This document summarizes Tanzania's macroeconomic performance from 2008-2011. Key points include: - GDP growth averaged 7.2% annually, driven by mining, financial services, transport, and manufacturing. - Inflation remained under 10% until late 2008 when it rose to over 13% but fell back to 7% by 2010. - Money supply and capital formation increased each year. Interest rates and exchange rates fluctuated. - Foreign reserves grew steadily, reaching over $3.9 billion in 2010, covering over 6 months of imports. - Challenges implementing Tanzania's national development plan included insufficient funding and the global economic crisis.

1. BY
Prof Handley Mpoki Mafwenga
PhD, MSc, MBA, PGDTM,ADTM
Macro-Fiscal Policy Analyst andTax Expert (PFMO 1)
THE GOVERNMENT OFTHE UNITED REPUBLIC OFTANZANIA
THE MACROECONOMIC PERFORMANCE
FOR THE PAST THREE YEARS(2008-2011)
finance

2. Abstract
 This presentation provides an insight in Tanzania with specific
emphasis to the Key macro-economic indicators as reflected
in the Budget; it further, highlights the NSGRP and its
challenges in particular.
 Tanzania has maintained strong economic performance over
the past decade, mainly reflecting the outcome of sustained
structural reforms coupled with prudent fiscal and monetary
policies. During the past three-year period up to 2010, the
economy grew at an average of 7,2 per cent, mainly driven
by growth in mining and quarrying, financial intermediation,
transport and communication, and manufacturing and trade
activities.

3. Abstract
 Over the period, inflation remained at a single-digit level
until September 2008, when it rose to 11,6 per cent from
9,8 per cent in August and increased to 13,5 per cent in
December 2008 then it slowed down to 7% by year 2010.
Implementation of fiscal and monetary policies remained
prudent and focused on sustaining macroeconomic stability,
particularly real economic growth and price stability.

4. Table 1: KEY MACROECONOMIC INDICATORS
Economic
Indicators
2008/2009 2009/2010 2010/2011 (Data as
at December,
2010)
GDP (Real) 7.4% 6.0% 7.0%
Capital Formation as
percentage of GDP
29.7% 29.0% 32.0%
Growth of Money
Supply (M2)
22.0% 23.4% 21.8%
Growth of Money
Supply (M3)
17.7% 20.8% 25.4%
Interest rates
(Average Lending
rates by Commercial
Banks)
Decreased from
16.05% to14.38%
14.38% Decreased from
14.38% to 13.45%
Interest rates (Time
Deposits)
8.48% Increased to 8.99% Decreased to 7.09%
from 8,99%

5. Table 1: KEY MACROECONOMIC
INDICATORS
Economic
Indicators
2008/2009 2009/2010 2010/2011 (Data
as at December,
2010)
Exchange rate Depreciation ofTZS
was 1,196.3 per
USD equivalent to
10.3%
Value ofTZS
declined by 8.5% to
an average ofTZS
1,329.3TZS per
USD
Value ofTZS was
1,453.5
Foreign Reserves USD 2,872.6 million
sufficient to cover
5.7 months of
imports of goods and
non-factor services
USD 3,551.3 million
equivalent to an
increase of 23.6%
USD 3,948.0 million
equivalent to 6.3
months of imports of
goods and non-factor
services

6. GDP(Real)
 Real (constant price ) GDP reveal changes in economic
output after adjusting for inflation. The change in real GDP
plus the change in the deflator approximately equals the
change in nominal GDP.
 In 2008/09 adverse impact of the global economic crisis
continued to hit our economy; however, GDP grew by 6.0%
in 2009 as attributed to increased growth in economic
activities of electricity and gas, education, and
communication services including the us of mobile phones
 In 2009/10, the GDP grew to 7.0% being attributed by
agriculture and livestock; manufacturing; trade and repair;
transport and communication and financial intermediation.

7. Capital Formation
 Increase in capital formation for the past three years was
attributed to increased investments in housing construction,
land developments, roads and bridges construction. Thus, the
GDP growth is direct proportional to capital formation.
 There was an increase in capital formation both in public and
private sectors.

