THE IMPACT OF INFLATION AND UNEMPLOYEMENT

IN TANZANIA

REPORT BY VANESSA MROSSO

STUDENT ID: 49015
 ABSTRACT

This report examines the impact of inflation and unemployment in Tanzania and the casual

relationship between inflation, unemployment and economic growth in Tanzania. The report has

utilized the Dynamic Ordinary Least Square and integration approach to test the impact and

relationship of inflation and unemployment to the economy of Tanzania. The unit root tests showed

all the variables were integrated, the DOLS estimate showed inflation and unemployment have a an

impact over an economy of Tanzania, there is an unidirectional casual relationship between

unemployment, inflation and economic growth. I therefore suggest that there is a need for the

government to take urgent steps against the rising unemployment rate in Tanzania, for

unemployment is a major impediment to social progress and results to a waste of trained manpower.

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 TABLE OF CONTENTS
ABSTRACT .......................................................................................................................................... i
CHAPTER ONE .................................................................................................................................. 1
1.1 INTRODUCTION .................................................................................................................... 1
CHAPTER TWO .................................................................................................................................2
HISTORICAL DESCRIPTION .................................................................................................. 2
2.0 INTRODUCTION .................................................................................................................... 2
2.1 TANZANIA GDP GROWTH RATE .......................................................................................3
CHAPTER THREE .............................................................................................................................4
3.1 TREND OF UNEMPLOYMENT RATE SINCE 2014 - 2022 ................................................ 4
2.3 COMPARISON OF UNEMPLOYMENT RATE BETWEEN 2014 AND 2020/2021 ........... 6
Table 2.4: Unemployment Rates of Persons Aged 15+ by Different Definitions of
Unemployment and Sex and Area, URT 2014 and 2020/21 .......................................................... 6
CHAPTER FOUR ............................................................................................................................... 7
TRENDS OF THE NATIONAL CONSUMER PRICE INDEX (NCPI) 2021-2022 ................... 7
4.0 INTRODUCTION .................................................................................................................... 7
4.1 AVEARGE OF ANNUAL INFLATION 2021 AND 2022. .................................................... 7
Chart 1 showing patterns of inflation trends in 2022 compared to 2021. Overall, the inflation rate
shows a similar pattern over the period (January to December). Furthermore, the inflation tare
shows a stable trend ranging between 3.2% and 4.9% over the two periods (January 2021 to
December 2022). .............................................................................................................................7
Chart 2 showing the annual trends headline inflation rate of all items and that of some selected
groups of consumer goods and services for 2021 and 2022. .......................................................... 8
CHAPTER FIVE ................................................................................................................................. 9
5.0 IMPACTS OF INFLATION AND UNEMPLOYMENT IN TANZANIA. .............................9
5.1 INTRODUCTION .................................................................................................................... 9
CHAPTER SIX .................................................................................................................................. 10
RECOMMENDATIONS AND SOLUTIONS ................................................................................ 10
6.1 INTRODUCTION .................................................................................................................. 10

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 CHAPTER ONE

1.1 INTRODUCTION
This chapter presents findings on unemployment situation in Tanzania. Unemployment is an indicator
of labour under utilization; it is defined as the percentage of the labor force that is currently
unemployed. Unless stated otherwise, analysis of unemployment statistics in this chapter uses the
National definition of unemployment. The National definition of unemployment is adapted from the
International relaxed definition of unemployment, which is adopted from the 13th International
Conference of Labour Statisticians (ICLS) of 1982. The National definition of unemployment adds
to unemployment pool persons with marginal attachment to employment rather than classifying them
as employed. The use of National definition ensures robust estimation of unemployment statistics for
policy making. However, for the purposes of international comparability the strict definition of
unemployment and the relaxed definition of unemployment are also presented in this chapter.

Inflation is a rise in prices of commodities and goods, usually translated by a declining purchasing
power overtime. The rise in prices is usually expressed in percentage. Inflation measures the impact
of price changes to certain products and services.
When inflation rises, this will mean one unit money buys fewer goods and services. The loss of
purchasing power impacts the cost of living for the people which in turn results to a deceleration in
economic growth . economists are of the view that inflation occurs when a country’s money supply
outpaces economic growth.
The most common indices of inflation are Consumer Price Index (CPI) and the Wholesale Price
Index (WPI). CPI examines the weighted average of prices of a basket of goods and services that are
of primary consumer needs like transportation, food and medical care.
In Tanzania Inflation has continued to remain within a set target of less than 5 percent. In 2022, the
annual inflation rate increased to an average of 4.3 percent compared to an average of 3.7 percent in
2021. In addition, in May 2023 the inflation rate recorded the same average of 4.0 percent as it was
in May 2022. This situation has been attributed by the increase in the production and distribution of
goods and services; and the increase in the availability of food crops in some areas of the country
and neighbouring countries caused by the availability of rain in rain-fed areas.

