Tanzania: A tale of assisted reform

Agenda
Brief economic history
Real sector Prices

Fiscal Sector
External sector Monetary Sector

Summary and the way forward

Background and Brief economic history

Low lows and high highs

Snapshot of Tanzania

Contrary to popular belief

Kilimanjaro is predominately found in Tanzania.

 Independence, up until the Arusha declaration 59 Tanganyika independene 63 Zanzibar independence 64 Tanzania

65 Arusha

declaration adopted Impasse with IMF Large inflows of foreign aid

81 85 Declines 91 95 Stalling
economic reforms 96 present Deeper reforms and efforts

in foreign aid Nyerere Resigns 86 91 Partial liberization and initial round of reforms 91 Second Poorest Country in the world

Real Sector
High highs following major reform

On the rise
Tanzania real GDP per capita growth
6% 5% 4% 3% Percentage (%) 2% 1% 0% -1% -2% -3% -4% -5%

Fall in foreign assistance

Privatization Agenda; fiscal and financial sector reforms

Debt relief

Economic recovery programm e

IMF /W B ERP

Mining act adopted

Not too shabby across the board

GDP growth
10% 8% 6% Percentage (%) 4% 2% 0% -2% -4% -6%

Tanzania

Sub-Saharan Africa

Emerging and developing countries

Advanced economies

World

Fairly stable
Real GDP per capita and growth
450 400 5% 350 6%

US$

250 3% 200 150 2%

100 1%
50 0 0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Real GDP per capita (LHS)

Real GDP per capita growth (RHS)

Percentage (%)

300

4%

Contraction of 1, Expansion of 2
GDP by sector
100% 90% 80% Proportion of real GDP (%) 70% 60% 50% 40% 30% 20% 10%

0%
2000 2001 2002 2003 Primary Sector 2004 2005 2006 2007 2008 2009 2010 Secondary sector Tertiary sector

GDP by economic activity

100% 90% 80% Proportion of real GDP (%) 70% 60% 50% 40% 30% 20% 10%

0%
2000 2001 2002 2003 2004 2005 2006 2007 Manufacturing Transport Other 2008 2009 2010 Agriculture, hunting, and forestry Construction Real estate and business services Mining and quarrying Trade and repairs Public administration

Driven by consumption?
GDP by expenditure
Billions GDP (US$) 14 12

10

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Household consumption Government consumption Investment

Consumption declines steadily, as investment rises

Consumption/GDP and Investment/GDP
90% 80%
Proportion of real GDP (%)

70%
60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investment 2009 2010 Household consumption Government consumption

Where is this investment from?

Public and private sector investment distribution
100%

90%
80% 70% Proportion (%) 60%

Private sector

50%
40% 30% 20%

Public sector (central government, parastatals, and institutions)

10%
0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fiscal sector
How much is too much?

More taxes.
Domestic revenue
98% 96% 94% 92% 90% 88% 86% 84% 82% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Tax Revenue Non-tax Revenue Domestic Revenue 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 US$ Billions

100%

Percentage (%)

Is there a development agenda?

Total expenditure
90% 80% 70% Percentage (%) 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Recurrent expenditure Development expenditure Total expenditure 4 3 2 1 0 8 7 6 5

Billions
US$

100%

Fiscal balance, shares of GDP

80%

60%

40%
Percentage (%)

20%

0%

-20%

-40% 2000 2001 2002 2003 Domestic Revenue 2004 2005 2006 2007 2008 2009 2010 Total expenditure Overall deficit

US$ Billions 0.2 1 2 0.4 0.6 1.2 1.4 1.6 1.8

0.8

Official donor assitance and ODA/GDP

Continued reliance on the outside

Offical donor assistance,ODA (LHS) ODA/GDP (RHS) 0% 5% 15% Percentage (%)

Liquidity management

1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20% 25%

10%

A legacy of debt
Public debt measures
Billions 10 9 8 120% 7 6 US$ 5 4 100% 80% 60% 40% 2 1 0 2002 National debt 2003 2004 2005 2006 2007 2008 2009 2010 External debt National Debt/GDP External Debt/GDP 20% 0% Total Public debt/GDP 160% 140%

Percentage (%)

What a relief

Prices - Inside and Outside

Prices

Nominal and real exchange rate, and CPI inflation

2500 40%

Trade and exchange rate reforms

2000

Bank of Tanzania Act amendment

35%

30%

20% 1000

15%

10% 500 5%

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Nominal exchange rate (LHS) Real exchange rate (LHS) CPI Inflation (RHS)

0%

Percentage (%)

1500 T.Sh/US$

25%

Up, up, and away?

