## 2. The Business Environment Indicators, 2023

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---

### A. Executive summary and key findings
- Using World Bank Enterprise Surveys (ES) firm-level data for Tanzania, the study finds statistically significant evidence that:
  - Cumbersome tax administration is associated with lower firm TFP in the manufacturing sector.
  - Limited access to finance is associated with lower firm TFP in the manufacturing sector.
  - Limited access to transport is associated with lower firm TFP in the manufacturing sector.
- While regression coefficients are not statistically significant, non-parametric relationships show negative associations between TFP and:
  - The regulatory burden.
  - Power outage.
- No clear evidence is found for a relationship between incidence of corruption and firm TFP.
- Policy implication highlighted: prioritize structural reforms to improve the efficiency of tax administration, ease the regulatory burden, and improve access to finance and reliable infrastructure, consistent with Vision 2050 and Blueprint for Regulatory Reforms II.

### B. Context and macro-structural background
- Real GDP grew at an annual average rate of about 6 percent during 2000-23.
- Share of gross fixed capital formation to GDP increased from about 19 to 43 percent during 2000-23.
- Private sector fixed capital formation:
  - Contributed more than half of growth in total gross fixed capital formation during 2000-11.
  - Declined by 1 ppts of GDP during 2011-23.
- FDI declined from about 5.7 percent of GDP in 2010 to about 2 percent of GDP in 2023.
- TFP contribution to real GDP growth:
  - 1.6 ppts in the 2000s.
  - -0.1 ppts in the 2010s.
  - -2 during 2020-23.
- Structural change contribution to total labor productivity:
  - 72 percent during 2006-2014.
  - -5 percent during 2014-2021 (implying 105 percent of labor productivity during 2014-2021 was driven by within-sector productivity gains, World Bank, 2023a).
- Merchandise exports to GDP declined by about 4½ ppts to 9.2 percent during 2011-23.
- Share of manufactured goods in total merchandise exports declined by about 4 percent to about 12 percent during 2011-23.

### C. Business environment indicators (2023 ES evidence)
- Regulatory burden:
  - Senior management time spent dealing with regulations: 14 percent for Tanzanian firms versus an average of 8 percent for SSA and lower middle-income countries (LMICs).
  - Key regulatory challenges: high costs to start and operate a business, cumbersome licensing, redundant processes.
  - Blueprint for Regulatory Reform (2018) aims to: (i) adopt and implement mechanisms that promote and ensure an efficient regulatory policy; (ii) simplify the business-regulatory regime to avoid duplications and overlaps; (iii) promote regulatory transparency using ICT platforms.
  - Authorities’ evaluation reports progress (reduction of fees, electronic systems, one-stop centers, consolidation), but outstanding challenges remain: insufficient harmonization, overlapping roles, inadequate personnel at one-stop centers, system slowdowns/outages, proliferation of electronic systems, new fees and regulations by local governments.
- Tax burden:
  - Tanzanian taxpayers face more frequent visits than taxpayers in SSA and LMICs.
  - Practices by the Tanzania Revenue Authority (TRA) include issuing agency notices and seizing money from taxpayers’ bank accounts without proper legal recourse.
  - These practices led to countrywide strikes by domestic retail traders and diplomatic calls for dialogue in mid-2024.
  - The income tax on companies with perpetual unrelieved loss for three consecutive years discourages startup firms.
  - VAT refund process:
    - VAT Act allows a business (other than qualifying exporters) to claim a refund six months after it arose.
    - Contrasts with good practices where refunds are paid or declined within 30 days from when the return is filed.
    - VAT refund claimants must submit a ‘Certificate of Genuineness’ from a TRA-registered tax consultant, effectively auditing all refunds irrespective of risk.
- Access to finance:
  - Outstanding domestic credit to the private sector in Tanzania: 16.4 percent of GDP (as of 2023).
  - Comparators: Kenya 31.6 percent, Rwanda 22.7 percent, Sub-Saharan Africa average 33.4 percent (2022).
  - In the 2023 ES, access to finance is ranked by Tanzanian firms as the most binding constraint.
  - About 84 percent of firms relied on own funds to finance purchases of fixed assets.
  - Financial sector characteristics: shallow, underdeveloped, dominated by banks; nascent capital markets; constrained by underdeveloped financial market infrastructure, limited availability of credit information, and lack of effective collateral registry system.
- Access to electricity:
  - Access to electricity increased from 14.8 percent of the population in 2010 to 48.3 percent in 2023.
  - Peer country levels: Kenya 76.2 percent; Rwanda 63.9 percent; Uganda 51.5 percent.
  - Percent of firms experiencing electrical outages is low compared to regional averages, but service reliability and quality remain problematic due to network deterioration (overloaded transformers, long distribution feeders, poorly configured networks, limited operations and maintenance).
- Corruption:
  - 7 percent of firms reported experiencing at least one bribe payment request in the 2023 ES, versus SSA average 21 percent and LMIC average 18 percent.
  - Transparency International corruption perceptions index score improved by 11 points during 2015-24 to 41.
  - Authorities launched the National Anti-Corruption Strategy and Action Plan Phase Four (NACSAP IV) 2023-2030.
- Transport:
  - Share of firms reporting transportation as a major or severe obstacle declined from 38.2 percent in 2013 to 9.4 percent in 2023.
  - Road density remains low at 9.6 km per 100 km2 of land area.

