Having experienced a steady economic decline in the late 1970s and a financial crisis in the early
1980s, Tanzania formally adopted an economic recovery program in 1986. It has since pursued
reforms and made significant achievements: macroeconomic stability has been achieved and a wide
range of structural reforms completed. Gross domestic product (GDP) growth per annum averaged
4.2 percent during this period, reversing per capita income decline experienced in the decade before
1986. The growth in per capita income led to a considerable decline in the level of poverty. The
long-term poverty trend has been declining for most of the post 1986 period, as indicated by various
poverty studies conducted between 1976 and 1996. The studies indicate that the post-1984 period in
Tanzania was marked by an overall improvement in real incomes: a 1996 by Ferreira study found
that poverty (defined as the number of households below the basic needs poverty line) declined by
approximately 22 percent between 1983 and 1991. Despite the setbacks on the macroeconomic
policy front between 1991 and 1994, when poverty rose by approximately 11 percent, the most
recent (2000–01) household budget survey confirms that there was a sustained decline in poverty
over the entire decade. The survey findings show that as per capita income accelerated, after the
reform progress was reinforced in 1995, poverty is estimated to have declined by approximately 28
percent between 1994 and 2002. The survey further points out that poverty reduction has been more
rapid in urban areas, in particular in Dar es Salaam, than it has been in rural areas.
Tanzania’s adjustment and reform process has been gradual and at best cautious but steady,
deep, and sustainable. Subsequent to the temporary setback in macroeconomic policy during the
first half of the 1990s, the government achieved macroeconomic stability in the late 1990s. Inflation
was reduced from about 30 percent in the 1980s and early 1990s to single digits in late1990s, when
severe fiscal imbalances were brought under control through prudent fiscal management; inflation
in 2002 was 4.6 percent. Acceleration of structural and institutional reforms, as well as creation of
new institutions, led to improvement in the investment climate, increased foreign direct investment
(FDI) flows, and job creation. The balance of payments improved significantly, reflecting large
donor inflows and increased export earnings, mainly from nontraditional exports. Tanzania’s
sustained commitment to economic reforms triggered its eligibility for debt relief under the
enhanced Heavily Indebted Poor Countries (HIPC) Initiative in April 2000, making it one of the
first countries to reach the completion point and to benefit from irrevocable and substantial debt
reduction. Debt reduction in turn paved the way for additional donor inflows. The additional
resources, including from the HIPC debt reduction, allowed the government to increase budgetary
expenditure allocations to social sectors and other priority sectors, such as rural roads, the judiciary,
and HIV/AIDS-related activities. This has led to visible improvements in public service delivery, in
particular education and health.