| Date | November 2021 | Marks available | 8 | Reference code | 21N.2.SL.TZ0.4 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Evaluate | Question number | 4 | Adapted from | N/A |
Question
Infrastructure projects in Tanzania
- In 2018, Tanzania’s gross domestic product (GDP) grew by 7 %. But the trade balance deteriorated, with exports declining and imports increasing. Moreover, limits on government current expenditure and lower levels of inward foreign direct investment (FDI) suggest that GDP growth will weaken to 5 % in 2019. Inflation will stay low through 2019, due to lower prices for food and raw materials.
- The government has promised reforms to improve the business environment and fiscal management. However, the budget deficit is forecast to increase from 2.3 % of GDP to 4 % of GDP by 2020.
- Government investment in large-scale projects, such as the construction of railway lines, dams for electricity generation, bridges, roads and airports, could lead to annual economic growth of 10 %. These projects, however, are financed mainly by loans from commercial banks with a short repayment period and high interest rates. Therefore, the national debt and the cost of debt servicing are increasing. The national debt has risen from US$22 billion in 2015 to US$28.6 billion in 2019.
- The Minister for Finance and Planning is optimistic that the debt is sustainable. “The debt assessment shows we can continue to borrow locally and abroad to finance development activities and pay off matured loans using our internal and external revenue,” he said. According to the central bank, the transport and telecommunication sectors received a greater share of the funding, accounting for 26.8 % of the debt, followed by social welfare, education, energy and mining.
- All the large infrastructure projects use some materials imported from abroad, such as steel. Therefore, the current account deficit will widen further due to increased imports of resources necessary for production. The government’s ability to use its expenditure to stimulate domestic production will be reduced, because funds are being sent overseas to external lenders and construction firms.
- Tanzania is undergoing a structural change with a higher proportion of the labour force working in the manufacturing and service sectors, while agriculture is employing fewer workers. Despite a reduction in the poverty rate, the absolute number of poor people is still high due to population growth. According to a World Bank report, almost half the population lives on less than US$1.90 per person per day. It concludes that the poor have benefited relatively less from recent economic growth, resulting in an increase in income inequality from 2015 to 2019.
- Further investments in human capital, targeted towards the poor, are needed to increase access to higher-skilled jobs. However, government efforts to expand public services, including education, health, and sanitation and clean water facilities, have been undermined by their declining quality as the population rises faster than the supply of the services. Therefore, the levels of education and basic services remain low, particularly for the poorest and those living in rural areas.
[Source: The World Bank, 2020. The World Bank In Tanzania [online] Available at: https://www.worldbank.org/en/country/
tanzania/overview [Accessed 29 September 2020] Source adapted.
The World Bank, 2020. Modest Reduction in Poverty in Tanzania: More Can Be Done to Accelerate Pro-Poor Growth
[online] Available at: https://www.worldbank.org/en/news/press-release/2019/12/11/modest-reduction-in-poverty-intanzania-
more-can-be-done-to-accelerate-pro-poor-growth [Accessed 29 September 2020] Source adapted.
Kabwe, Z., 2020. Tanzania elections: Life has got worse under Magufuli. We need change. [online] Available at:
https://africanarguments.org/2020/01/08/tanzania-elections-life-has-got-worse-under-magafuli-we-need-change/
[Accessed 29 September 2020] Source adapted.
Materu, B., 2020. Debt is within limits, says Tanzania [online] Available at: https://www.theeastafrican.co.ke/business/
Debt-is-within-limits-Tanzania/2560-5408196-10c4mla/index.html [Accessed 29 September 2020] Source adapted.]
Define the term budget deficit indicated in bold in the text (paragraph [2]).
Define the term human capital indicated in bold in the text (paragraph [7]).
Using an AD/AS diagram, explain how “lower prices for food and raw materials” might put downward pressure on inflation (paragraph [1]).
Using a Lorenz curve diagram, explain what is meant by an “increase in income inequality from 2015 to 2019” (paragraph [6]).
Using information from the text/data and your knowledge of economics, evaluate the impact on economic development of the Tanzanian government’s policy of spending on infrastructure projects.
Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS, the vertical axis may be price level or average/general price level.
The horizontal axis may be real output, real national output, real income, real national income, real GDP or real Y. Any abbreviation is acceptable.
A title is not necessary.
NB Candidates may alternatively draw a Keynesian AS curve shifting to the right.
Alternatively, the explanation may refer to an increase in the Gini coefficient/index. If explained correctly, this may be fully rewarded.
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The two curves may be shown on one graph or may be shown on two graphs. If using two graphs, it must be clear that the curve for 2015 is closer to the line of equality than for 2019.
The vertical axis should be labelled cumulative % of income, or % of income and the horizontal axis should be cumulative % of population/households or % of population/households. There must be a diagonal line, but it is not a requirement that it is labelled. There should be labels to indicate the difference between the two Lorenz curves. A title is not necessary.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.
Answers may include:
- definitions of infrastructure, development.
Strengths of the policy may include:
- it increases actual/real output (or real GDP) by shifting the AD curve rightwards
- it increases potential output by shifting the LRAS curve rightwards/PPC curve outwards
- it facilitates economic activity/the business environment and thus growth of GDP (paragraphs [2] and [3])
- it will attract FDI, which has been declining (paragraph [1])
- it is important for the growth of the manufacturing and service sectors (paragraph [6])
- all the above will increase employment and incomes, which assist development
- it will have positive externalities (e.g. railway lines), which assist development (paragraph [3])
- the government considers that the resulting increased growth will enable the debt to be serviced through increased tax revenue, which will then allow for more government expenditure on development projects/welfare (paragraph [4]).
Limitations of the policy may include:
- it widens the budget deficit because it requires government expenditure (paragraph [2])
- it has an opportunity cost, particularly affecting development, because the government is spending relatively less on other areas such as education and health (paragraphs [1], [4] and [7])
- it leads to an increase in national and international debt due to need for loans, many of which are non-concessional (paragraph [3])
- it increases the costs of debt servicing and outflows on the current account to pay interest (paragraphs [3] and [5]), which reduce government expenditure on other items promoting development objectives
- it increases imports and therefore the deficits on the trade balance and current account, which will lower growth, harming employment and incomes (paragraphs [1] and [5])
- some projects may have negative externalities (e.g. dams and airports), harming development (paragraph [3])
- it has the effect of widening the income distribution, because growth and increased employment is concentrated in urban areas/manufacturing and service sectors (paragraph [6]).
Any reasonable evaluation.
Examiners report
Most candidates scored L2 on both definitions. A few confused a budget deficit with a trade deficit.
Most candidates scored L2 on both definitions.
Most candidates could establish that lower prices for food and raw materials would lead to lower cost-push inflation. In some cases, candidates shifted the AD and/or LRAS curves instead and could not be awarded marks for the diagram. Some candidates chose to illustrate the lower inflationary pressures on a Keynesian diagram. While that is a valid approach, the shift of the Keynesian AS was seldom adequate.
The Lorenz curve diagram was mostly illustrated correctly with a few candidates losing a mark for careless errors on axes labels — one mark was often deducted for the use of ‘wealth’ instead of ‘income’ on the vertical axis. Some answers also missed a mark because the explanation simply described the curve’s shift outwards instead of explaining how the high income earners would enjoy a higher proportion of national income. Some made reference to the Gini coefficient. Although that was not necessary, it helped candidates explain the significance of the outward shift of the Lorenz curve.
As for other questions on this paper, those who scored in the lower L2 range provided theoretical answers or general description of the text. Candidates who could establish meaningful connections to development issues such as indebtedness and FDI inflows often scored L3 on this question.
