Economists predict a gloomy year ahead as the private sector continues to shrink due to austerity measures by President John Magufuli’s government, which is keen on procuring goods and services locally.

Prof Honest Ngowi, an economist at Mzumbe University, says Tanzanians should expect high tax rates, increased nuisance tax and declining lending by banks.

The government has already barred its institutions from depositing their funds in commercial banks, with Tsh500 billion ($231.5 million) already withdrawn from 54 banks and deposited in the central bank.

Prof Ngowi told The EastAfrican that the current cash crunch will continue to bite.

“The government is the biggest buyer of goods and services, and the directive to trade locally will continue to bite as long as it stands,” he said.

READ: Tanzania banks face losses as cash supply declines

Recently, the Magufuli administration issued a directive to all central government and local government authorities, public institutions and statutory corporations to engage in government-to-government business dealings, a move analysts say could negatively affect private sector companies.

According to the guidelines for the preparation of the government budget for the year 2017/18, issued by the Ministry of Finance and Planning, accounting officers of all public entities are to stop buying goods and services from private firms and instead deal with state-owned enterprises.

Prof Ngowi cited poor rains, which will hurt food security and accessibility of energy as hydro-power generation dams are likely to experience a decline in water levels — as another danger sign.

“The weatherman’s warning on low rains next year is of concern because it will not only bring about food insecurity but also a power crisis as the nation depends on it for 48 per cent of electricity generation,” he said.

Prof Ngowi added that the economic situation will also depend on other issues such as new administration in the US and how China’s economy performs in 2017.

“There is a direct link between China’s economy and Tanzania’s and we will need to see how the new president of the US will behave on aid and trade with Africa,” he said.

Prof Ngowi said government-to-government dealing will adversely affect the private sector and lower its capacity to employ and pay tax. As a result, government revenue will suffer.

The Economic Partnership Agreement (EPA) with Europe is also on the cards as an importation factor in how the economy performs.

“Should Tanzania and Burundi endorse the EPAs by January, it means that trade with Europe will ease, giving way to other cooperation that will affect the economy directly,” he said.

READ: Tanzania, Burundi risk losing European Union aid over EPAs

Prof Haji Semboja, an economist with the University of Dar es Salaam envisages no change in Magufuli’s administration style, as the 2016/17 budget is just six months gone — or halfway through its duration.

He said the administration’s priority is infrastructure development such as ports, railway and government buildings for the Dodoma relocation project.

READ: Magufuli's signature projects get more funding

“This means that most cash will go to these projects and there will be no direct effect on the people who will feel the benefits later,” he said.

He said Magufuli’s purge of corruption will strengthen revenue collection and control spending and wastage in civil service.

“For poor economies, the public sector is a very important pillar of the economy, but the private sector drives the economy in rich countries. This means that the private sector in countries like Tanzania must be innovative and engage in value addition in sectors such as agriculture, processing, tourism and hospitality,” he said.

President Magufuli’s style of governance has elicited mixed reactions from Tanzanians as he has embarked on a spirited anti-corruption battle, cutting government spending and instilling discipline in the public service, leaving many who used to get “easy money” without cash.

His emphasis on investing in infrastructure and mega projects procured from other economies has resulted in low money circulation, with citizens banking on benefiting from long-term benefits of projects such as the standard gauge railway, reviving the national airline and strengthening performance of the country’s gateway – Dar es Salaam port.