BANK OF TANZANIA. ECONOMIC BULLETIN FOR THE QUARTER ENDING S E P T E M B E R, VOL. XXXVIII No. 3

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ISSN X BANK OF TANZANIA ECONOMIC BULLETIN FOR THE QUARTER ENDING S E P T E M B E R, VOL. XXXVIII No. 3 For any enquiries contact: Directorate of Economic Policy Bank of Tanzania, P.O. Box
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ISSN X BANK OF TANZANIA ECONOMIC BULLETIN FOR THE QUARTER ENDING S E P T E M B E R, VOL. XXXVIII No. 3 For any enquiries contact: Directorate of Economic Policy Bank of Tanzania, P.O. Box 2939, Dar es Salaam Tel: , Fax: i ii TABLE OF CONTENTS SUMMARY OF ECONOMIC DEVELOPMENTS... V 1.0 OUTPUT AND PRICES... 1 The Overall Economic Performance... 1 Sectoral Performance... 1 Food Supply Situation... 1 Inflation Developments MONETARY AND FINANCIAL DEVELOPMENTS... 3 Money and Credit... 3 Financial Markets... 4 Interest Rate Structure... 5 Foreign Exchange Market Operations PUBLIC FINANCE... 6 Government Budgetary Operations... 6 National Debt... 6 Debt Relief... 7 Debt Repayment EXTERNAL SECTOR DEVELOPMENTS... 8 Current Account... 8 Exports... 8 Imports... 8 Services and Income Account... 9 World Commodity Prices THE ZANZIBAR ECONOMY Budgetary Operations Debt Developments Domestic Debt External Debt Foreign Trade Developments ECONOMIC DEVELOPMENTS IN EAC AND SADC COUNTRIES STATISTICAL TABLES AND LIST OF MANAGEMENT A1: Statistical Tables A2: List of Management GLOSSARY iii Board of Directors Mr. D.T.S. Ballali Mr. J.H. Reli Mr. G.S. Mgonja Mr. K.M. Omar Mr. M.N. Shirima Prof. L. Rutashobya Prof. J. Semboja Prof. B.J. Ndunguru Dr. N.E Mwamba Mr. B. Kimela Governor, and Chairman Deputy Governor, and Deputy Chairman Permanent Secretary to the Treasury (URT) Permanent Secretary to the Treasury (SMZ) Director Director Director Director Director Ag. Secretary to the Bank iv SUMMARY OF ECONOMIC DEVELOPMENTS Gross Domestic Product Real GDP growth prospects for the year 2006 have been revised downward to the level of 5.9 percent from the earlier estimates of 7.2 percent. The downward revision is on account of the continuing power deficiency that is imparting negatively on output. However, given the ongoing initiatives by the government to derive power through natural gas reserves, it is expected that real GDP growth rate should be in the level of 7.0 percent or above by the year Inflation Developments The annual rate of inflation during the quarter ending September 2006 decreased to an average of 5.5 percent, from an average of 7.1 percent recorded during the quarter ending June The decline in the rate of inflation was attributed to the decline in food inflation. Money Supply and Credit Development Extended Broad Money Supply (M3) grew at the rate of 28.6 percent, below the growth rate of 31.6 percent recorded during the quarter ending June Broad Money Supply (M2) growth rate on annual basis slowed down to 20.1 percent, compared with the growth rate of 24.5 percent recorded during the quarter ending June Credit to the private sector grew at an annual rate of 37.1 percent, higher than 1 Provisional statistics for June 2006 reported a deficit of US$ million. v the rate of 35.9 percent attained during the year ending June Interest Rate Structure The margin between overall lending and savings deposit rates narrowed by 0.8 percentage points to 14.1 percent, from 14.9 percent recorded during the quarter ending June The overall lending rate increased from 15.4 percent in June 2006 to 16.9 percent as at the end of September 2006, while lending rates to prime customers declined from 11.2 percent to 10.5 percent. External Sector During the quarter ending September 2006, the current account registered a deficit of US$ million, compared with the deficit of US$ million recorded during the quarter ending June The narrowing of the current account deficit was associated with increased current transfers which reached to US$ million, from US$ 91.0 million recorded during the quarter ending June Exchange Rate The Tanzania Shilling on average depreciated by 4.6 percent in nominal terms against the US$, moving from an average of TZS per US$ recorded during the quarter ending June 2006 to TZS 1,297.8 during the quarter ending September Government Budgetary Operations The overall central government budget deficit (before grants) narrowed down to TZS billion, from a deficit of TZS billion recorded during the quarter ending June After considering grants amounting to TZS billion, the overall budget turned out to a surplus of TZS 30.0 billion. Revenue collections amounted to TZS billion and were above the targeted amount for the quarter of TZS billion. Public Debt Developments Total national debt (domestic and external) stood at US$ 9,664.4 million as at the end of September 2006, slightly above the debt stock of US$ 9,635.4 million recorded during the quarter ending June External debt service payments amounting to US$ 12.7 million were made during the quarter under review. Zanzibar Government Budgetary Operations During the quarter ending September 2006, the Zanzibar Government