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 CHAPTER TWO

HISTORICAL DESCRIPTION

2.0 INTRODUCTION
The prevalence of inflation and unemployment in Tanzania is regarded as one of the major national
development setbacks economically and at a social level . in the United Republic of Tanzania the
government is the major employer despite the growing efforts of the private sectors which are also
employing. Over the past years the rate of job creation in Tanzania has not matched the growth in the
labour force . historically unemployment started in the 1970s when the country did have an
economic crisis reflected by the fall of economic growth from 5% to an average 2.8% in the early
1980s.
Tanzania has overtime claimed the strong Real Gross Domestic Product (RGDP) growth rate which
measured at 7.1% in 2002 to 8.4% in 2007. However, this claim has appeared to be paradox. This is
because, while the country experienced strong economic growth rate of 7.2%, the annual
unemployment rate was at the rising rate from 2% in 2005 to 2.9% in 2013, despite the
unemployment rate declined to 2.3 percent in 2016 which largely attribute by initiatives actions
taken by the government like creation of National Employment Policy . This situation is so pitiful
considering the fact that the country is blessed with plenty of human resources in the field of
economics, accounting and finance, education, natural science and natural resources (Forestry, ocean,
and minerals) which capable to utilize them and provide employment opportunity for the teeming
youths in Tanzania. Therefore, the current unemployment crisis has revived the academic and policy
debate on the impact of unemployment on economic growth. Despite the government conscious the
efforts in managing the unemployment problem, the issue of unemployment has still been a burden
to the Tanzanian economy.
Labour Force Participation and Unemployment Rates (percent) for Persons of Age 15 and Above by
Area, Tanzania Mainland, ILFS 2020/21 is now 9.0, this is according to the National bureau of
Statistics in Tanzania.

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2.1 TANZANIA GDP GROWTH RATE
The aanual Gross Domestic Product in Tanzania Mainland has been growing at a rate of 5.7% from
2018 to 2022.
The real GDP at 2015 prices was 141.9 trillion shillings compared to 135.5 trillion shillings in 2021.
In addition, the economy registered a growth of 4.7 percent in 2022 compared to 4.9 percent in 2021.
The growth is attributable to diverse efforts taken by the Government notable among them include:
providing fuel subsidies to mitigate the effects of the Russia - Ukraine war; strategic investment in
infrastructure especially in energy, water, health, education, roads, railways and airports; increasing
mineral production; increasing credit to the private sector that stimulated economic activities and
increasing tourism activities. Eeconomic activities that recorded high growth rate include: arts and
entertainment (19.0 percent); quarrying and mining (10.9 percent); finance and insurance (9.2
percent); accommodation and food service (9.0 percent) and electricity supply (7.6 percent).

Gross Domestic Product (TZS Billion), Tanzania, 2018 – 2022

2018 2019 2020 2021 2022

Tanzania Mainland

At Current Prices 123,989 134,384 145,434 156,375 170,256

At Constant 2015 Prices 115,181 123,194 129,140 135,478 141,873

GDP Growth Rate at Constant

2015 Prices(Percent) 7.0 7.0 4.8 4.9 4.7
Tanzania Zanzibar

GDP at Current Prices 3,733 4,136 4,209 4,633 5,400

At Constant 2015 Prices 2,875 3,078 3,116 3,275 3,499

GDP Growth Rate at Constant

2015 Prices 7.1 7.0 1.3 5.1 6.8
(Percent)

Source: National Bureau of Statistics and Office of the Chief Government Statistician, Zanzibar

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 CHAPTER THREE

3.1 TREND OF UNEMPLOYMENT RATE SINCE 2014 - 2022

This chapter presents findings on unemployment situation in Tanzania. Unemployment is an

indicator of labour underutilization; it is defined as the percentage of the labor force that is currently
unemployed. Unless stated otherwise, analysis of unemployment statistics in this chapter uses the
National definition of unemployment. The National definition of unemployment is adapted from the
International relaxed definition of unemployment, which is adopted from the 13th International
Conference of Labour Statisticians (ICLS) of 1982. The National definition of unemployment adds
to unemployment pool persons with marginal attachment to employment rather than classifying them
as employed. The use of National definition ensures robust estimation of unemployment statistics for
policy making. However, for the purposes of international comparability the strict definition of
unemployment and the relaxed definition of unemployment are also presented in this chapter