CPI Inflation
18% 16% Percentage (% yoy, base=2005) 14% 12% 10% 8% 6% 4% 2%

0%
2000 Tanzania 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World Advanced Economies Emerging and Developing Countries Sub-Saharan Africa

Nipped in the bud

CPI inflation
25%

20% Percentage (%, yoy)

15%

10%

5%

0%

CPI Inflation

CPI Inflation breakdown

45% 40% 35% 30%

Percentage (%, yoy)

25%
20% 15% 10% 5% 0%

Food Inflation Rate

Energy Inflation Rate

Core Inflation

CPI Inflation

Average CPI

External sector
Steady, steady, import

Ever-more reliance on imported goods

Trade balance
Billions 6

2 Imports of services Imports of goods fob Exports of services Exports of goods fob Net Exports

0 US$

-2

-4

-6

-8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Breakdown of imports and exports

Goods exports
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other Ores and metals Manufactured Fuel Food

Proportions of goods imports

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Agricultural raw materials

Proportions of service exports

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Other Computer, communications and other services Insurance and financial services Travel services Transport services

Proportions of service imports

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Deterioration of the current account

Current account balance items (% of GDP)
10% 5% 0% -5% Percentage (%) -10% -15% -20% -25% -30% Balance on income Balance on Services Balance on Goods Current Acccount Balance

-35%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Steady balance
Balance of Payments
Billions 6

2 Financial Account US$ 0 Capital Account Current Account Overall balance -2

-4

-6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Foreign reserves rising

Reserves, and reserves in months of imports
Billions 4.5 4 3.5 3 2.5 US$ 2 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Reserves (LHS) Total reserves in months of imports (RHS) 9 8 7 6 Months 5 4 3 2 1 0

FDI on the rise

Foreign direct investment (% of GDP)
12%

10%

8% Percentage (%)

6%

4%

2%

0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Monetary sector and Prices

Money, money, everywhere

Up, up, and away?

CPI inflation, nominal interest, and exchange rates
1800
1600 1400 1200 T.Sh/US$ 20%

25%

1000
800 600 400 200 0 2008200820082008200820082009200920092009200920092009201020102010201020102010201120112011201120112011201220122012 Jan Mar May Jul Sep Nov Jan Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Nominal exchange rate CPI Inflation Nominal interest rate

15%

10%

5%

0%

Is inflation driven by Money growth?

Broad Money growth and inflation
45% 40% 35% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 M3 growth (LHS) CPI Inflation (RHS)

Percentage (%)

30%
25% 20% 15% 10% 5% 0%

Money on the rise

Money Supply
Billions T.Shillings 14000

12000

10000

8000

M3

M2
6000 M1

4000

2000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Government claims rising, while foreign assets, net, declining

Central bank assets and liabilities
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 NFA growth (LHS) M3 growth (RHS) NCG growth (RHS) 1200% 1000% 800% 600% 400% 200% 0% -200% -400% -600% -800%

Are there real returns?

CPI inflation, real, and nominal interest rates
25% 20% 15% Percentage (%) 10% 5%

0%
-5% -10% -15%

CPI Inflation

Real interest rate

Nominal interest rate

Summary: Lots of potential

Confidence, post-reformation
High GDP per capita, and it appears to be growing persistently Deterioration of the trade balance, yet some stability in the current account Legacy of debt Inflation curtailed, and holding steady

The way forward

Sustain momentum, in the midst of global economic slowdown
Public finances should be balanced with increased public investment

Real transformation, through poverty reduction strategies

Continued private sector development Long term view focus on reducing reliance on foreign assistance.

There is hope.
Though, is it sustainable?