A Review of the Impact of Reforms on Financial Viability and Sustainability of Tanzania’s Power Sector

Abstract

In Tanzania, reforms were mooted in the 1990s to solve two intertwined problems; the financing of investment and reducing the fiscal drain on the government to the sector. This study deploys the ARDL Model and paired-sample t-statistic tests, with profitability and liquidity data from 1989 to 2020 to examine the impact of the reforms on sectoral financial condition in Tanzania. The results suggest that both profitability and liquidity did not significantly improve after reforms. Apart from commercialization policy, other variables were not statistically significant with privatization and liberalization law exerting a negative pressure on liquidity. The findings, therefore, appear to contradict the theoretical view that the reforms improve the financial condition of both the sector and the governments. The outcome can be explained by unfinished reforms manifested by continued politicization of the sector hence underpricing and underinvestment. To ensure sectoral financial viability and sustainability we recommend that the reform policies such as commercialization, corporatization, and independent regulation should be prioritized. These findings will add value to policymakers in Tanzania and beyond which are reforming their power sectors by recognizing that efficient pricing and investment are key for a viable and sustainable financial condition of the sector.