A REVIEW OF RECENT MACROECONOMIC PERFORMANCE

1. A REVIEW OF RECENT MACROECONOMIC PERFORMANCE

2. OUTLINE • OVERVIEW • GDP GROWTH • INFLATION • GOVERNMENT FINANCE • Revenue • Expenditure • External Resources • MONEY AND CREDIT DEVELOPMENTS • Money Supply • Credit to the Private Sector • Interest Rates Developments • Foreign Reserves • EXTERNAL SECTOR PERFORMANCE • Exports • Imports • Balance of Payments

3. OUTLINE (Contd) • NATIONAL DEBT DEVELOPMENTS • External Debt • Domestic Debt • FINANCIAL SECTOR REFORM • The Second Generation Financial Sector Reform Program • PRIVATE SECTOR DEVELOPMENT • Public Private Partnership (PPP) • Business Environment • MKUKUTA • MKUKUTA-I at a Glance • MKUKUTA Financing • MKUKUTA-II • MDGs • GLOBAL ECONOMIC AND FINANCIAL CRISIS • Recovering from the Crisis and the Medium Term Outlook

4. OVERVIEW • Strong economic performance • Continued recovery of the world economy, particularly during the first half of 2010 • Quarterly GDP growth • 1st Quarter – 7.0% (2010), 3.4% (2009) • 2nd Quarter – 7.1% (2010), 5.2% (2009) • Annual GDP growth 2009 – 6.0% 2008 – 7.4% 2007 – 7.1%

5. OVERVIEW (Contd) Preliminary estimates for 2010 indicate high growth to register in: Agriculture Fishing Mining and quarrying Manufacturing Wholesale and Retail Trade Electricity and gas Real Estate Business Services

6. Trends in selected macroeconomic indicators 2002 - 2009

7. REAL GDP GROWTH RATES

10. INFLATION TRENDS • Inflation Series Rebased • 2007 HBS Data (Sept 2010 = 100) • Includes Both Urban and Rural Consumption • Reclassification of consumption baskets to the international Classification of Individual Consumption by Purpose – COICOP • Use of Geometric Mean instead of Arithmetic Mean in the computation of indices

11. INFLATION TRENDS Inflation remained high during 2009 • Double digits (Dec. 2008 – Jan. 2010) • Food shortages • Drought • Cross-border trade (Food shortages in neighbouring countries) • Petroleum prices • Inflation started declining in Jan. 2010 • Single digits (Feb. 2010 – Todate) • Improved food supplies, following good harvests • Decline in Petroleum prices • Prudent fiscal and monetary policies

12. Monthly Inflation Trends 2008 - 2010

13. Government Finance 13 • Revenues • 2009/10 characterized by shortfalls in domestic revenue • 2009/10 Tshs. 4,661,540 million (15.2% GDPmp) • 2008/09 Tshs. 4,293,075 million (16.2% GDPmp) • Slower growth in taxable production activities (GFC) • Postponement of some revenue measures (adverse impact on tourism) • Nonetheless revenue collection in 2009/10 increased, in absolute terms, by 8.6% • Monthly average collection has doubled from Tshs. 174.8 billion in 2005/06 to Tshs. 388.5 billion in 2009/10

14. Government Finance (Contd) 14 • Expenditure • 2009/10 Total expenditure below targets • 2009/10 - 92.0% of estimate (equiv. to 26.7% of GDPmp) • 2008/09 - 95.0% 0f estimate ( equiv. to 25.7% of GDPmp) was Dev. • Both recurrent and development expenditures 8% below budget estimates • Expenditure during the first quarter of 2010/11 was 84.0% of the target, compared to 88.4% during first quarter of 2009/10

15. National Debt 15 • National debt stock, as at end-September 2010 was US$ 8,498.07 million, • External debt US$ 6,196.3 million • o/w US$ 5,451.9 million is Disbursed Outstanding Debt US$ 744.4 million is Interest Arrears • Domestic debt US$ 2,301.77 million • Equiv. to Tshs. 3,330,894.93 million • Government is the largest borrower, owing 80.7% of the total external debt followed by the private sector (13.7%) and public corporations (5.6%)

