Briceno-Garmendia, Cecilia, and Vivien Foster, 2007, More Fiscal Resources for Infrastructure? Evidence from East Africa, Sustainable Development Department and Africa Region (Washington: World Bank).
Corbacho, Ana, and Gerd Schwartz, 2007, “Fiscal Responsibility Laws,” in Promoting Fiscal Discipline, ed. by Manmohan S. Kumar and Teresa Ter-Minassian (Washington: International Monetary Fund).
Debrun, Xavier, David Hauner, and Manmohan S. Kumar, 2007, “Discretion, Institution, and Fiscal Discipline,” in Promoting Fiscal Discipline, ed. by Manmohan S. Kumar and Teresa Ter-Minassian (Washington: International Monetary Fund).
International Monetary Fund, 2003, “Public Debt in Emerging Markets: Is It Too High?” World Economic Outlook, September (Washington: International Monetary Fund).
Kopits, George, and Steven Symansky, 1998, “Fiscal Policy Rules,” IMF Occasional Paper 162 (Washington: International Monetary Fund).
Ndulu, Benno J., 2006, “Infrastructure, Regional Integration and Growth in Sub-Saharan Africa: Dealing with the Disadvantages of Geography and Sovereign Fragmentation,” Journal of African Economies, Vol. 15, AERC Supplement 2, pp. 212–44.
Ter-Minassian, Teresa, Richard Hughes, and Alejandro Hajdenberg, 2008, “Creating Sustainable Fiscal Space for Infrastructure: The Case of Tanzania,” IMF Working Paper No. 08/256 (Washington: International Monetary Fund).
In principle, NDF targeting can be flexible. For example, during an economic downturn parliament could approve a more relaxed supplementary budget. However, this is more cumbersome than starting the year with some flexibility.
Heller (2005) defines fiscal space as budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position.
Next-year MTEF estimates, which are usually made before the budget discussions, are not systematically used as the starting point for next-year budget preparation. This is true at both the aggregate and sectoral levels.
In part, motivation for the MTEF in Tanzania is weak. As in many other African countries, international donors initiated the adoption of the MTEF in Tanzania.
Output volatility adversely affects welfare, especially in low-income countries. Most empirical studies also find an inverse relationship between GDP volatility and long-term growth.
MDRI relief reduced total debt by US$4.9 billion (including HIPC), or 60 percent of external debt as of end-2005. The authorities are using the fiscal space for high-priority, proper social outlays and growth-critical economic projects.
Fiscal risks are broadly defined as short- to medium-term variations in the level of government expenditure, revenue, assets, and (both explicit and implicit) liabilities that are not fully anticipated in budget estimates.
In particular, increased infrastructure spending in Tanzania does not always seem to have translated into improvements in the quality of and access to infrastructure services. For details, see Ndulu (2006) and Briceno and Foster (2007).
In preparing the 2009/10 budget, the authorities consider providing loan guarantees for cash crop traders, who suffered significant losses due to falling prices in 2009.
PPPs and investment by parastatal enterprises are often used to create fiscal space for public investment. In case of Tanzania, it would be useful to closely monitor the business activities of Tanzania Railway Limited (TRL), Tanzania Electric Supply Company (TANESCO), and Air Tanzania, as well as future PPPs for infrastructure investment.
In the European Union budget balance rules represent about 33 percent of numerical fiscal rules, debt and expenditure rules each about 25 percent, and revenue rules less than 10 percent (EC, 2006).
WAEMU comprises Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. CEMAC comprises Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon.
While CEMAC has adopted similar objectives, its monitoring mechanisms are weaker than in WAEMU.
Many studies advocate establishment of a fiscal council (see, e.g., Debrun, Hauner, and Kumar, 2007). Fiscal councils can provide independent macroeconomic and fiscal projections, conduct fiscal analysis, issue binding or nonbinding recommendations, and thus raise public awareness and debate about fiscal issues, which could enhance the effectiveness of fiscal rules. However, the EC (2006) concludes that there is so much variety in such institutions in EU member states that it is difficult to find evidence of their impact on the conduct of fiscal policy.
This implies that, on average, fiscal policy in the EMCs ceases to be consistent with debt sustainability once debt reaches 50 percent of GDP.
Without any other financing, the NDF target and the benchmark ceiling on nonconcessional external borrowing imply limiting the deficit to less than 5 percent of GDP.
Expenditure rules are often highly recommended for a fiscal anchor. However, Tanzania has had a relatively poor expenditure forecasting record, possibly because of limited capacity in public financial management or less predictable general budget support. It has an average year-ahead forecasting error of about 6 percent of expenditure compared to less than 1 percent for countries that have managed to make expenditure rules work. It would therefore be difficult to enforce any kind of strict expenditure rules ex post with so much noise in the system.
A few years ago, the IMF proposed that an FRL to be introduced in Tanzania; this was viewed at the time as a way to ring-fence reforms at a delicate juncture. A consensus was then reached that a new law would not be needed because specific elements of the PFM framework, such as the Public Finance Act and its regulations, could be modified to meet the intended purpose.
The EMU’s convergence criteria and SGP require that government deficit and debt not exceed 3 percent and 60 percent of GDP, respectively. The economic rationale behind limiting fiscal discretion is that the stability of a monetary union could be threatened by inflationary biases in highly indebted countries. However, some argue that constraining fiscal policy could undermine the stability of a monetary union by limiting members’ ability to respond to asymmetric shocks when there are price rigidities.
See “Impact of Rising International Food and Fuel Prices on Inflation in EAC Countries”, in Rwanda and Uganda—Selected Issues (SM/08/353).
The debt stock excludes estimated interest arrears of about US$560 million, which are expected to be canceled upon conclusion of formal agreements on HIPC debt relief. Most of these arrears are associated with bilateral debt. It also excludes undisbursed committed debt of US$2.3 billion.
Tables and figures are in fiscal years (July-June). For example, 2009 refers to fiscal year 2009/10.
Inflation had accelerated to 13.0 percent by March 2009, driven mainly by lagged effects of the spike in international food and fuel prices and more recently by regional food shortages. Nonfood inflation, however declined to 4.3 percent.
An interest parity between domestic and foreign borrowing is assumed only for new borrowing. Debt service figures on existing public debt (both domestic and foreign) are provided by the authorities.
After 2010/11, it is expected that MDRI resources that were available for propoor development spending will be exhausted, which explains the drop in development spending thereafter.
See Joint World Bank/IMF Debt Sustainability Analysis for Tanzania, IMF Country Report No. 09/179.
Real interest is assumed to be 5 percent, real output growth 6 percent, nominal interest rate 12 percent, and the rate of exchange rate depreciation 3 percent.
The amount that needs to be cut back is less than the net domestic borrowing under the baseline scenario; the difference is the debt service on new borrowing.