Ndulu Rejects Chadema Plan for Inflation, Gives Three Options

The Citizen (Dar es Salaam)

Al-Amani Mutarubukwa

18 May 2011

Dar Es Salaam — The government will not cut taxes on fuel as there are alternative ways of curbing the spiralling inflation, Bank of Tanzania Governor Benno Ndulu says.Prof Ndulu rejected a suggestion put forward recently by Shadow Finance minister Zitto Kabwe.He was also reacting to the National Bureau of Statistics (NBS) report that the year-on-year inflation rate rose for the sixth straight month to 8.6 per cent in April from eight per cent in March.

Economists have expressed fears that rising food and fuel prices, coupled with the chronic electricity shortages, will this year push the inflation rate to the double-digit levels last seen in 2009.

The opposition Chadema MP had said cutting fuel taxes by half would help to bring down the high cost of living. He listed a number of ways the government could bridge the revenue deficit resulting from the move, including offloading its shares in telecom firm Airtel and NBC Bank.

But Prof Ndulu told The Citizen on Tuesday: “Cutting taxes on fuel will definitely deny the government much-needed revenue. We are currently closely monitoring global crude prices, which are currently hovering around the $100 (Sh150,000) per barrel mark…we may have to act if prices increase sharply in the next few months.”

He said increasing harvests was one way of controlling inflation. “The harvest season is approaching in many parts of the country. We expect that bumper harvests will help to reduce food prices and bring down inflation, the high fuel prices notwithstanding.”

The governor said food prices would most likely fall during the season since farmers would be releasing into the market fresh harvests and food stocks they have been holding over the months.”We also hope that the decision to release maize from the Strategic Grain Reserve to local millers at subsidised prices will help to substantially bring down maize flour prices.”

He said the central bank had done well in managing the monetary side of the economy, but added that more needed to be done to curb inflation or it would hamper economic growth.Prof Ndulu said the planned bulk importation of fuel would also help to reduce high pump prices, which are partly to blame for the rising inflation.

Contacted for comment, Energy and Water Utility Regulatory Authority director general Haruna Masebu could not state when the bulk importation of fuel would start.He said he was not so sure about the date because the regulations had not yet been gazetted, as required by law.

“We are waiting for the regulations to be put in place before we can float the tender for a coordinating agency…that will take time, but I hope everything will be accomplished in six months,” Mr Masebu said.

A University of Dar es Salaam lecturer, Dr Haji Semboja, said there was little that Tanzania could do to prevent inflation from climbing to double digits this year.”We will very soon hit double-digit inflation because of the long-standing electricity shortages and the sharp rise in crude prices in the world market,” he said.

The food and non-alcoholic beverages inflation rate rose to 9.7 per cent for the year ending April 2011 from 8.6 per cent registered in March 2011.Food and non-alcoholic beverages have a 47.8 per cent weight in Tanzania’s basket of goods used to measure inflation.

Dr Damian Gabagambi, of the Research on Poverty Alleviation (Repoa), said there was a need to constantly regulate food prices.”If we cannot have a means to regulate food prices, we shouldn’t expect to see inflation going down even after the harvest season,” he told The Citizen in a telephone interview. Tanzania’s full-year 2010 inflation rate fell to 5.5 per cent from 12.1 per cent in 2009.

High fuel and food prices have also contributed to rising inflation this year in neighbouring Kenya and Uganda.

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