### D. Empirical framework, data, and methodology
- Data sources:
  - World Bank Enterprise Surveys (ES) for Tanzania: 2006 (394 firms), 2013 (698 firms), 2023 (600 firms).
  - Firm-level TFP data for manufacturing sector firms from Francis et al (2020), specifically tfprVAKL computed using a translog production function of firms’ value-added.
  - Analysis limited to firms with majority private ownership (over 50 percent).
- Limitations of TFP data:
  - TFP computed only for manufacturing sector firms.
  - Overlapping firms across survey years do not have TFP data, preventing fixed/random effects panel models.
- Estimation approach:
  - Pooled OLS applied to the specification:
    - TFP_it = β0 + β1 BE_it + β2 X_it + ε_it
    - ‘i’ and ‘t’ denote firm and year indices.
    - ‘BE’ is a vector of business environment indicators: regulatory burden, tax burden, access to finance, power outages, corruption/bribery, access to electricity and transport.
    - ‘X’ is a vector of firm-specific control variables.
    - ε is an unobserved error term.
  - Business environment indicators enter regressions one at a time with controls to mitigate multicollinearity, following Fernandes (2008) and Augier et al (2012).
- Definitions of BE indicators used:
  - Regulatory burden: senior management time spent dealing with regulatory requirements.
  - Tax burden: number of visits or required meetings with tax officials.
  - Corruption: percent of public transactions for which a gift or informal payment was required (bribery depth).
  - Access to electricity: dummy for a firm experiencing power outage in the previous fiscal year.
  - Access to transportation: dummy for a firm identifying transportation as a major or severe obstacle.

### Control variables and methodology
- Key control variables used in regressions: firm size, firm age, share of products exported, dummy for foreign ownership (>=50), share of skilled workers, manager’s year of experience, and dummies for firm location and year.
- Data source for all control variables is the ES.
- Except for size, location, and year dummies, only statistically significant control variables were retained for parsimony.
- Binscatter plots were used for non-parametric visualization of TFP relationships with business-environment (BE) indicators.

### Simple correlations (non-parametric visual evidence)
- Firms identifying access to finance as a major constraint tend to have lower TFP.
- TFP is negatively correlated with senior management time spent dealing with government regulations (regulatory burden) and the number of visits/required meetings with tax officials.
- Firms experiencing power outages and firms that identify transportation as a major/severe obstacle have lower TFP.
- No clear evidence of correlation between TFP and the percent of public transactions where a gift or informal payment was required (corruption).

