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Economic Policy Objectives and Challenges in Tanzania Roger Nord Disclaimer The views expressed in this presentation are those of the authors only, and the presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the presentation. 1 Policy Support Instrument A framework for engagement with successful reformers among low-income countries A non-financial instrument But: Of equal strength as IMF lending facilities Assessment criteria and benchmarks Fixed review schedule 2 PSI Objectives Goal: Raise Growth and Reduce Poverty (MKUKUTA) Four policy objectives for 2007 – 09: Maintaining macroeconomic stability Durably strengthening public finances Accelerating financial sector reform Improving the business environment 3 Maintaining macroeconomic stability Achieving higher growth, while maintaining low and stable inflation (Chart 1: growth and inflation, 2000-07) Inflation: BoT target of 5% over the medium term Budget Deficit: Zero net domestic financing Foreign Exchange Reserves: Four months of imports External Debt: less than 30% of GDP (Chart2: Debt/GDP Ratios, 2000 – 07) 4 Durably strengthening public finances Reduce aid dependency by enhancing domestic revenue mobilization (Chart 3: Foreign Aid/GDP Ratio, 2000 – 07) Raise revenue/GDP ratio by 4 percentage points Combination of tax increases and strengthening administration by the TRA Increase impact of public spending Spending allocation to promote growth (Chart 4: composition of spending) Better public financial management 5 Accelerating financial sector reform Improve access to financial services (Chart 5: Evolution of loans and deposits) Strengthen prudential regulations and oversight, including over pension funds Encourage the development of a diversified and vibrant financial system 6 Improving the business environment Ease regulatory burden (Chart 6: Doing Business Indicators) Reduce infrastructure bottlenecks Financial viability of TANESCO Strengthen governance and improve transparency PCCB NASCAP 7 Policy Challenges Tanzania faces three main policy challenges: Monetary Policy: Delivering low inflation while promoting high growth Fiscal Policy: Guarding against fiscal risks and avoiding a new debt trap Accelerating growth: Addressing sectoral bottlenecks 8 Monetary policy Manage large capital inflows Raising interest rates: impact on growth and cost of sterilization Exchange rate appreciation: impact on competitiveness Monetary Policy Framework Monetary targeting or Inflation targeting Improving the transparency of monetary policy 9 Fiscal Risks Debt management: Maintain low debt burden Contingent Liabilities: Government Guarantee Schemes Pension Liabilities Public-Private Partnerships 10 Accelerating Growth Addressing Sectoral Bottlenecks Energy sector Infrastructure development Business Environment Governance 11 GDP Growth & Inflation 25 20 Inflation 15 10 5 GDP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 External Debt, % of GDP 100 90 80 70 60 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 External Financing, % of GDP 10 9 8 7 6 5 4 3 2 1 0 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 Composition of Spending 12 10 8 6 4 2 0 2006/07 Development Spending 2007/08 Infrastructure Education Health Evolution of Loans and Deposits 70 60 Loan/Deposit Ratio 50 40 30 Private Sector Credit 20 10 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan-03 Jul-02 Jan-02 0 Doing Business 160 140 120 Ranking 100 80 60 40 20 0 Tanzania Ease of Doing Business Getting Credit Ghana Starting a Business Trading Across Borders Mauritius
