Transcript Medium Term Strategies

Budget Strategy in a
Changing Macroeconomic
Environment
Presentation to the GBS Annual Review – 2008
Ministry of Finance and Economic Affairs
1
Outline

The Context – national development goals

Macroeconomic framework

The Challenges

The Macro-fiscal Strategy
2
The Context
3
Vision 2025
The Tanzania Development Vision 2025 projects that,
by 2025, Tanzania will have five major attributes:





High quality livelihood.
Peace, stability and unity.
Good governance.
A well-educated and learning society.
A competitive economy capable of producing sustainable
growth and shared benefits.
Overarching description: Middle Income Country
4
Medium Term Strategies

They define medium term priorities in
implementing the Vision

PRS 1 (2001 – 2004)

MKUKUTA (2005/06 – 2009/10)

Millennium Development Goals (MDGs)
5
The Annual Government Budget

a description of short term (one year)
priorities towards the long term
development goals.

exploits available opportunities

must respond to immediate challenges
and threats
6
Macroeconomic Framework
7
The economy is growing,
and accelerating
Re a l GDP Grow th: 199 - 2008
9%
8%
8%
7%
7%
6%
6%
5%
5%
4%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Growth based mostly on impact of structural reforms and
corresponding improvement in resource use.

Economy still vulnerable to shocks, including weather and
external shocks.

Benefits reaching a wider population
8
O ct- 08
J ul- 08
Apr- 08
J an-0 8
O ct- 07
J ul- 07
Apr- 07
J an-0 7
O ct- 06
J ul- 06
Apr- 06
J an-0 6
O ct- 05
J ul- 05
Apr- 05
J an-0 5
O ct- 04
J ul- 04
Apr- 04
J an-0 4
O ct- 03
J ul- 03
Apr- 03
J an-0 3
Inflation
Inflation Developmenerts (Monthly)
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
9
2-Nov-08
2-Oct-08
2-Sep-08
2-Aug-08
2-Jul-08
2-Jun-08
2-May-08
2-Apr-08
2-Mar-08
2-Feb-08
2-Jan-08
TZS/USD
Exchange Rate [TZS/USD]
1,350
1,300
1,250
1,200
1,150
1,100
10
Exchange
Rate Daily Changes

Exchange rate has been fairly stable over the
past year

Exceptions in April (oil prices) and October
(global financial meltdown)
11/2/2008
10/2/2008
9/2/2008
8/2/2008
7/2/2008
6/2/2008
5/2/2008
4/2/2008
3/2/2008
2/2/2008
1/2/2008
3%
2%
2%
1%
1%
0%
-1%
-1%
-2%
-2%
-3%
11
Ja
Ja
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20
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28
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M
a
ar r-0
ch 7
18
,
,A 200
pr
7
il
2
9,
M 007
a
30 y 2
,M 00
20 ay 7
Ju 20
07
n
11 e, 2
Ju 00
7
l
01 y, 2
Au 00
7
22 g, 2
A u 00
19 g, 7
Se 200
7
p
10 t, 2
O 007
c
31 t, 2
O 007
c
21 t, 2
No 00
7
19 v, 2
0
D
ec 07
,2
9
Ja 007
20 n, 2
F e 00
b, 8
2
Ap 200
8
r
14 il, 2
M 00
8
ay
,2
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8
24
03
Weighed Average Yield to Maturity
Interest Rates
Interest Rate Structure of Treasury bills Jan 2007 to May 2008
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
182-day T. bills
364-day T. bills
12
Exogenous

Global financial markets’ turmoil

Global recession

Oil and other commodity prices

Threatening short term variables and
medium term growth
13
The Challenges Going Forward
14
Restoring Price Stability

Fiscal policy to compliment monetary policy
more strongly:



reduced liquidity injection by the Government
address high cost of production
Monetary policy interventions


