Country Session 7: Tanzania

Chaired by Country Director John Page (IGC Tanzania) and Resident Director Charles Mutalemwa (IGC Tanzania), the Tanzania country session focused on was opened by Stefan Dercon (DFID; Oxford) who gave an opening presentation on global food price increases and associated consequences, noting the sharp increases of 2008 and the resulting impact on poverty. Dercon discussed the measurement of these poverty increases by various organizations, but mentioned that the numbers may not take into consideration the responses by individual people as well as governments to food price increases. He also noted that some may be applying what is happening in local markets and attributing this to global prices/markets rather than local economic conditions. It thus may be quite important to be suspicious about the aggregate data and look closely at the local data. Better methods are also needed to assess what is going on. Following Dercon’s presentation, Christopher Adam (Oxford; IGC) presented on fiscal and monetary policy responses to global food price shocks with regard to recent Tanzanian experiences. As part of the IGC-Tanzania country programme, Adam and his colleagues are examining to what extent well-designed fiscal and trade policies can benefit monetary policy. Traditionally, central banks work on the assumption that optimal monetary policy ignores food prices, as these are determined on the global market. Central banks instead target the price rigidities in the non-food sector. However, Adam and his colleagues are examining to what extent food and energy prices are spilling over to inflation, particularly as food and beverages comprise 51% of the consumption basket in Tanzania. Adam mentioned that at present in Tanzania, monetary policy remains relatively conventional, with the Bank still focused on core inflation, though there are possibly high costs to this, which is not yet clear.

Following these presentations, Pantaleo Kessy (Bank of Tanzania; IGC) and His Excellency, the Former President of Zanzibar, Amani Karume, provided their comments as discussants. Kessy mentioned that the way the Bank responds to rising food prices is influenced by the mandate of all central banks, that is, to produce low inflation. The Bank also must manage pressure from both the public and politicians to act. This is hardest in the case of supply side shocks, which are most difficult to manage. The Bank tries to manage expectations and to disentangle second round effects of supply shocks (which can be influenced by expectations) from direct shocks.

Former President Karume mentioned that politicians in Tanzania refrain from meddling with the Central Bank, as it is an independent entity, but he acknowledged that politicians are indeed very concerned about stabilization of food prices. In order to control food prices locally, Karume noted that the government in Zanzibar works closely with private importers to reduce taxes by the amount necessary to ensure that a given staple commodity is both stable and affordable. He acknowledged that such intervention is not sustainable in the long-run, as it results in lost revenue that could have been used for development programmes. He welcomed the inputs from researchers to alternative ways to stabilize food prices in the future.#