CHAPTER 1 Introduction

his study analyzes the effect of stabilization and structural adjustment policies Ton overall economic growth, sectoral performance, welfare, and income distri- bution in Tanzania. To address the analytical interests of the study, a computable general equilibrium (CGE) model was formulated that incorporates country-specific features designed to capture special economic conditions and institutional character- istics of the Tanzanian economy. As the initial data set for the CGE policy analysis and for the calibration of the model, a social accounting matrix (SAM) was con- structed based on 1992 national accounts data. The study focuses on the impact of internal and external macroeconomic shocks and policies on the economy, especially the agricultural sector and rural households. Policy changes and macroeconomic shocks considered in the study include changes in the domestic tax structure, devaluation of the Tanzanian shilling, reduction of tariff barriers, and decreasing marketing costs through increased investment in infrastructure.

Motivation

In the late 1980s and 1990s, Tanzania experienced a remarkable political and eco- nomic transition from a socialist country with a centrally planned economy to a multiparty democracy with a liberalized free market economy. With the Arusha Declaration in 1967, the government had inaugurated an era of economic socialism based on self-reliance, including Tanzania’s Ujamaa policy and villagization pro- gram.1 Internal and external economic shocks throughout the 1970s led the country into economic crisis in the early 1980s. The authorities initially reacted to the eco- nomic breakdown with self-guided adjustment efforts, but in 1986 they finally agreed to the first stabilization and structural adjustment program (SAP), which was guided by the World Bank and International Monetary Fund (IMF). Under Ali Hassan Mwinyi, the second president, who in 1985 succeeded Julius K. Nyerere, president for 24 years, economic reform started with the 1986–89 Economic

1 Ujamaa is the Kiswahili word for familyhood and relationship and became a synonym for Tanzania’s socioeco- nomic system after 1967.

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