1. Tanzania: Macroeconomic Environment Presentation at DPG Induction August 25, 2009 David O. Robinson Senior Resident Representative IMF, Tanzania www.imf.org/external/country/tza/rrwww.imf.org/external/country/tza/rr drobinson2@imf.org

2. Dispel the myths The macro challenges facing Tanzania and much of Africa are very different from 5 or 10 years ago. Now:  High Growth  Low inflation  Manageable debt  Comfortable foreign exchange reserves

3. Macro Perspective I

4. Macro Perspective -- II

5. Fiscal spending has increased sharply along with revenues and aid In last decade, fiscal spending has increased from US$38 per capita to US$ 150 per capita

6. But challenges remain. Three in particular:

8. Impact of global crisis – msukosuko. Stimulus package—fiscal and monetary easing Food security – kilimo kwanza Poverty reduction / improved living standards – MKUKUTA/MKUZA. Strong growth and large increase in public spending, but limited reduction in poverty index (as per latest HBS). Why?

9. Policy response to Msukosuko? Presidential Task Force / Budget / MPS Ease fiscal policy. 09/10 Budget has a significant increase in overall deficit and like 08/09 outturn relaxes previous zero NDF anchor Discretionary interventions—VAT rate cut; expanded fertilizer subsidy; measures to ensure no disruption to credit flows. Ease monetary policy

10. As in most countries, inflation has been driven by food prices April 09Headline CPI Food price CPI Tanzania12.017.8 Kenya26.134.6 Uganda13.426.1 Rwanda13.622.6 Malawi9.28.3 Zambia14.315.9

11. No Poverty Reduction without Growth Keys to sustained fast growth? Engage global economy at some level Avoid macro instability Adopt some form of market economy Conduct a responsible fiscal policy that does not borrow too much against the future Avoid civil war REO box 2.2 summary of Growth Commission Report, Africa Economic Growth Project

12. What are the Macro Questions? What is needed to make growth both sustainable and pro-poor? How much can fiscal spending be increased without causing inflation or crowding out the private sector or losing competitiveness or excessive debt? How to ensure effectiveness of fiscal spending? How to most effectively close the infrastructure deficit? Sovereign bond? PPPs? How, over the medium-term, to reduce aid dependency? How to deepen financial markets? What are the implications of regional integration commitments in context of both EAC and SADC?

13. IMF: www.imf.org or ww.imf.org/external/country/tza/rr  Policy Support Instrument: Staff reports containing IMF assessment and letter from government detailing policy directions/priorities for year ahead.  Regional Economic Outlook for SSA. April and October  Africa-IMF conference  Working Papers  08/256: Creating Sustainable Fiscal Space for Infrastructure: The Case of Tanzania  08/138: Tanzania’s Equilibrium Real Exchange Rate  08/81: High and Volatile Treasury Bond yields in Tanzania: Role of Strategic Bidding and Auction Microstructure East AFRITAC. Regional TA center located at BoT. Public financial management, revenues, statistics, monetary operations, banking supervision.

14. But lets not forget why we are here…