Abstract
Tanzania’s performance ranks among the best for non-oil exporting countries in sub-Saharan Africa. The 2008/09 budget will aim at maintaining hard-won fiscal stability in the face of large spending needs and uncertain financing. Tighter budget constraints highlight the need to further expand the revenue base and achieve greater efficiency and effectiveness of government spending. Building on its recent success of reining in reserve money growth, the Bank of Tanzania (BoT) will aim to gradually bring down inflation to its medium-term objective of 5 percent.
May 28, 2008
1. This statement summarizes developments in Tanzania since the issuance of the staff report. The additional information does not change the thrust of the staff appraisal, although risks of lower growth and higher inflation have increased.
2. Preliminary data indicate that the quantitative program under the PSI remains on track. In particular, end-March indicative targets for net domestic financing, average reserve money, and net international reserves were all met by comfortable margins.
3. Reflecting the recent surge in global food and oil prices, inflation in April rose to 9.7 percent (12-month change) from 9.0 percent in March, making it unlikely that the program target of 7 percent for June 2008 can be achieved. The price index for food—which accounts for more than half of the consumption basket—rose by 11.6 percent (12-month change). The price index for fuel, power, and water also increased substantially to 11.3 percent in April, up from 8.3 percent in March.
4. The recent surge in oil prices could have a significant impact on Tanzania’s balance of payments. Based on the most recent WEO oil price projections and leaving projected import volumes unchanged from those in the macroeconomic framework presented in the staff report, the balance of payments impact of the latest price increases is projected to be about 0.5 percent of GDP for 2007/08 and 1.8 percent of GDP for 2008/09 (or about 15 percent of current gross international reserves). Tanzania’s strong international reserve position and flexible exchange rate policy should help it to weather the shock, although if current oil prices persist there would be increased downside risks to economic growth.
| BOP Impact of Higher Oil Prices | |||||||
|---|---|---|---|---|---|---|---|
| Staff Report | May Revision | BOP Impact | |||||
| 2007/08 | 2008/09 | 2007/08 | 2008/09 | 2007/08 | 2008/09 | ||
| Oil Price Assumpition (US$/barrel) | 87.86 | 95.00 | 92.80 | 114.10 | … | … | |
| Oil imports (US$ millions) | 1,700 | 1,856 | 1,795 | 2,230 | 95 | 374 | |
| (Percent of GDP) | 9.3 | 8.9 | 9.8 | 10.6 | 0.5 | 1.8 | |
| BOP Impact of Higher Oil Prices | |||||||
|---|---|---|---|---|---|---|---|
| Staff Report | May Revision | BOP Impact | |||||
| 2007/08 | 2008/09 | 2007/08 | 2008/09 | 2007/08 | 2008/09 | ||
| Oil Price Assumpition (US$/barrel) | 87.86 | 95.00 | 92.80 | 114.10 | … | … | |
| Oil imports (US$ millions) | 1,700 | 1,856 | 1,795 | 2,230 | 95 | 374 | |
| (Percent of GDP) | 9.3 | 8.9 | 9.8 | 10.6 | 0.5 | 1.8 | |
5. Tanzania is largely self-sufficient in staple food crops and the global food price surge is not likely to have a significant balance of payments impact. Weather conditions have been favorable in most of Tanzania so far this year and the harvest is promising. However, with the objective of preserving food security the authorities have recently extended a ban on maize exports to cover all cereals and expect to review the ban in mid-June following the completion of a food security assessment. Although it is not clear how effective the ban is, in the presence of porous borders, in view of its potential to discourage domestic production and exacerbate price pressures in neighboring countries, the staff urges the authorities to lift the ban as soon as possible.