### Regression results: magnitudes and significance
- Indicators for regulation, power outage, and corruption have negative signs but coefficients are not statistically significant.
- Statistically significant negative associations:
  - Tax administration: Each visit by tax officials to the firm is associated with a decline in TFP by 0.06 ppt (coefficient reported as -0.0581** in Table 1).
  - Access to finance: Firms that identify access to finance as a major/severe obstacle have a 0.3 ppt lower TFP than those which do not (coefficient reported as -0.282* in Table 1).
  - Access to transport: Firms that identify access to transport as a major/severe obstacle have a 0.4 ppt lower TFP than those which do not (coefficient reported as -0.386** in Table 1).

### Regression control-variable findings (from Table 1)
- Firm age: positive and significant (examples of coefficients: 0.0180**, 0.0122*, 0.0134**, 0.0129*, 0.0141**, 0.0135**).
- Foreign ownership (>=50): positive and significant (examples of coefficients: 0.567*, 0.583*, 0.549*, 0.563*, 0.526*, 0.549*).
- Export share, worker skills, and manager’s experience: statistically insignificant (export share and manager’s experience had unexpected negative signs).
- Year dummies: Years 2013 and 2023 associated with lower average TFP than 2006 but coefficients are not statistically significant.
- Location dummies:
  - Dar Es Salaam and Zanzibar: likely more productive on average than Arusha (benchmark); Zanzibar coefficients include 0.765*, 0.850**, 0.845**, 0.857**, 1.010***, 0.766** across specifications.
  - Other regions: not statistically different from Arusha.
- Firm size: Large firms (>=100) have statistically significant lower average TFP than small firms (large firm coefficients include -0.633**, -0.454*, -0.578**, -0.509**, -0.307, -0.481*). Medium firms (20-99) coefficients not statistically significant.
- Regression sample sizes and fit:
  - Observations across specifications: 447, 477, 479, 476, 431, 479.
  - R-squared across specifications: 0.060, 0.065, 0.064, 0.061, 0.059, 0.066.
  - F-value across specifications: 1.95*, 2.67***, 2.51***, 2.06**, 2.05**, 2.61***.
- Robust standard errors reported in parentheses; statistical significance denoted as *** p<0.01, ** p<0.05, * p<0.1.

### Concluding analytical findings
- Using the World Bank’s Enterprise Survey, the study finds evidence that obstacles to the business environment are associated with lower firm productivity in Tanzania.
- Specifically, limited access to finance, burdensome tax administration, and limited access to transport are associated with lower TFP with statistically significant coefficients.
- No statistically significant association was found between TFP and regulatory burden or power outages in the regression, despite:
  - Diagnostic evidence (including authorities’ work) identifying regulatory burden as a major constraint.
  - A large share of firms (34 percent) reporting having experienced power outages, indicating electricity access remains an important area for improvement.
- Both non-parametric and regression analyses do not show a clear association between TFP and indicators of corruption, consistent with progress in reducing corruption noted in the source.

### Policy recommendations (structural reforms emphasized)
- Improving access to finance:
  - Expand quality of credit information.
  - Establish a legal framework for collateral secured transactions and collateral registries.
  - Upgrade digital infrastructure (e.g., payment systems, digital ID, and data sharing) to expand digital financial services.
- Enhancing efficiency of tax administration:
  - Continue automating tax systems.
  - Strengthen risk-based compliance management framework.
  - Increase capacity of the TRA to reduce need for in-person meetings.
  - Complete and implement automation of the VAT refund process to reduce undue delays.
- Easing the regulatory burden:
  - Streamline regulatory requirements, avoid loopholes and duplications.
  - Consolidate regulatory agencies.
  - Automate regulatory procedures, including measures envisaged under Blueprint II.
- Upgrading infrastructure:
  - Continue investments in road and railway infrastructure to ease transport constraints.
  - Improve reliability of electricity service via grid stabilization, network rehabilitation, reinforcement, and digital technologies to enhance operational flexibility.
  - Ensure electricity tariffs are cost reflective to enable TANESCO to perform required operations and maintenance without relying on budget support.