16. Developments in Key Debt Indicators • Public debt as a percentage of GDP decreased from 65.2% in 2000/01 to 42.4% recorded in 2009/10. • External debt as percentage of GDP declined from 55.6% in 2000/01 to 22.5% in 2009/10. • Domestic debt as a percentage of GDP has been increasing over time, from 10.3% in 2000/01 to 20.5% in 2009/10 • External debt service as a percentage of exports dropped significantly from 10.5% percent in 2000/01 to 1.4% in 2009/10 • The trends in debt indicators is reflective of measures taken in improving revenue collection and debt cancellation under the enhanced HIPC and MDRI.

17. Money and Credit Developments 17 During the year ending September 2010 • M2 grew at an annual rate of 20.8%, less than 24.5% in August 2010, but higher than 19.9% in Sept 2009. • M3 grew by 22.6%, less than 26.4% in August 2010 but higher than 19.5% in Sept. 2008. • Slowdown in the growth rate of both net domestic and foreign assets of the banking system

18. Money and Credit Developments (contd) 18 Credit Developments • Credit to the private sector increased by 18.5%, compared to 26.6% 10the period ended Sept 2009. • Cautious stance of banks in the wake of the GFC • No significant change in the composition of credit to various activities • Personal loans continued to dominate with 20.1% of total loans; followed by trade (16.0%) agriculture (12.1%) and transport and communication (9.2%)

19. Money and Credit Developments (Contd) Interest Rates Overall time deposit rates improved to an average of 6.03%, albeit slightly lower than 6.73% in Sept 2009. Overall lending rates decreased to an average of 14.31%, from 14.9 in Sept 2009 The overall weighted average yields of Treasury bills increased to 5.06 percent in September 2010 from 3.86 percent recorded in the preceding month and 4.52 percent recorded in the corresponding period in 2009. The overall inter-bank cash market interest rates increased to 1.65 percent in September 2010, from 1.09 percent recorded in the preceding month and 1.34 percent recorded in September 2009.

20. Money and Credit Developments (Contd) Exchange Rates The Tanzania shilling has continued to depreciate over time. Low levels of exports compared to imports Increased demand for foreign exchange General strengthening of the US Dollar against major currencies across the world End period Sept 2010 (Tshs. 1,494.81) Dep(3.43%) Sept 2009 (Tshs. 1,445.23) On annual basis Year ending Sept 2010 (Tshs. 1,494.8) Dep(14.21%) Year ending Sept 2009 (Tshs. 1,308.82)

21. Second Generation Financial Sector Reform 21 • Tanzania’s financial sector is undergoing comprehensive reforms • Recent assessment of the program has shown substantial progress in the development and stability of the financial sector and liquidity management • The banking system is generally well capitalized and sound, notwithstanding a modest increase in non-performing loans in the wake of the GFC

22. Second Generation Financial Sector Reform 22 Recent Developments • The Government has approved a framework that allows the TIB to operate as a Development Finance Institution (DFI) with a window for lending to the agricultural sector. • The Government has adopted the Tanzania Inter-Bank Settlement System (TISS), aimed at speeding up payments and reducing expenditure floats. • The Government, is currently reviewing the microfinance policy, with the aim of providing diversified financial services on a long and sustainable basis for the whole population, especially the poor and low income groups.

23. External Trade Performance 23 • Exports • Export of goods grew by 24.6%, from USD 792.3 million in the quarter ending June 2010, to USD 986.9 million in the quarter ending Sept 2010. • Increased value of tradition exports, especially coffee (63.9%) and tobacco (29.0). • Recovery in export prices of cotton (14.7%), tobacco (39.8%) and cloves (73.1%) • Improvement in non-traditional exports, especially manufactured goods (53.1%) and other exports (40.3%) • Services receipts grew by 34.3% • Good performance of tourism and transportation activities

24. Share of Goods Export Earnings – 1st Quarter 2010/11

25. 25 • Imports • Imports of goods and services grew by 6.4% during the first quarter of 2010/11 • Imports of goods grew by 5.5% during the first quarter of 2010/11 • Increased imports of intermediate goods, particularly fertilizer, building and construction materials, and transport equipment • Service payments increased by 10.8%