budgetary operations, recorded an overall deficit (before grants) of TZS 7.7 billion. Even after considering grants amounting to TZS 23.5 billion and other adjustments, the overall budget closed at a deficit level of TZS 10.0 billion. Zanzibar Trade Account The Zanzibar Trade Account recorded a deficit of US$ 4.0 million, down from a deficit level of US$ 12.7 million recorded during the quarter ending June The narrowing of the deficit was attributed to increased export earnings.. vi PART 1: ECONOMIC DEVELOPMENTS 1.0 OUTPUT AND PRICE The Overall Economic Performance Real GDP growth for the year 2006 is estimated at 5.9 percent, lower than the level of 7.2 percent projected earlier on. The slowdown in output growth is a result of the energy crisis currently facing the country. However, measures currently being undertaken by the government to address the deficit of hydropower generation through importation of turbines to generate electricity from natural gas, coupled with good weather conditions are expected to boost output growth to reach the levels of 7.0 percent and above by the year There was no procurement for cashew nuts due to disagreement on the floor price between stakeholders including farmers, buyers and the government as well as absence of second flowering. Conversely, there was an increase in production of sisal, influenced by the interplay of rehabilitation of estates, favorable producer prices and active participation of out growers in the sisal producing areas. Good weather conditions in the southern coffee growing areas contributed to the increase in coffee output. Table 1.1: Procurement of Traditional Export Crops Crop Jul Sep % Change Tons Sectoral Performance During the quarter ending September 2006, procurement of traditional export crops declined to 163,744.6 tons, from 224,426.5 tons procured during the corresponding period in 2005 (Table 1.1). The decline is explained by the dry weather conditions experienced in most parts of the country during the year 2005/06 cropping season. The decline in the procurement of cotton is explained by the severe drought experienced in the western cotton growing area which produces about 90 percent of the crop. The poor weather conditions also affected production of tobacco and tea. Total 224, , Source: Respective crop Board Food Supply Situation The Strategic Grain Reserves (SGR) stock as at the end of September 2006 declined by 28.0 percent to 80,246 tons, from 111,971 tons recorded during the quarter ending September The decline was due to the low opening stock level in July 2006 that resulted from distribution of relief food to the food deficit areas in the country (Table 1.2). However, the food 1 supply situation in the country continued be improve as evidenced by an increased SGR stock level from 15,560.0 tons in June 2006, to 80,246.0 tons as at the end of September Table 1.2: Strategic Grain Reserve (SGR) Stock Tons Food inflation declined to 4.4 percent from 11.0 percent recorded during the quarter ending 2006, mainly due to improvement in the availability of food supply. However, non-food inflation increased to 7.5 percent from 2.6 percent registered during the quarter ending June The persistent increase in world oil prices and power rationing largely accounted for the increase in non food inflation (Table 1.3). Table 1.3: Average Inflation Base: 2001=100 Source: Food Security Department and BOT computation Inflation Developments The quarterly year-to-year inflation for the period ending September 2006 stood at 5.5 percent, down from 7.1 percent recorded during the quarter ending June The decline in the rate of inflation was attributed to the decline in food inflation. Source: : January 2005 to June 2006, Base: 2001=100. July to September 2006, 2 2.0 MONETARY AND FINANCIAL DEVELOPMENTS Money and Credit During the quarter ending September 2006, extended broad money supply (M3) grew by 28.6 percent, down from the growth rate of 31.6 percent registered during the preceding quarter. Likewise, the growth of broad money supply (M2) slowed down to 20.1 percent from 24.5 percent recorded during the preceding quarter (Chart 2.1). The growth rate targets for M3 and M2 during 2006/07 have been put at 24.2 percent and 25.2 percent respectively. The growth in commercial banks credit to the private sector accelerated to 37.1 percent, from 35.9 percent recorded in the preceding quarter. In absolute terms, commercial banks credit to private sector increased by TZS billion, compared with an increase of TZS billion recorded during the quarter ending June Table 2.1: Developments in Selected Monetary Aggregate During the quarter under review, the growth rate of net foreign assets increased by 21.7 percentage points to 56.5 percent, from the rate of 34.8 percent recorded during the quarter ending June 2006, while the growth rate of net domestic assets declined to 9.0 percent, from 21.5 percent registered in the preceding quarter. Item Billions of TZS Chart 2.1: Annual Growth Rates of Monetary Aggregates Source: Bank of Tanzania 3 Financial Markets Treasury Bills Market