Table 3.2 Number of Unemployed Persons Aged 15+ by Area, Sex and Age Groups, ILFS 2020/21

Area Sex Sex 15 - 24 25 - 35 36 - 64 65 Tot

+ al

Rural Male 308,087 92,842 81,483 9,234 491,646

Female 377,636 258,777 247,670 14,949 899,032

Total 685,723 351,618 329,153 24,183 1,390,677

Other Male 65,363 31,443 32,327 4,996 134,129

Urban Female 168,567 174,471 98,949 3,125 445,112

Areas
Total 233,930 205,914 131,276 8,121 579,241

Dar es Salaam Male 51,172 45,073 40,002 3,781 140,028

Female 122,872 146,638 90,747 2,283 362,540

Total 174,044 191,711 130,749 6,064 502,568

URT
Total Male 424,622 169,358 153,812 18,011 765,803

Female 669,075 579,886 437,366 20,357 1,706,684

Total 1,093,697 749,244 591,178 38,368 2,472,487

Rural Male 299,888 90,621 79,992 9,147 479,648

Female 359,475 244,033 238,972 14,646 857,126

Total 659,363 334,653 318,964 23,793 1,336,774

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 Urban Male 51,569 23,177 26,099 4,576 105,420

Female 143,141 154,850 79,252 2,882 380,126

Total 194,710 178,027 105,351 7,458 485,546

Dar es Salaam Male 51,172 45,073 40,002 3,781 140,028

Female 122,872 146,638 90,747 2,283 362,540

Total 174,044 191,711 130,749 6,064 502,568

TZM
Total Male 402,629 158,871 146,092 17,504 725,096

Female 625,488 545,521 408,971 19,811 1,599,791

Total 1,028,117 704,392 555,064 37,315 2,324,888

Rural Male 8,199 2,221 1,491 87 11,998

Female 18,161 14,744 8,698 303 41,906

Total 26,360 16,965 10,189 390 53,904

Urban Male 13,794 8,267 6,229 420 28,709

Female 25,426 19,621 19,697 243 64,986

Total 39,220 27,887 25,925 663 93,696

ZNZ Total Male 21,993 10,488 7,720 507 40,707

Female 43,587 34,365 28,395 546 106,892

Total 65,580 44,852 36,114 1,053 147,599

Table 3.2 shows that, based on the National definition of unemployment, about 2.47 million persons
aged 15+ are unemployed, with 2.32 million in Tanzania Mainland and 0.15 million in Zanzibar.
Generally, the number of unemployed females (1.71 million) is greater than that of males (0.77
million). This is observed across all areas and more prominently in other urban areas. Findings
also indicate that, majority of unemployed persons are in rural areas compared to urban areas for
TanzaniaMainland, and slightly more in urban areas than in rural areas for Zanzibar. With regard to
age, majority of unemployed persons are youth in age groups 15-24 and 25-35.

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3.3 COMPARISON OF UNEMPLOYMENT RATE BETWEEN 2014 AND
2020/2021
This section compares unemployment statistics between 2014 and 2020/21 rounds of
ILFS. The comparison is useful for assessing dynamics of unemployment and
building a time series of unemployment statistics to enable formulation of appropriate
strategies to address labour under-utilization.

Table 3.4: Unemployment Rates of Persons Aged 15+ by Different Definitions

of Unemployment and Sex and Area, URT 2014 and 2020/21

Rural Other urban DSM Total

Definitions of
Area
Unemployment
2014 2020/21 2014 2020/21 2014 2020/21 2014 2020/21

Strict international
definition 0.7 0.7 2.4 3.4 11.4 10.9 2.2 2.1

Relaxed international
URT 2.5 3.5 6.5 10.5 20.2 20.4 5.4 6.4
definition

National definition 8.5 7.4 10.7 11.0 21.5 20.5 10.5 9.3

Strict international
0.6 0.6 2.2 3.0 11.4 10.9 2.1 2.0
definition

Relaxed international
TZM 2.4 3.3 5.7 9.4 20.2 20.4 5.2 6.1
definition

National definition 8.4 7.2 9.9 9.9 21.5 20.5 10.3 9.0

Strict international
definition 1.7 2.9 7.2 10.2 3.9 6.2

Relaxed international
ZNZ 7.5 13.7 23.3 25.9 14.3 19.6
definition

National definition 10.3 13.8 26.8 26.0 17.4 19.7

Table 3.4 shows trends of unemployment between 2014 and 2020/2021 based on
different definitions of unemployment. Basing on the national definiton,
unemployment rate of URT has slightly decreased from 10.5% in 2014 to 9.3% in
2020/2021. while unemployment rate of Tanzania Mainland has decreased from 10.3
in 2014 to 9.0 in 2020/2021 , where as that of Zanzibar has decreased from 19.7 % in
2014 to 17.4 % in 2020/2021. Dar es salaam (urban) has the highest unemployment
rate of 20.5% and the rural areas with the lowest rate of 7.4%.

