30 January 2013

Tanzania: Natural Gas to Ease Current Account Deficit

Natural gas to ease current account deficit INCREASED use of natural gas from domestic fields as a substitute of imported fuel is expected to contribute to reduce the country's current account deficit in the medium term.

"With continued efforts toward fiscal consolidation, total public debt is projected to stabilise at about 45 per cent of GDP in 2014/2015," stated the International Monetary Fund (IMF)'s first review under the standby credit facility (SCF) released recently.

Tanzania's current account deficit widened 4.4 per cent in the year to November to 3.76 billion US dollars (about 6.02tri/-) from 3.6 billion US dollars (5.7tri/-) in 2011 due to the rise in imports of oil and machinery for gas and oil exploration activities, the monthly report by the Bank of Tanzania (BoT) for November 2012 indicated.

In 2010 exploration activities in the deep sea struck new natural gas fields and to date the country stands at 32 trillion cubic feet of reserves. About 3,000MW from cheaper natural gas are expected to be generated in the next few years following massive discovery of the gas, thus reducing dependency on expensive importation of oil for running power turbines.

The National Bureau of Statistics (NBS) report for the third quarter ending December last year shows that electricity sector recorded a growth rate of 15.3 per cent compared to a negative growth rate of 2.8 per cent in the corresponding quarter of 2011.

The growth rate was attributed to the increase in thermal and gas electricity generation which contributed about 77 per cent of the total power pool. The IMF country report shows that the authorities have indicated that their strategy to tackle challenges in the energy sector is consistent with the current fiscal framework.

Ongoing structural reforms in the fiscal area are playing an important role toward mediumterm financial adjustment. The current account which deteriorated in 2011/12 is primarily a result of higher oil imports for power generation, but is projected to improve, especially from 2014 when a new pipeline will deliver low cost natural gas for electricity generation.

It stated further that the agreed fiscal deficit target for 2012/13 is appropriate to preserve debt sustainability while providing room for critical development and social spending.

In another development, the IMF report shows that the macroeconomic outlook remains broadly unchanged from the previous staff report with the real Gross Domestic Product (GDP) growth projected to remain in the range of 6.75 to 7 per cent in 2012/13 and the medium term.

The first half of 2012 saw the real GDP growing by 7 per cent, up from 6.4 per cent in the corresponding period of 2011. Economic activity has been especially buoyant in transport and communication, financial services, manufacturing, and trade.

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