During the quarter ending September 2006, Treasury bills worth TZS billion were sold compared with TZS billion sold during the preceding quarter. Demand for Treasury bills fell from TZS billion recorded during the quarter ending June 2006 to TZS billion (Chart 2.2). The substantial decline in demand for Treasury bills was largely associated with the shift in investors appetite, mainly big commercial banks in favor of foreign exchange holdings. Treasury Bonds Market During the quarter under review, demand for Treasury bonds stood at TZS 70 billion, against the supply of TZS 52 billion. The Bank however, accepted bids worth TZS 46.6 billion due to existence of outlier Chart 2.2. : Treasury bills Market Developments bids. Despite the high demand compared with supply, Treasury bonds yields across all maturities increased significantly from the levels recorded in June Yields on the 2-year Treasury bond increased to 16.9 percent in September 2006, up from percent recorded in June 2006, while yields on a 5-year bond increased to 17.4 percent from Likewise, yields on the 7-year and 10-year Treasury bonds increased to 17.4 percent and 17.4 percent from 15.3 percent and 16.0 percent respectively. Inter-bank Cash Market Transactions During the quarter under review, the volume of transactions in the inter-bank cash market amounted to TZS billion, compared with TZS billion traded during the quarter ending June Overnight transactions accounted for about 83.0 percent of the total volume traded. Overnight interest rate rose to 14.9 percent, from 8.4 percent recorded during the preceding quarter, thus reflecting the existence of tight liquidity condition among commercial banks. 4 Interest Rate Structure During the quarter ending September 2006, the spread between lending rates and savings rates narrowed by 0.9 percentage points, reaching 14.1 percent from 14.9 percent recorded in June Overall lending rates rose to 16.7 percent in September 2006, from 15.4 percent in June Average negotiated lending rates to prime customers declined to 10.5 percent from 11.2 percent. The average negotiated deposit rate stood at around 10.0 percent, and was positive in real terms (Table 2.2). Table 2.2.: Interest Rate Structure In Percent Foreign Exchange Market Operations During the quarter ending September 2006, the volume of foreign exchange traded in the Inter-bank Foreign Exchange Market (IFEM) amounted to US$ million, higher than US$ million traded during the quarter ending June Bank of Tanzania made a net sale of US$ million. Exchange Rate The Tanzania Shilling depreciated against the US$ by an average of 4.6 percent, moving from TZS per US$ recorded at the end of June 2006 to TZS 1,297.8 per US$ as at the end of September However, during the quarter ending June 2006, the shilling depreciated by 3.9 percent (Chart 2.3). Chart 2.3: Inter Bank Exchange Rate Movements and Volume of Transactions 5 3.0 PUBLIC FINANCE Government Budgetary Operations During the quarter ending September 2006, the government budget recorded an overall deficit (before grants) of TZS billion. However, after considering grants amounting to TZS billion, the overall budget turned out to a surplus of TZS 30.0 billion. Revenue Performance Revenue collections amounted to TZS billion, and were above the target amount of TZS billion for the quarter. The good outturn in revenue collections came from income taxes and taxes on local goods mainly arising from improvement in tax administration by the Tanzania Revenue Authority (Chart 3.1). Expenditure Developments During the period under review, government expenditure excluding amortization exceeded the target for the quarter of TZS billion by TZS 1.0 billion only. Recurrent expenditure amounted to TZS billion, while development expenditure amounted to TZS billion.. National Debt The Debt stock (domestic and external) as at the end of September 2006 stood at US$ 9,664.4 million, being an increase of US$ 29.0 million or 0.3 per cent from US$ 9,635.4 million recorded during the preceding quarter. The increase in debt stock was mainly associated with exchange Chart 3.1: Government Revenue Performance; Quarter Ending September 2006 Billions of TZS 6 rate fluctuations, disbursements of old and new loans and accumulation of interest arrears. External debt amounted to US$ 8,278.0 million or 85.7 percent of total debt stock, while domestic debt amounted to US$ 1,386.4 million, representing 14.3 percent of the total debt stock (Chart 3.1). Debt Relief During the quarter under review, Tanzania received a total amount of US$ 14.6 million from multilateral creditors under the HIPC debt relief framework. As at the end of September 2006, the cumulative debt relief realized from these multilateral creditors reached US$ million (Table 3.1). During the same period, the government signed a bilateral agreement with the United Arab Emirates to reschedule a debt worth US$ 12.2 million. Table 3.1: Multilateral Debt Relief Millions of US$ translates into cancellation of debts worth US$ million. Debt Repayment During the quarter ending September 2006, external