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A Rule-Based Medium-Term Fiscal Policy Framework for Tanzania

Author

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  • Daehaeng Kim
  • Mika Saito

Abstract

A zero net domestic financing (NDF) target has served Tanzania well in recent years, contributing to prudent expenditure policy, improved fiscal sustainability, and macroeconomic stability. Moving to a more flexible fiscal policy, however, may serve Tanzania better. The "diamond rule" proposed in this paper incorporates a permanent hard ceiling on debt and annual benchmark limits on NDF, expenditure growth, and nonconcessional external financing. This rule would provide flexibility for countercyclical policy and help define the fiscal space for infrastructure spending that is consistent with longrun fiscal sustainability. An illustrative simulation shows that Tanzania has considerable fiscal space for development spending.

Suggested Citation

  • Daehaeng Kim & Mika Saito, 2009. "A Rule-Based Medium-Term Fiscal Policy Framework for Tanzania," IMF Working Papers 09/244, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/244
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23369
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    References listed on IDEAS

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    1. Peter S. Heller, 2005. "Understanding Fiscal Space," IMF Policy Discussion Papers 05/4, International Monetary Fund.
    2. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
    3. Teresa Ter-Minassian & Richard Hughes & Alejandro Hajdenberg, 2008. "Creating Sustainable Fiscal Space for Infrastructure; The Case of Tanzania," IMF Working Papers 08/256, International Monetary Fund.
    4. Benno J. Ndulu, 2006. "Infrastructure, Regional Integration and Growth in Sub-Saharan Africa: Dealing with the disadvantages of Geography and Sovereign Fragmentation," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(2), pages 212-244, December.
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    Cited by:

    1. Bevan, David L., 2012. "Aid, Fiscal Policy, Climate Change, and Growth," WIDER Working Paper Series 077, World Institute for Development Economic Research (UNU-WIDER).
    2. repec:unu:wpaper:wp2012-77 is not listed on IDEAS
    3. Bevan, David L., 2010. "Fiscal policy issues for Tanzania," LSE Research Online Documents on Economics 36380, London School of Economics and Political Science, LSE Library.

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