Contain growth of (M2 and M3) money supply
Maintain market determined interest and
exchange rates, with interventions to smooth
their path
15
Growth Scenarios vis-à-vis Vision 2025

Current level of growth is below the
trajectory required for achieving the Vision
2025
3,500
3,000
2,500
2,000
1,500
1,000
500
8% Grow th
12% Grow th
Middle Income Status (Low )
Middle Income Status (High)
10% Grow th
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
-
2008
GDP Per Capita (US$)
4,000
16
Implications
of Insufficient Growth

Reversal of gains in social services

Peace, stability and unity

Significant regional implications
17
Needs Strategies
- Not Just Endowments
Income per capita
15441
•Ivory Coast and Mauritius are both
coastal and resource poor
countries.
10000
15000
PPP adjusted, 1996 international $
•They pursued very different
development paths.
5000
Mauritius
3084
1624
Cote d'Ivoire
•with very different outcomes.
0
1606
1960
1970
1980
year
1990
2000
Income per capita
10000
PPP adjusted, 1996 international $
6000
8000
8936
•Zambia and Botswana are
neighbours, both landlocked and
resource rich.
4000
•Pursued different approaches to
managing resource rents.
2000
Botswana
1167
902
Zambia
0
984
1960
1970
1980
year
1990
2000
•To very different results.
18
Constraints to Growth
19
Energy Costs and Power Outages
Figure 3.3
Energy costs and power outages
60
50
40
30
20
10
0
Kenya
Uganda
Tanzania
Zambia
Energy, % of firm costs (average)
Senegal
Benin
Morocco
China
Power outages, % output lost (average)
Source: World Bank Enterprise Surveys, 2001-2005
20
21
Quality and Cost of Labour

22
Predictability of the
Medium Term Budget Framework

Improving domestic revenue collection.

Challenges remain in relation to external
financing

Baskets and Project funding main culprits

Variable performance by individual GBS donors
23
Predictability
of External Financing
0
2
4
6
8
10
12
14
16
Netherla
Sw itzerl
Norw ay Sw eden
nds
and
UK
World
Bank
3
3
4
4
3
3
3
3
4
3
4
6
3
3
10
3
3
ADB
CIDA
Denmark
EU
Finland
Ireland
Japan
KfW
Total 07/08
0
0
3
5
4
3
6
9
3
3
3
Total 06/07
5
8
4
4
3
3
3
8
4
3
Total 05/06
3
15
3
4
3
3
3
7
4
Total 04/05
0
15
6
3
4
7
5
3
4
24
The Macro-fiscal Strategy
25
Recap

Significant challenges from the global economic
environment

Domestic inflation pressures calling for fiscal (and
monetary) policy response

Need to scale up the rate of growth, toward Vision
2025 targets

Infrastructure and skills emerging as the centre pin of
forward strategy
26
Macro-fiscal Strategy
Macro stability:



Strengthening macro modelling capacity
Need to limit expenditures that enhance aggregate demand I the economy
Scale up food production and marketing
Growth:




MKUKUTA II ought to be “The Tanzania Medium Term Growth Strategy”
Macro modelling to include growth scenarios and poverty analysis
Scale up investment in infrastructure and labour skills
Improve project selection (MPIP)
Poverty Reduction:




Incorporate “opportunities to create wealth”, not just Government handouts (except
for the very vulnerable)
Sustain quality of services delivery
Address inequality in service standards
Value for money (audits, expenditure tracking, PETS)
MTEF reliability:



Sustain growth of domestic revenue
Limit growth of inflexible expenditures
DPs to increase aid predictability
27
Implications for the Budget

Increased domestic revenue collection,
complemented by growing external financing

Increasing share of pro-growth (infrastructure)
budget, particularly on high import content projects

Contain growth of the inflexible budget, including
wage bill

Predictability of medium term external financing
essential
28
Expenditure Efficiency

Improving expenditure planning at central
and MDAs’ level

Strengthening oversight for VFM

Strengthening procurement capacity
29