growth for the country. The pursuit of the goal entails the implementation of a wide range of policy options. Policy makers would like to know the best policy alternatives to attain such objectives. One would also want to question whether the national economy could experience sustainable growth for the benefit of all Tanzanians. An economy -wide framework is chosen as the appropriate tool of analysis to clarify the issue. Two versions of the framework are selected as they complement each other in clarifying the various aspects of the issue. The first version applied for the first time to the Tanzanian economy is a SAM multiplier model and the second is a computable general equilibrium one. Both models use the 2000 Social Accounting Matrix for Tanzania that allow to analyse in greater details than so far done, issues of poverty and income distribution among different groups of households the major policy measures analysed include trade liberalisation, devaluation, reduction of government spending and improvement of trade and transport. The results from the study indicate that the agriculture focused development strategy is pro-growth, pro-poor and pro-equity. Relative to other sectors, investment in agriculture leads to higher growth of GDP and welfare improvement mainly for the rural poor. The study suggests that there are important economic gains by giving priority to agriculture-based activities as they enhance and integrate the different sectors of the economy and by removing supply bottlenecks in agriculture. The study points out the challenges to be faced when a sound management of the economy in transition such as that of Tanzania is carried out.