How will the Tsh. 100 billion monthly subsidy affect citizens and the economy in Tanzania?

How will the Tsh. 100 billion monthly subsidy affect citizens and the economy in Tanzania?

The post-COVID-19 pandemic and Russia’s invasion of Ukraine led to disruption of the global oil market that has spread rampant hiking of food prices and other human’s basic needs across the world.

Countries worldwide are now grappling to contain commodity rapid prices soaring by adopting measures to control fuel rises that spread havoc to every commodity or service. 

To curb the staggering fuel prices, Tanzania’s President Samia Suluhu is doing what every sensible economist would suggest doing to rescue the economy at such a critical time.

To ease economic hardships instigated by rising fuel prices, on May 9, 2022, President Hassan announced a relief package of Sh. 100/- billion subsidy that came into effect from June 1. 

According to President Samia, the government will inject a subsidy of Sh. 100 billion into fuel every month to curb the commodities skyrocketing in the local market. 

President Hassan pledged a 100 billion subsidy on Wednesday in Chato District, Geita region, while on her way to Kagera region for a three-day work visit.

How will this affect people’s economy?

The price increase adversely affects the economy, especially local consumers, producers and service providers.

For instance, shortly after the fuel price increase, up-country bus fares, food commodities and other services simultaneously peaked in response to the rise in fuel prices.

The injection of Tsh. 100 billion that came into effect on June 1 will improve local production and service provision.

This will improve the overall supply of goods or services, increasing the quantity demanded of that good or service and lowering the overall price. 

In this sense, Tsh. 100 billion is a win-win situation for both the supplier and the consumer. Essentially, the supplier benefits as if the goods were selling at a higher price ad can produce more of the product.

Meanwhile, consumers enjoy the product for a comparatively lower price since suppliers do not need to charge exorbitant rates to break even on production.

If Tanzania’s government continues to pump in that chunk of Tsh. 100 billion into fuel, Tanzania’s economy will grow to become much more robust than her EAC counterparts.

In the meantime, Tanzania has the lowest oil price of all EAC countries, let alone the new member, DR Congo, which has an added advantage of oil extraction within her territory.

In that sense, Tanzania’s economy will grow stronger and improve the production of goods and services.

Unlike Kenya, which injected subsidy into fuel once in March 2022, President Samia Suluhu has pledged to pump more money into oil subsidy until prices in the global markets fall to regular rates.