26. Balance of Payments • During the year ending September 2010, overall Balance of Payments recorded a deficit of USD 25.7 million, compared with a surplus of USD 619.8 million recorded in the corresponding period in 2009. • Widening of the current account deficit by 13.2 percent to USD 2,570.9 million, following a significant decline in official current transfers. • Gross official reserves stood at USD 3,589.6 million, compared to USD 3,563.8 million recorded in Sept. 2009. • Enough to cover about 5.1 months of imports of goods and services

27. Current Account Balance (US Dollars million)

28. Private Sector Development 28 • The Government has approved the Public Private Partnerships (PPPs) Policy in October, 2009. • The Policy is aimed at encouraging the private sector to participate effectively in economic development and poverty reduction. • A PPP Unit has already been established at the Ministry of Finance • The cost of doing business in Tanzania has increased from 126th country in 2008 to 131st out of 183 countries in 2009 (World Bank report ‘Doing Business 2010: Reforming Through Difficult Times)

29. Private Sector Development (Contd) 29 • The Tanzania Investment Centre (TIC) approved 572 projects in 2009, compared to 871 projects approved in 2008 • Due to the impact of the GFC • Most investors attracted in • Manufacturing (183 projects) • Tourism (151 projects) • Commercial buildings (81 projects) • Transportation (61 projects)

30. Performance of MKUKUTA I at a Glance • Good progress made in implementation of MKUKUTA • Overall, macroeconomic stability remaining on track Cluster I • GDP and other macroeconomic fundamentals remained stable despite some shocks • GDP performed relatively well with annual average growth rat 6.9% during the period of five years since 2005 • However the incidence of income poverty did not change significantly

31. Performance of MKUKUTA I at a Glance Cluster II • The investments in education and health in the recent past have enabled Tanzania to record improvement on the Human Development Index • According to the HDR of UNDP, Tanzania has made improvements, though marginal, in human development by ranking 148th from 149th position held last year, the rest of EAC countries ranked as follows: • Kenya -128; Uganda-143; Rwanda-152 and Burundi-166. • Water supply services have also improved, with the proportion of the population with access to clean and safe water in rural areas increasing from 53.1 percent in 2005 to 58.7 percent in 2009; and from 74 percent to 84 percent in the same timeframe in urban areas.

32. Performance of MKUKUTA I at a Glance (Contd) Cluster III • There has been notable progress in good governance and accountability • Efforts to curb corruption and instil a culture of integrity have been intensified under the National Anti-Corruption Strategy and Action Plan (NACSAP) • Investigations of 706 cases associated with corruption were completed • Compliance level with the Public Procurement Act by both public and other bodies procuring entities also improved • Systems for public financial management, which include auditing, procurement and budgeting, are in place and functioning well.

33. MKUKUTA I Financing • MKUKUTA financing has continued to be the responsibility of the Government, private sector, NGOs, CSOs and development partners, and the communities. • However, besides the contribution of development partners, it has been rather difficult to ascertain the actual amount spent by the private sector, NGOs and CSO to implement MKUKUTA. • Non-state actors’ financing is not easily captured in the Government budgeting framework. • The share of the Government budget financing MKUKUTA has been increasing every year from 54.1 percent of the total budget in 2005/06 to 71.2 percent in 2009/10. • Government is reducing recurrent expenditure and emphasis has been placed on investment in infrastructure as key for the future growth of the economy.

34. MKUKUTA II • Development of MKUKUTA II follows the end of implementation of MKUKUTA I • MKUKUTA II is a continuation of the Government’s and national commitments to accelerate economic growth and fight poverty. • The strategy will continue to be an organizing framework for rallying national efforts in the next 5 years (2010/11 – 2014/15) in accelerating poverty-reducing growth, by pursuing pro-poor interventions and addressing implementation bottlenecks. • MKUKUTA II continues to be a medium term mechanism for achieving the aspirations of Tanzania’s Development Vision (Vision 2025) and the MDGs

35. MKUKUTA II • Approved in mid October 2010 • A major shift from its predecessors is the high drive and scaling-up on the role and participation of the private sector in economic growth and employment through strengthening business climate for efficient use of factors of production, investing in people and infrastructure development, and maintaining the already achieved socio-economic progress. • MKUKUTA II translates Vision 2025 aspirations and sector policies and strategies into measurable broad outcomes, and operational targets respectively. • Social protection is also mainstreamed in MKUKUTA II and thus will be financed under the umbrella of MKUKUTA II financing framework. • Spending plans to implement MKUKUTA II were included in the FY 2010/11 budget.