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 CHAPTER FOUR

TRENDS OF THE NATIONAL CONSUMER PRICE INDEX (NCPI) 2021-

2022
4.0 INTRODUCTION
The NCPI measure changes over time in the cost of a fixed basket of goods and
services that are purchased by a representative sample of households in Tanzania.
Currently, the NCPI basket comprises of 383 goods and services, of which 132 are
Food and Non-Alcoholic Beverages and 251 are Non-Food items. With regard to
geographical coverage, the NCPI uses price data collected from all 26 regional
headquarters in Tanzania Mainland. The NCPI uses the UN Classification of
Individual Consumption by Purpose, 2018 (UN COICOP, 2018) and is being
disseminated using 13 COICOP. In addition, the rebased NCPI is disseminated
together with several additional index aggregations which includes: - Core index;
Energy, fuel and utilities; Non core index; services index; Goods index; Education
services and products ancillary to education index and All items less food and non-
alcoholic beverages
4.1 AVEARGE OF ANNUAL INFLATION 2021 AND 2022.

Chart 1 showing patterns of inflation trends in 2022 compared to 2021. Overall, the
inflation rate shows a similar pattern over the period (January to December).
Furthermore, the inflation tare shows a stable trend ranging between 3.2% and 4.9%
over the two periods (January 2021 to December 2022).

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Chart 2 showing the annual trends headline inflation rate of all items and that of some
selected groups of consumer goods and services for 2021 and 2022. Overall, the
annual inflation of all items increased to 4.3% in 2022 from an average of 3.7 5 in
2021. the increase was mainly attributed to an increase of annual average annual
inflation for food items which nearly doubled to 7.3% in 2022 from 4.3%. It further
shows annual inflation rate for non-food items decreased to 3.2 in 2022 from 3.5% in
2021.

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 CHAPTER FIVE

5.0 IMPACTS OF INFLATION AND UNEMPLOYMENT IN TANZANIA.

5.1 INTRODUCTION
Inflation and unemployment have serious negative impacts to the economy of
Tanzania, they do have some repercussions when not controlled;
i. High and variable rates of inflation can impose major costs on an economy.
Businesses, workers, and consumers must all account for the effects of
generally rising prices in their buying, selling, and planning decisions.
Buyers will have to pay more when purchasing products.
ii. Higher levels of inflation decreases chances of foreign and local investors; if
rates of inflation are high this would mean low purchasing power to products
a thing against investors who are profit seekers.
iii. On the other hand unemployment results to increased poverty levels as
individuals will be struggling with steady income.
iv. Deterioration of skills as result of prolonged unemployment
v. Higher rates of unemployment harms the economy, the unemployed spend
less and contributes less to the economy.

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 CHAPTER SIX

RECOMMENDATIONS AND SOLUTIONS

6.1 INTRODUCTION
Tanzania has now a growing population of 61 million which increases year after year,
the working population has also increased, the purchasing power has also been
increasing following rising inflation. The government has to act so as to do away with
the major setbacks of national development (inflation and unemployment) . with
higher rates of inflation this would mean no to investments since investors will
become worried much of the low purchasing power which will be brought by inflation.
Some of the recommendations and solutions include;
i. Efforts have to be made on improving business environment to attract
investors, this will In turn create enough opportunities which will result to
creation of employment opportunities.
ii. Aligning education and training curricula with requirements of the labour
market so as the labour force is equipped with relevant practical skill, issues
of technical practical skills are paramount to reduction of unemployment.
iii. The government has to continue its efforts of controlling money supply given
the fact that there exists a casual relationship between money supply and
inflation.
iv. Continue to ensuring councils allocate and efficiently provide loans with
concessional terms to youth, women and people with disabilities in order to
stimulate engagement in productive activities and employment.
v. Preparing a national strategy to enhance employment and ensure its effective
implementation by all stakeholders
vi. Relevant authorities to demarcate and allocate premises for conducting
business and relevant infrastructures developed.

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7. Tanzania in Figures 2022
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