*Prepared by Melesse Tashu. Source: World Bank Enterprise Surveys and IMF staff calculations as presented in the chapter "The Business Environment Indicators, 2023."*

### 2.   The Business Environment Indicators, 2023 _________________________________________ 6

### 2. The Business Environment Indicators, 2023

### A. Executive summary and key findings
- Using World Bank Enterprise Surveys (ES) firm-level data for Tanzania, the paper finds statistically significant evidence that:
  - Cumbersome tax administration is associated with lower firm TFP in the manufacturing sector.
  - Limited access to finance is associated with lower firm TFP in the manufacturing sector.
  - Limited access to transport is associated with lower firm TFP in the manufacturing sector.
- While regression coefficients are not statistically significant, non-parametric relationships show negative associations between TFP and:
  - The regulatory burden.
  - Power outage.
- No clear evidence is found for a relationship between incidence of corruption and firm TFP.
- Policy implication highlighted: prioritize structural reforms to improve the efficiency of tax administration, ease the regulatory burden, and improve access to finance and reliable infrastructure, consistent with Vision 2050 and Blueprint for Regulatory Reforms II.

### B. Context and macro-structural background
- Real GDP grew at an annual average rate of about 6 percent during 2000-23.
- Share of gross fixed capital formation to GDP increased from about 19 to 43 percent during 2000-23.
- Private sector fixed capital formation:
  - Contributed more than half of growth in total gross fixed capital formation during 2000-11.
  - Declined by 1 ppts of GDP during 2011-23.
- FDI declined from about 5.7 percent of GDP in 2010 to about 2 percent of GDP in 2023.
- TFP contribution to real GDP growth:
  - 1.6 ppts in the 2000s.
  - -0.1 ppts in the 2010s.
  - -2 during 2020-23.
- Structural change contribution to total labor productivity:
  - 72 percent during 2006-2014.
  - -5 percent during 2014-2021 (implying 105 percent of labor productivity during 2014-2021 was driven by within-sector productivity gains, World Bank, 2023a).
- Merchandise exports to GDP declined by about 4½ ppts to 9.2 percent during 2011-23.
- Share of manufactured goods in total merchandise exports declined by about 4 percent to about 12 percent during 2011-23.

### C. Business environment indicators (2023 ES evidence)
- Regulatory burden:
  - Senior management time spent dealing with regulations: 14 percent for Tanzanian firms versus an average of 8 percent for SSA and lower middle-income countries (LMICs).
  - Key regulatory challenges: high costs to start and operate a business, cumbersome licensing, redundant processes.
  - Blueprint for Regulatory Reform (2018) aims to: (i) adopt and implement mechanisms that promote and ensure an efficient regulatory policy; (ii) simplify the business-regulatory regime to avoid duplications and overlaps; (iii) promote regulatory transparency using ICT platforms.
  - Authorities’ evaluation reports progress (reduction of fees, electronic systems, one-stop centers, consolidation), but outstanding challenges remain: insufficient harmonization, overlapping roles, inadequate personnel at one-stop centers, system slowdowns/outages, proliferation of electronic systems, new fees and regulations by local governments.
- Tax burden:
  - Tanzanian taxpayers face more frequent visits than taxpayers in SSA and LMICs.
  - Practices by the Tanzania Revenue Authority (TRA) include issuing agency notices and seizing money from taxpayers’ bank accounts without proper legal recourse.
  - These practices led to countrywide strikes by domestic retail traders and diplomatic calls for dialogue in mid-2024.
  - The income tax on companies with perpetual unrelieved loss for three consecutive years discourages startup firms.
  - VAT refund process:
    - VAT Act allows a business (other than qualifying exporters) to claim a refund six months after it arose.
    - Contrasts with good practices where refunds are paid or declined within 30 days from when the return is filed.
    - VAT refund claimants must submit a ‘Certificate of Genuineness’ from a TRA-registered tax consultant, effectively auditing all refunds irrespective of risk.
- Access to finance:
  - Outstanding domestic credit to the private sector in Tanzania: 16.4 percent of GDP (as of 2023).
  - Comparators: Kenya 31.6 percent, Rwanda 22.7 percent, Sub-Saharan Africa average 33.4 percent (2022).
  - In the 2023 ES, access to finance is ranked by Tanzanian firms as the most binding constraint.
  - About 84 percent of firms relied on own funds to finance purchases of fixed assets.
  - Financial sector characteristics: shallow, underdeveloped, dominated by banks; nascent capital markets; constrained by underdeveloped financial market infrastructure, limited availability of credit information, and lack of effective collateral registry system.
- Access to electricity:
  - Access to electricity increased from 14.8 percent of the population in 2010 to 48.3 percent in 2023.
  - Peer country levels: Kenya 76.2 percent; Rwanda 63.9 percent; Uganda 51.5 percent.
  - Percent of firms experiencing electrical outages is low compared to regional averages, but service reliability and quality remain problematic due to network deterioration (overloaded transformers, long distribution feeders, poorly configured networks, limited operations and maintenance).
- Corruption:
  - 7 percent of firms reported experiencing at least one bribe payment request in the 2023 ES, versus SSA average 21 percent and LMIC average 18 percent.
  - Transparency International corruption perceptions index score improved by 11 points during 2015-24 to 41.
  - Authorities launched the National Anti-Corruption Strategy and Action Plan Phase Four (NACSAP IV) 2023-2030.
- Transport:
  - Share of firms reporting transportation as a major or severe obstacle declined from 38.2 percent in 2013 to 9.4 percent in 2023.
  - Road density remains low at 9.6 km per 100 km2 of land area.

