Issues in store for minister responsible for finance

By Honest Ngowi
Following the heated debate in the April Parliament session, Tanzania is likely to get a new cabinet. Possibly among the new ministers will be the minister responsible for Finance. It is wished and hoped that the appointing authority (the President) bases his appointing decisions on issues rather than on individuals. It is only by issues-based appointments that one expects to get the right person in such key positions as those of ministers.

Knowing the issues that are in store for every sector and by extension for every minister, it is important to identify the needed qualifications before appointment as well as in developing performance criteria after appointment. In this article, the author outlines some very minimum issues that are in store for whoever is the current and near future minister responsible for the finance portfolio in Tanzania.

Inflation
In the past one and half years or so, inflation has been among the major challenges facing the Tanzanian economy. This is because at the double digit of up to 19 per cent, it is much higher than the policy goal of five per cent. It is negatively affecting the country’s economy. Whoever is the minister for Finance should understand first and foremost that inflation in Tanzania is largely structural rather than monetary.
It is by and large due to the structural issues of the economy such as electricity and infrastructure that are not in good shape. Even if there may be some monetary elements in the country’s inflation, the major explanatory variables are more structural than monetary. This implies that inflation in Tanzania is not due to too much money supply in circulation. Therefore policy responses to be overseen by whoever is the minister responsible for Finance should be able to tame inflation and its impacts in the short-, medium and long term.

Exchange rate
As with inflation, exchange rate volatility by way of upward movement of the US dollar in relation to the Tanzanian shilling is a trend that characterised most of the last one year or so. October 2011 will go into the current foreign exchange history of Tanzania as the month when the shilling – at about Sh1,800 shillings per dollar - was the weakest in relation to the dollar.

Whoever is the minister for Finance will face a policy tall order of sustainably strengthening and stabilizing the shilling against the major and vehicle currencies such as the US dollar. It is the minister’s policy responsibility to ensure that Bank of Tanzania interventions in the foreign exchange market is temporal and short-term because it unsustainable.

The true, sustainable and long term strength of the local currency should come from the real sectors of the economy by way of more export, more aid and investments inflows, more remittances from sons and daughters in the Diaspora and less imports. The central bank’s ‘financial acrobatics’ to artificially fix the exchange rate by depleting the national reserves in order to supply foreign currency in the market in a bid to reduce pressure on the local currency should be a short term policy measure.

Swelling national debt
As once noted in this column, the swelling national debt in Tanzania is an issue of concern. Whoever is the minister responsible for the Finance has a policy duty to ensure that the national debt level is sustainable. This is a debt level that can be honoured when it matures and falls due. It is also the minister for Finance’s responsibility to ensure that the swelling national debt is spent for development rather than for recurrent expenditure. The former is for investments in such areas as social and economic infrastructure while the latter is for short term expenses such as in paying salaries.

The policy duties for whoever is the minister for Finance include making informed and balanced choice of borrowing from internal and external sources as well as from both the commercial and development banks. The key issue is for the highest political office bearer in the ministry responsible for Finance to understand the implications of policy choices to borrow internally and externally as well as to borrow from commercial and development banks.

Foreign reserves
The other key issue that is in store for whoever is the minister for Finance should be to ensure existence a policy environment that will meaningfully increase national reserves. The goal should be to have national reserves that are worth as many months of import financing as possible. In an economy whose pecuniary (monetary) value of imports is much higher than that of exports, this will be a very tall order for whoever is the minister for Finance in Tanzania.

Budget deficits
Among the greatest challenging issues in store for whoever heads Treasury in Tanzania is fixing the budget deficit. This is because revenues collected from both internal and external sources are far less than expenditure. Budget deficit financing therefore is among the key policy challenges that a minister heading the docket is likely to encounter in Tanzania.

At the end of the day, the performance of whoever is the minister for Finance should be evaluated partly by the above key economic issues. If ministers are given terms of reference, the above issues should constitute part of the terms of reference for anyone who is the minister for Finance. Needless to say, all these should be preceded by the word “accountability” which should be a common denominator in all ministries.
Source: The Citizen,http://www.thecitizen.co.tz, The author is a senior lecturer, researcher and consultant in Economics and Business at Mzumbe University Dar es Salaam Business School: contacts Pngowi2002@yahoo.com , +255 754 653 740



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