Author: H. P. B. Moshi, J.M. Mtui.

Tanzania, unlike many other African countries, was highly state controlled economy in the pursuit of socialist objectives. As a result it had an inflexible socio-economic system that was characterized by monopolistic and heavily regulated production and service provision structures in all sectors of the economy. The country’s rigid socio-economic system coupled with the war with Uganda and external shocks, during the late 1970s resulted in major macroeconomic imbalances, economic stagnation and a decline in per capita income that lasted over fifteen years. As GDP shrank, shortages of basic consumer goods appeared and agricultural exports collapsed (Treichel, 2005). In the early 1990s, Tanzania gradually liberalized its economy and began pursuing market-oriented reforms. The main pillars of the reform program were: large scale privatization, liberalization of the economy and macro-economic stabilization. The program elements included a comprehensive package of policies which improved monetary control, substantially depreciated the overvalued exchange rate, liberalized the trade regime, removed most price controls, eased restrictions on the marketing of food crops, freed interest rates, and initiated a restructuring of the financial sector. In 1996, these reforms were intensified, resulting in major progress in macro-economic stabilization and an acceleration of growth. Annual real growth since 1996 has averaged 5 percent (compared with less than 3 percent during 1990-95), while inflation declined to single digits in 1999 and to below 5 percent in 2002.