### D. Empirical framework, data, and methodology
- Data sources:
  - World Bank Enterprise Surveys (ES) for Tanzania: 2006 (394 firms), 2013 (698 firms), 2023 (600 firms).
  - Firm-level TFP data for manufacturing sector firms from Francis et al (2020), specifically tfprVAKL computed using a translog production function of firms’ value-added.
  - Analysis limited to firms with majority private ownership (over 50 percent).
- Limitations of TFP data:
  - TFP computed only for manufacturing sector firms.
  - Overlapping firms across survey years do not have TFP data, preventing fixed/random effects panel models.
- Estimation approach:
  - Pooled OLS applied to the specification:
    - TFP_it = β0 + β1 BE_it + β2 X_it + ε_it
    - ‘i’ and ‘t’ denote firm and year indices.
    - ‘BE’ is a vector of business environment indicators: regulatory burden, tax burden, access to finance, power outages, corruption/bribery, access to electricity and transport.
    - ‘X’ is a vector of firm-specific control variables.
    - ε is an unobserved error term.
  - Business environment indicators enter regressions one at a time with controls to mitigate multicollinearity, following Fernandes (2008) and Augier et al (2012).
- Definitions of BE indicators used:
  - Regulatory burden: senior management time spent dealing with regulatory requirements.
  - Tax burden: number of visits or required meetings with tax officials.
  - Corruption: percent of public transactions for which a gift or informal payment was required (bribery depth).
  - Access to electricity: dummy for a firm experiencing power outage in the previous fiscal year.
  - Access to transportation: dummy for a firm identifying transportation as a major or severe obstacle.

*Prepared by Melesse Tashu. Source: World Bank Enterprise Surveys and IMF staff calculations as presented in the chapter "The Business Environment Indicators, 2023."*

### 16.      Key control variables include firm size and age, share of products exported, dummy for

### 1tzaea2025002-print-pdf - 16.      Key control variables include firm size and age, share of products exported, dummy for

### Control variables and methodology
- Key control variables used in regressions: firm size, firm age, share of products exported, dummy for foreign ownership (>=50), share of skilled workers, manager’s year of experience, and dummies for firm location and year.
- Data source for all control variables is the ES.
- Except for size, location, and year dummies, only statistically significant control variables were retained for parsimony.
- Binscatter plots were used for non-parametric visualization of TFP relationships with business-environment (BE) indicators (binscatter explanation retained in source).

