FISCAL ADJUSTMENT, ECONOMIC GROWTH AND INFLATION IN TANZANIA (1967-2011)
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Date
2015-10-22
Authors
Mtui, John Michael
Journal Title
Journal ISSN
Volume Title
Publisher
University of Dar es Salaam
Abstract
The study analyses the effect of fiscal adjustment in promoting economic growth and
the fight against inflation in Tanzania from 1967 to 2011. The study is underpinned
by both descriptive and econometric analyses based on a dynamic autoregressive
distributed lag error correction model. The study findings confirm that: public
investment spending, public consumption spending, real exchange rate depreciation,
private investments are growth enhancing. Economic and fiscal reforms of the mid
1980s and 1990s, respectively, augment economic growth in the long-run. Only
lagged GDP, public consumption spending, real exchange rate and trade openness
have significant effects on economic growth in the short-run. The long-run estimates
of the inflation model indicate real GDP growth and nominal exchange rate have
impact on inflation. Budget deficit is significant but seem to have a negative effect
on price development. Thus, abstinence from cutting public investment spending and
curtailing non-productive expenditures should be observed. Such measures as the
adoption of Medium Term Expenditure Framework (MTEF) as a planning and
strategy for reducing wasteful expenditure and the expenditure reprioritization and
efficiency instituted through NSGRP should be sustained. Attainment of price
stability in Tanzania hinges on stable economic growth and exchange rate. This
requires a credible and sustained fiscal policy, supported by an appropriate exchange
rate and monetary policies. Rationalization of public spending and expenditure
efficiency are critical. To sustain GDP growth and thus price stability, there is a need
to improve productivity.