Fiscal Policy Uncertainties and Sunflower Oil Production in Tanzania

Abstract

Tanzania's edible oil deficit, driven by surging demand outpacing sluggish production, leads to inflated prices and heavy reliance on imports, straining foreign currency reserves. The government fiscal policy interventions, intended to alleviate this, are undermined by inconsistencies, creating Fiscal Policy Uncertainty (FPU) that discourages investment and stifles production. We conducted a study to investigate the impact of FPU on Tanzanian sunflower oil production using firm-level data from 2010-2022 and employing a Non-linear Autoregressive Distributed Lag (NARDL) model. Our analysis revealed a significant short-run inverse relationship between FPU and sunflower oil production; increased uncertainty impacting firms' output. However, this relationship does not hold in the long run, and both positive and negative changes in FPU have symmetric effects on production in both the short and long terms. The findings suggest that inconsistent fiscal policies are ineffective, creating uncertainty that hinders long-term investments and economic activity. Policymakers should prioritise stabilising fiscal policies through consistent taxation, targeted subsidies, and strategic investment in domestic processing to boost productivity and lessen import dependence. This requires a shift towards more predictable and reliable fiscal interventions that can foster a conducive environment for sustainable sunflower oil production. Future research should explore the specific channels through which FPU impacts investment decisions in the sunflower oil industry, and further investigate the design of more effective and stable policy interventions.