### Simple correlations (non-parametric visual evidence)
- Firms identifying access to finance as a major constraint tend to have lower TFP.
- TFP is negatively correlated with senior management time spent dealing with government regulations (regulatory burden) and the number of visits/required meetings with tax officials.
- Firms experiencing power outages and firms that identify transportation as a major/severe obstacle have lower TFP.
- No clear evidence of correlation between TFP and the percent of public transactions where a gift or informal payment was required (corruption).

### Regression results: magnitudes and significance
- Indicators for regulation, power outage, and corruption have negative signs but coefficients are not statistically significant.
- Statistically significant negative associations:
  - Tax administration: Each visit by tax officials to the firm is associated with a decline in TFP by 0.06 ppt (coefficient reported as -0.0581** in Table 1).
  - Access to finance: Firms that identify access to finance as a major/severe obstacle have a 0.3 ppt lower TFP than those which do not (coefficient reported as -0.282* in Table 1).
  - Access to transport: Firms that identify access to transport as a major/severe obstacle have a 0.4 ppt lower TFP than those which do not (coefficient reported as -0.386** in Table 1).

### Regression control-variable findings (from Table 1)
- Firm age: positive and significant (examples of coefficients: 0.0180**, 0.0122*, 0.0134**, 0.0129*, 0.0141**, 0.0135**).
- Foreign ownership (>=50): positive and significant (examples of coefficients: 0.567*, 0.583*, 0.549*, 0.563*, 0.526*, 0.549*).
- Export share, worker skills, and manager’s experience: statistically insignificant (export share and manager’s experience had unexpected negative signs).
- Year dummies: Years 2013 and 2023 associated with lower average TFP than 2006 but coefficients are not statistically significant.
- Location dummies:
  - Dar Es Salaam and Zanzibar: likely more productive on average than Arusha (benchmark); Zanzibar coefficients include 0.765*, 0.850**, 0.845**, 0.857**, 1.010***, 0.766** across specifications.
  - Other regions: not statistically different from Arusha.
- Firm size: Large firms (>=100) have statistically significant lower average TFP than small firms (large firm coefficients include -0.633**, -0.454*, -0.578**, -0.509**, -0.307, -0.481*). Medium firms (20-99) coefficients not statistically significant.
- Regression sample sizes and fit:
  - Observations across specifications: 447, 477, 479, 476, 431, 479.
  - R-squared across specifications: 0.060, 0.065, 0.064, 0.061, 0.059, 0.066.
  - F-value across specifications: 1.95*, 2.67***, 2.51***, 2.06**, 2.05**, 2.61***.
- Robust standard errors reported in parentheses; statistical significance denoted as *** p<0.01, ** p<0.05, * p<0.1.

### Concluding analytical findings
- Using the World Bank’s Enterprise Survey, the study finds evidence that obstacles to the business environment are associated with lower firm productivity in Tanzania.
- Specifically, limited access to finance, burdensome tax administration, and limited access to transport are associated with lower TFP with statistically significant coefficients.
- No statistically significant association was found between TFP and regulatory burden or power outages in the regression, despite:
  - Diagnostic evidence (including authorities’ work) identifying regulatory burden as a major constraint.
  - A large share of firms (34 percent) reporting having experienced power outages, indicating electricity access remains an important area for improvement.
- Both non-parametric and regression analyses do not show a clear association between TFP and indicators of corruption, consistent with progress in reducing corruption noted in the source.