8. Growth of Money Supply
 Money Supply is significant because it is an indicator of level
of transactions and perhaps inflation or output. The measure
of narrow money is called M1 i.e. currency in circulation
plus sight deposits. The main wider definitions of money is
called M2 and M3. M2 consists of M1plus savings deposits
and time deposits (i.e accounts where cash is available after a
notice period). M3 is M2 plus institutional money funds,
large time deposits, repurchase agreement etc
 In the past three years, the growth of extended money supply
(M3) was largely due to increase in the rate of foreign
currency deposits as well as strengthening of USD against
other currencies

9. Interest rates
 Interest rate or Yield less the rate of inflation is significant because is the
determinant of investment behavior. The real interest rates are nominal
interest rates deflated by the rate of inflation. Implicitly, at least,
investment decisions are based on real interest rates.
 Following Implementation of Second Generation Financial Sector Reform
(SGFSR) and availability of long-term loans for development projects over
five years to December, 2009, the medium term lending rates decreased,
medium term savings deposit rate increased hence, motivating people to
put their savings in banks
 The interest rate spread for the past three years continued to remain high
despite increased competitiveness in banking sector. This is largely due to
lack of not only credit reference data bank but also lack of Credit
Reference Bureaux in the country. Also, the absence of National Identity
Cards and high costs involved in doing business due to poor infrastructures
impacted on high interest lending rates

10. Inflation
Two important measures of inflation computed inTanzania
1. The underlying inflation rate; this is the rate of inflation excluding changes in
food prices;
2. year to year headline inflation; this is the percentage change in the National
Consumer Price Index (NCPI)
 Increase in inflation in year 2008 to year 2009 was mainly attributed to food
shortage in the country and neighboring countries which led to the increase in
prices of food items, prices of petroleum products in the domestic market
leading to an increase in transportation costs.
 However, trend of food inflation which accounts for a large proportion in the
overall CPI started to decline to 9.8% in 2010; also in 2009/10 good rains
season increased food production thereby reducing headline inflation from
12.7% to 9.4% byApril, 2010
 NBS updated the NCPI market basket weights from 2001 to 2007 using results
of Household Budget Survey thereby recoding inflation as shown in figure 1

11. Table 2: EAC Comparative Inflation rate
Consumer Prices in 9months period

12. Inflation
 Tanzania has recorded low inflation rate as compared to other
partner States;
 However, increase in inflation in past three years was mainly
due to sustained pressures on domestic prices that emanated
from a protracted surge in oil and food prices coupled with
economic crisis mostly during the past three years through
recovery has been in place with some fluctuation trend.
 However, non-food inflation which is influenced by monetary
policy, slowed down in past three years. This has been due to
the improvement in food supply, as well as sustained prudent
fiscal and monetary policies

13. Exchange Rates
 This is the price of one currency in terms of another. They
are determined mainly by the supply and demand, which
reflect trade and other international payments, and much
more important, volatile capital flows which are constantly
shifting around the world in search of the best expected
returns. The prime indicator of market pressures on a
currency is the figure for total currency flows in the balance
of payments account. Other influences are relative interest
rates and yields.
 Depreciation of the TZS in 2008/09 was caused by
speculators who hoarding forex following the outset of the
global economic crisis

14. Exchange Rates Cont…..
 Depreciation of TZS against USD in 2009/10 was due to the
increase in demand of USD, in the country and also
appreciation of USD against other international currencies.

15. Foreign Reserves
 In a strict sense are only the foreign currency deposits and
bonds held by central banks and monetary authorities.
Foreign exchange reserves are important indicators of ability
to repay foreign debt and for currency defense, and are used
to determine credit ratings of country.
 high level of reserves at 3.8 billion is unprecedented in the
country’s history and apparently the best among the East
African Community (EAC) member states
 This attributed increased reserves accumulation to more
proceeds from exports, particularly in 2010, where gold
alone brought in 1.4 billion US dollars, overtaking the
tourism sector which contributed 1.3 billion US dollars.

16. (NSGRP)MKUKUTA
 Since 2005, Tanzania’s GDP annual growth rate averaged 7
percent, which was in line with MKUKUTA target of 6 – 8
percent per annum
 In 2009 GDP growth was 6.0 percent, declining partly due
to the global financial crisis. Volume and prices of exports
fell, flows of capital and investment fluctuated, tourism and
demand for tourism products fell as well

17. Figure 1:Shares of Major Sectors in
GDP 2005 and 2009
27.6
20.8
42.5
25
20.8
45
0
5
10
15
20
25
30
35
40
45
50
Agriculture Industry and Construction Services
2005
2009

18. (NSGRP)MKUKUTA Cont….
 The share of agriculture in GDP (Figure 2) declined relative
to services and industry and construction. Services constitute
the main sector of the economy, thus its growth will be
critical for sustaining higher economic
 Sluggish growth of agriculture was a result of a combination
of many factors. These included poor infrastructures to
support agriculture, inadequate extension services, and poor
technology of production, low value addition, lack of
appropriate financing mechanisms for agriculture, unreliable
markets, unfair and uncompetitive farm gate prices, and
environmental degradation.

