A Rule-Based Medium-Term Fiscal Policy Framework for Tanzania
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.
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- 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.
- George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
- 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.
- Peter S. Heller, 2005. "Understanding Fiscal Space," IMF Policy Discussion Papers 05/4, International Monetary Fund.
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