### Policy recommendations (structural reforms emphasized)
- Improving access to finance:
  - Expand quality of credit information.
  - Establish a legal framework for collateral secured transactions and collateral registries.
  - Upgrade digital infrastructure (e.g., payment systems, digital ID, and data sharing) to expand digital financial services.
- Enhancing efficiency of tax administration:
  - Continue automating tax systems.
  - Strengthen risk-based compliance management framework.
  - Increase capacity of the TRA to reduce need for in-person meetings.
  - Complete and implement automation of the VAT refund process to reduce undue delays.
- Easing the regulatory burden:
  - Streamline regulatory requirements, avoid loopholes and duplications.
  - Consolidate regulatory agencies.
  - Automate regulatory procedures, including measures envisaged under Blueprint II.
- Upgrading infrastructure:
  - Continue investments in road and railway infrastructure to ease transport constraints.
  - Improve reliability of electricity service via grid stabilization, network rehabilitation, reinforcement, and digital technologies to enhance operational flexibility.
  - Ensure electricity tariffs are cost reflective to enable TANESCO to perform required operations and maintenance without relying on budget support.

### Human capital and social spending highlights (selected context from subsequent section)
- Demographics and needs:
  - Almost half of Tanzanians are under 18 years of age.
  - Population projected to double to more than 130 million by 2050.
- Health and education gaps:
  - One-third of children under 5 years are stunted.
  - Student-teacher ratios: pre-primary 163, primary 61, lower-secondary 27.
  - Addressing human resources gap of about 66 percent in health would require hiring some 200,000 health workers.
- Priority Social Spending (PSS):
  - PSS declined to 5.5 percent of GDP in FY20/21, rose temporarily to 6.7 percent of GDP in FY21/22, reached 6.7 percent of GDP in FY23/24, and a plan to reach 7.1 percent of GDP by end FY24/25 (supplementary budget increased PSS by 0.2 percent of GDP).
  - Over the past three years, increases concentrated in “Other” PSS (0. 8 pp of GDP) and social protection (0.3 pp), with no progress on health and a marginal 0.1 pp increase in education spending.
- Authorities’ reforms:
  - Education: increase mandatory education from 6 to 10 years (one year pre-primary, seven years primary, two years lower secondary), curriculum revision focused on STEM and life skills, improved TVET, and teacher training.
  - Health: UHI Act (November 2023) establishes framework for mandatory health insurance and subsidized premiums for low-income citizens; initiatives to train over a hundred thousand community health workers.

*UNITED REPUBLIC OF TANZANIA  INTERNATIONAL MONETARY FUND*

### 8.      The forthcoming Development Vision 2050 aims to transform Tanzania into a

### 8. The forthcoming Development Vision 2050 aims to transform Tanzania into a prosperous, inclusive, and self-reliant country by 2050.

### Vision overview
- Focuses on economic growth, human development, and social justice, building on progress made under Development Vision 2025.
- Places human capital at its center and outlines ambitious goals for education and health to contribute to inclusive socio-economic growth and sustainable development.
- Education priorities:
  - Improve quality, accessibility, and relevance of education.
  - Prioritize investment in early childhood and lifelong learning to develop a highly skilled and competitive workforce.
- Health priorities:
  - Ensure universal healthcare coverage, reduce mortality rates, improve quality of healthcare services, and ensure access to essential health services for all citizens.
  - Emphasize prevention, maternal and child health, and addressing non-communicable diseases.

### Challenges ahead — demographic pressures and implications
- Demographic context and trends:
  - Rapid population growth rate of 3 percent.
  - Women have an average of 4.8 children.
  - Comparative rates: 2.6 in lower middle-income countries; 4.3 in Sub-Saharan Africa.
  - Tanzania is currently a pre-dividend country due to high fertility and youthful age structure.
- Implications:
  - Risk that demographic pressures may outpace the economy’s capacity to provide education, healthcare, and employment.
  - To harness the demographic dividend, policies should scale up affordable, high-quality family planning; expand girls’ access to education; and promote women’s economic and social empowerment.