19. Figure 2: Composition of Annual
Budget Allocation
48
62.7
70.8 71.2
52
37.3
29.3 28.8
0
10
20
30
40
50
60
70
80
2006/07 2007/08 2008/09 2009/10
MKUKUTA
NON-
MKUKUTA

20. Major challenges to MKUKUTA
financing:
1. Insufficient resources for MKUKUTA implementation: Resources to fund;
MKUKUTA activities often fell short of the approved allocations.
This necessitated reallocation of resources and in some instances
phasing out some of the activities, despite of their levels of
priority;
2. Global financial and economic crisis: Tanzania was not spared by the
adverse; effects of global financial and economic crises, which
affected negatively the key sectors of economic growth, especially
trade flows, capital inflows, natural resource sectors and
agricultural exports;
3. Omission of important items: the exclusion of wages and salaries and
transfers; to LGAs in MKUKUTA budget led to understating the
magnitude of resources allocated to MKUKUTA clusters. Wages
and salaries to civil servants are the real cost of service delivery to
the public;

21. Major challenges to MKUKUTA
financing Cont…….
5. Delay in costing: the costing of MKUKUTA delayed and hence the
three-year; rolling MTEF was used as a proxy. This did not
give a comprehensive picture of what it took to fully
implement MKUKUTA and thus establish the resource
gap; and
6. Non-state actors’ financing: it was rather difficult to ascertain the
actual; amount spent by these bodies to implement
MKUKUTA.
The Household Budget Survey indicate that, impressive
economic growth achieved in past three years has not yet
sufficiently manifested itself in the reduction of income
poverty. This is attributed to slow growth of the agriculture
sector.

22. Trends andTargets of Income Poverty Reduction,
Urban-Rural, 1991-92 to 2010
28.7
25.8
24.1
12.9
40.8 38.7
37.6
24
0
5
10
15
20
25
30
35
40
45
1991-1992 2000-01 2007 MKUKUTA Target
2010
PercentageofPopulationbelowthebasicneeds
PovertyLine
Figure 3:Trends andTargets of Income Poverty Reduction,
Urban-Rural, 1991-92 to 2010
Urban
Rural

23. Trends andTargets of Income Poverty Reduction,
Urban-Rural, 1991-92 to 2010
 There was a decline in income poverty levels over the period
in all areas. The proportion of the population below the basic
needs poverty line declined slightly from 35.7% in 1991/92
to a lesser than 33.6%, and the incidence of food poverty
fell from 18.7% to a lesser than 16.6%. The fall in poverty
over the past three years was larger; basic needs and food
poverty levels both declined by approximately 3 percentage
points, and in Dar es Salaam basic needs poverty declined by
over approximately 11 percentage points.
 Poverty rates remain highest in rural areas: 37.6% of rural
households live below the basic needs poverty line, compared
with 24% of households in other urban areas and 16.4% in
Dar es Salaam.

24. Government Budget
 Revenue : Government Domestic Revenue increased by
18.1% in 2007/08 to TZS 4,293.074 billion and by 8.2% in
2009/10 toTZS 4,661,540 million.
 Grants and Loans: External grants in 2009/10 amounted to
TZS 1,405.3 billion and External Loans amounted to TZS
1,379.6 billion. The period as at March, 2011 Government
received grants and loansTZS 845.7billion.
 Expenditure: Government Expenditure in year 2008/09 was
TZS 6,811.8 billion below the target due to revenue
shortfalls during the period.

25. CONCLUSION
 During the past three years, the Government of the United
Republic of Tanzania continued to focus on achieving the
objectives of the National Strategy for Growth and Reduction of
Poverty (MKUKUTA).
 The government policies were geared towards maintaining fiscal
control through strengthening tax administration and expenditure
efficiency, to cushion the impact of the global economic slowdown
on government operations. Priority was given to improving
domestic revenue mobilization by broadening the tax base,
curbing tax exemptions and enhancing revenue administration.
 Monetary policy remained focused on achieving appropriate levels
of liquidity in the economy, consistent with the desirable low and
stable levels of inflation as well as to support the desired growth
momentum.