36. Millennium Development Goals - MDGs • Tanzania is among few countries in Sub-Saharan Africa that have achieved notable progress in implementing some of the MDGs targets. • Social indicators, particularly primary education enrolment and reduction in infant and child mortality. • During the MDGs summit in New York in September 2010, Tanzania was awarded a Certificate for Performance towards the MDG enrolment target in education, which is on track and likely to be achieved in 2015. • Income poverty, though declining is still high level • HIV/AIDS still remains to be a single most impoverishing force facing people and households in Tanzania.

37. Millennium Development Goals – MDGs (Contd) • Achievements made in areas of voluntary testing and counseling, this is manifested in the number of people who tested for HIV in 2009, after the launch of the National Campaign. • Generally, the country is in a position to achieve most of the MDGs by 2015 however, nonetheless, more efforts need to be directed towards addressing the following: • HIV/AIDS pandemic. • maternal mortality. • strengthening institutional, structural, policy and infrastructural capacity. • improving efficiency in resource mobilization. • strengthening the PRS focus on MDGs as a strategic tool for meeting the 2015 target.

38. Limitations in MDG Indicators • Some MDG indicators miss other dimensions of progress made so far e.gownership (HBS 2007) vis a visincome poverty • Some indicators are missing and their proxies are not adequate, e.gIndicators related to environment. • There is limited comparability of some indicators over time, which renders them difficult to assess progress • Overemphasis on enrolment (quantity) vis a visquality of education • Proportion of the population with access to clean water vis a visfrequency of water availability • While it is important to focus on these indicators (MDGs), measures are needed to improve supply of other inputs so as to maintain the quality of services provided

39. The Global Economic Recovery and the Medium Term Outlook • The world economy is recovering from its most severe downturn since the Great Depression of the 1930s. • The global economy is forecast to grow by 4.8 percent in 2010 (October 2010 IMF-WEO ) • The recovery however is still very fragile and uneven due to persistent high unemployment rates in the developed countries and increased rates of underemployment and vulnerable employment in many developing countries. • The lack of recovery in employment presents a risk for output recovery as it holds down consumption and investment demand. • Fiscal and monetary stimulus measures have prevented the global recession from turning into a new depression and remains the main driving force in the ongoing recovery.

40. The Global Economic Recovery and the Medium Term Outlook (Contd) • But such stimuli have also widened fiscal deficits in a number of countries, especially in many advanced economies, where public debt is approaching critical levels. • Developing economies, particularly in Sub-Saharan Africa which were less affected by the global downturn are experiencing solid domestic demand growth. • Output in this region is projected to accelerate to 5.0 percent in 2010 and 5.5 percent in 2011. • However, many countries in the region are likely to face challenges in their budgets particularly those depending much on foreign aid, due to budget deficits and associated measures to cut the budget in advanced economies and hence likely to reduce aid and private financial flows to the region.

41. The Global Economic Recovery and the Medium Term Outlook (Contd) • In Tanzania, on the assumption of successful implementation of economic policies and favourable weather conditions, economic activities are expected to pick up in the medium term, with a real GDP growth bouncing back to 7.0% in 2010. • Thereafter, growth is projected to increase to 7.2% by 2011 as the economy stabilizes, and continues to grow above 7.0% in the medium term. • In the medium term: • Agriculture is expected to grow to by an average of 4.4 percent • Manufacturing is expected to grow by an average of 10.7 percent • Construction is expected to grow by an average of 11.2 percent • Transport is expected to grow by an average of 9.2 percent • Financial Intermediation is expected to grow by an average of 10.0 percent

42. THANK YOU FOR YOUR ATTENTION