### Investing in human capital — spending needs and scenarios
- Aggregate additional spending need:
  - Tanzania would need to increase spending on education and health by an additional 6.3 percent of GDP over the next five years to reach SDG4 and SDG3 by 2030.
- Education-specific needs:
  - Public spending in education would need to increase by 4.2 percent of GDP by 2030 to reach top performers among Low Income Countries and achieve an SGD4 index above 87.
  - That implies education public spending of about 7.5 percent of GDP in 2030.
  - Benchmark assumptions include universal enrollment targets, reducing student-teacher ratio from 46 to 18, and increasing private sector participation in education by 14 pp to 46 percent.
- Health-specific needs:
  - Health spending would need to increase by 2.1 percent of GDP over the next five years to reach a top-performing LIC coverage and achieve an SDG3 index of at least 75.
  - Health benchmark assumptions include a 45-fold improvement in the number of doctors to 2.3 doctors per 1,000 people, a 6-fold increase in other health workers to 6.4 per 1,000 population, and expanding private sector participation in health by 23 pp to 46 percent.
- Regional context:
  - The additional effort required for Tanzania is more than 2 percent of GDP above the average for other EAC member countries at a similar level of development.

### Population scenarios and resource implications
- World Bank estimates for school-age population by 2061:
  - Under current high-fertility levels: 65.5 million.
  - Under a low fertility scenario (2.5 children per woman): 44.3 million.
- Fiscal and service delivery implications:
  - Slower population growth could reduce by 1.2 percent of GDP the needed spending on public education.
  - UNICEF estimates under current rapid population growth:
    - 285,250 children will enter the public education system each year, on average, over the next four decades.
    - This would require hiring over 5,000 new teachers and building 4,500 classrooms per year to maintain the 2021 student-teacher ratio.
  - Under a slower population scenario, the number of students and necessary resources would be reduced by almost a third.
  - To cover population growth of about 1.9 million individuals per year, considerable investments in the health sector are needed just to maintain present service levels.

### Improving spending efficiency
- Key efficiency gaps:
  - Social spending often not targeted to areas or populations with greatest need.
  - Education: mismatch between expanded access and student learning outcomes due to teacher quality, school infrastructure, and classroom resources.
  - Health: potential gains from more spending on preventive services and community health workers; telemedicine and digital tools could improve remote coverage.
  - Need for better public financial management, including improved budget planning, monitoring, and execution.
- World Bank recommendations (Box 1) — education highlights:
  - Steadily increase public spending over time from about 3 percent of GDP to 4.2 percent.
  - Reallocate spending in favor of basic education; improve management and oversight of service delivery to schools; reduce subsidies for food and lodging in higher education and upper secondary education.
  - Strengthen access to schools and teachers, foster smaller schools in rural areas, and improve teacher deployment to address regional imbalances.
- World Bank recommendations (Box 1) — health highlights:
  - Improve primary health care (PHC) service delivery; ensure adequate financial resources for infrastructure, medical supplies, and skilled healthcare professionals.
  - Improve direct allocation of funds to PHC facilities using the District Health Financing Facility (DHFF) and Facility Financial Accounting and Reporting System (FAARS).
  - Leverage UHI to expand health insurance coverage nationwide and ensure PHC coverage for all Tanzanians while reducing out-of-pocket expenditures.
  - Invest in training and continuous professional development of health workers, including community health workers (CHWs).
  - Government plan to recruit and train 137,000 CHWs over the next 5 years, conditional on adequate budget allocations and timely execution.

### Policy recommendations (priority actions)
- Increase budgetary allocation for education and health in line with demographic needs and Vision 2050 goals.
- Rebalance spending toward current spending to expand the education and health workforce and adequately supply health and education facilities with required materials (textbooks, medicines, equipment, etc.).
- Enhance training for educators and health workers, particularly in rural areas, to address geographical imbalances.
- Make use of digital tools to enhance learning and healthcare service delivery.
- Encourage private sector expansion into both sectors to alleviate pressures and support efficiency gains.
- Improve accountability and transparency in public spending to ensure resources are used effectively.
- Conduct a comprehensive analysis of the role of foreign development assistance given rapidly declining Official Development Assistance (ODA) to identify opportunities for more efficient use of resources, increased domestic resource mobilization, and pooled donor financing.

*UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1tzaea2025002-print-pdf.pdf_