debt service payments amounted to US$ 12.7 million, out of which US$ 5.9 million was principal and US$ 6.8 million was interest. The impact of debt relief arising from the HIPC and MDRI and accumulation of arrears on non-serviced debts, reduced substantially the projected debt service payments for the quarter which was in the order of US$ 61.4 million. Total domestic debt service for the quarter under review amounted to TZS billion, of which TZS billion and TZS 35.1 billion were for principal and interest respectively. Principal repayments were rolled over while interest payments were financed out of government revenue. Institution Source: Bank of Tanzania On 1st July 2006, Tanzania received debt cancellation amounting US$ 2.8 billion from IDA under Multilateral Debt Relief Initiative. Further debt relief is expected from ADF during September 2006 in the form of debt service reduction which 7 4.0 EXTERNAL SECTOR DEVELOPMENTS Current Account During the quarter ending September 2006, the current account balance deficit narrowed down to US$ million, from a deficit of US$ million recorded during the preceding quarter. The narrowing of the deficit was largely attributed to the surge in official transfers to US$ million, from US$ 79.2 million registered in the preceding quarter (Table 4.1). In line with donors commitment to frontload disbursements of funds a total amount of US$ million, which represents about 49.0 percent of total commitments for program assistance for 2006/07 was disbursed during the review quarter. Table 4.1 : Current Account Balance Millions of US$ 2006, Tanzania exported goods worth US$ million, being 3.9 percent less than the amount exported during the preceding quarter. This follows a decline in export volumes of most of the traditional crops. While traditional exports registered declines in export volumes, non traditional exports increased only marginally. Imports During the quarter under review, goods imports increased by 4.4 percent from US$ million, recorded as at the end of June 2006 to US$ 1,019.0 million. This follows increased imports of capital, intermediate and consumer goods. Capital goods imports went up by 9.2 percent, mainly due to the increase in importation of transport equipment and machinery particularly telecommunication equipment and electric generating equipment. Note: p = Provisional; -- Implies very big values; Totals may not add up due to rounding of numbers Source: Bank of Tanzania Exports During the quarter ending September Intermediate goods imports remained virtually unchanged at US$ million, while imports of fertilizers increased significantly. The surge in fertilizers imports is largely on account of an increase in demand for fertilizers as part of preparations for the 2006/07 farming season. Imports of industrial raw materials also went up signifying increased activities in the manufacturing sector. 8 Table 4.2: Imports Import Category Note: Oil imports refers to refined petroleum products P = Provisional data Total may not add up due to rounding of figures Source: Bank of Tanzania and Tanzania Revenue Authority Services and Income Account Millions of US$ During the quarter ending September 2006, the services account (net) declined by 3.2 percent from US$ 41.2 million to US$ 39.9 million, mainly due to an increase in payments for education services as the new academic years commence in most of the universities abroad. The income account (net) recorded a lower deficit of US$ 36.7 million, compared with the deficit of US$ 56.1 million recorded in the preceding quarter. The reduction of the deficit is a result of a substantial decline in scheduled interest payments (Table 4.3). Table 4.3: Services and Income Account World Market Prices During the quarter ending September 2006, prices of coffee (Arabica) declined slightly by 0.4 percent, while prices of coffee (Robusta) increased substantially by 18.0 percent. The increase in Robusta coffee prices was on account of declines in the supply of the commodity, arising from unfavorable weather conditions in Vietnam. Prices of cloves and tea (Mombasa Auction) also declined, while prices of tea (average price) increased marginally by 2.1 percent. Prices of cotton (A- Index) and (Memphis) went up by 4.9 percent and 6.2 percent respectively, due to the decline in the supply of the commodity following unfavorable weather conditions in the cotton growing areas of USA. Prices of sisal remained stable at US$ per metric ton. During the review period, prices of crude oil (average of U.K. Brent, Dubai, and West Texas Intl.) and Dubai (f. o. b.) increased modestly by 0.7 percent and 1.8 percent respectively, while prices of white petroleum products declined slightly by 2.3 percent. Prices of Gold also declined slightly by 0.9 percent (Table 4.4). Millions of US$ Item Note: P = provisional figure; -- implies very big figure and - implies very small figure Source: Commercial Banks 9 Table 4.4: World Commodity Prices Commodity Note: * Average of U.K. Brent, Dubai and West Texas Intl ** f. o.
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