objectives of economic policy

1
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.2
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 schedule3
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 environment4
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)5
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 6
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 system7
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
‰ NASCAP8
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
bottlenecks9
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
policy10
Fiscal Risks
‰ Debt management: Maintain low debt
burden
‰ Contingent Liabilities:
‰ Government Guarantee Schemes
‰ Pension Liabilities
‰ Public-Private Partnerships11
Accelerating Growth
‰Addressing Sectoral Bottlenecks
‰Energy sector
‰Infrastructure development
‰Business Environment
‰Governance GDP Growth & Inflation
GDP
Inflation
-
5
10
15
20
25
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007External Debt, % of GDP
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007External Financing, % of GDP
0
1
2
3
4
5
6
7
8
9
10
99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07Composition of Spending
0
2
4
6
8
10
12
2006/07 2007/08
Development Spending Infrastructure Education HealthEvolution of Loans and Deposits
Private Sector Credit
Loan/Deposit Ratio
0
10
20
30
40
50
60
70
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07Doing Business
0
20
40
60
80
100
120
140
160
Tanzania Ghana Mauritius
Ranking
Ease of Doing Business  Starting a Business
Getting Credit  Trading Across Borders