African Journals Online
African Journal of Finance and Management

Volume 11, Number 2, January 2003
ABSTRACTS

Monetary Programming for Growth in Tanzania

Kilindo; A; A; L; J. J. Nyela; P. M. Noni; J. L. Massawe; C. S. Kimei and B. Tarimo

Abstract: Economic managers in central banks and finance ministries in emerging market economies have increasingly been faced with the challenge of making and implementing policy decisions by using indirect policy instruments. This has necessitated development of proper programming frameworks as well as proper understanding of the interactions of macro-economic variables. Monetary programming has become such an important framework. This paper attempts to develop a monetary programming framework for Tanzania. Tanzania has become such an important framework for Tanzania. Tanzania has implemented economic reforms since the mid 1980s-moving from a centrally controlled economy to free market economy. The methodology used was econometric estimation of a macro-economic model, built with incorporation of information obtained through surveys.

The survey results indicated that the majority of policy makers (90%) showed that they were aware of the way monetary policy is conducted, (60%) of the respondents expressed dissatisfaction with the conduct of monetary policy pointing out conflicting objectives, crowding out of the private sector, and lack of transparency. The econometric framework was characterized by ten equations for the four sectors of the economy namely; output and expenditure; the public sector; the monetary sector; and the external sector.

Data for the estimates covered the period 1986 to 1998, which corresponds with the period of economic liberalization. Results of the estimations showed that current consumption is highly determined by disposable income and lagged consumption. There was no evidence though, that consumption was affected by interest rates. Similarly investment is weakly influenced by the interest rate but strongly and positively affected by output and government expenditure.

Output is positively influenced by changes in money supply. In the short run output moves in the opposite direction with changes in the real exchange rate. This can be attributed to the fact that when domestic currency depreciates the cost of import dependent activities increases possibly affecting output negatively.

Exports are influenced by real output and their own lagged values while imports are influenced by output and their own lagged values. No strong evidence of exchange rate influence is obtained, in support of the argument that the demand for imports is inelastic to movements in the exchange rate.

Demand for money is positively influenced by real output and is negatively influenced by inflation. The coefficient of interest rate however is positive contrary to theory. This can be explained by the coincidence of liberalization of interest rates with the rate of growth of money supply, which began to decline due to tight monetary policy. Domestic prices are positively influenced by foreign prices, changes in money supply, the exchange rate and negatively influenced by real output. Domestic interest rates are influenced by both foreign interest rates and money supply.

The money supply equation was included in an attempt to establish the relationship between current level of broad money supply and the level of reserve money and its own lagged values. The findings show that the current values of money are mainly related to their lagged values and by the level of current and lagged reserve money.

With respect to tax revenue it was found that private consumption is the determinant of tax revenue. This is natural given the recent introduction of VAT and predominance of trade taxes in total revenue. Surprisingly imports are not a significant factor in influencing domestic revenue. The findings of this study provided an important contribution to the understanding of the macroeconomic environment within which monetary policy operates in Tanzania.

The Multiple Dividends of Abolishing Statutory Tax Exemptions

Patrick Mugoya

Abstract: This paper shows that the need to increase tax revenue in Tanzania is obvious and that this can be done through a base - broadening, marginal rate-reduction and simplification of tax reform. It argues that minimizing statutory exemptions shall, not only broaden the tax base, but also simplify the tax system, improve compliance and enhance transparency and good governance. Marginal rate-reduction in personal income tax as well as in the value added tax could be expected also to impact favourably on voluntary compliance and economic efficiency hence resulting into an even broader tax base in the future. The paper also builds a case for a more effective enforcement of the tax regime on employment income and a commitment to a consistent tax reform agenda so as to minimise the uncertainties in the existing tax policy stance.

Designing an Effective and Efficient Insolvency Code for a Tanzanian Market Economy

Isaya J. Jairo

Abstract: During government ownership public corporations dominated the economy an some used to be subsidized and kept going even when they were technically bankrupt. Given that situation the insolvency code was not playing its role and its shortcomings could not be detected. Bankruptcy laws have a major impact on lender-borrower relationships and therefore on the structure of ownership and capital in companies.

Investors take into account the fact that the design and the direct and indirect costs of a bankruptcy process differ among countries. These aspects of the code influence borrowing and lending decisions. This paper reviews the Tanzania insolvency and related legislation, comparing their efficiency against a number of benchmarks. The benchmarks are a result of a study of eight insolvency codes those of UK, US, France, Germany, Italy, Canada, Japan and Sweden. UK was the source of Tanzanian code.

Other codes have been selected because they cover a broad spectrum of the competing debtor-and creditor-oriented insolvency procedures. The Swedish auction bankruptcy system provides a peculiar additional alternative. The paper discusses the spirit behind different codes and explores economic and financial implications for adopting a particular alternative, before making suggestions on how to come up with an effective and efficient bankruptcy law.

Compliance with Tax at Household Level: The case of Development Levy in Tanzania

Deogratius P. Mushi

Abstract: This paper is about compliance with tax at local government level in Tanzania. A simple generic model of tax compliance is set out to determine the further specified to look on compliance with development levy in Tanzania. For simplicity and data constraints problem; logit model techniques are applied to sort out the major covariates of tax compliance.

Empirical results of the model have shown that individual characteristics, tax effort and terms of trade with local governmental authorities are all important in explaining compliance with development levy in Tanzania. However, rural-urban location constitutes the strongest effect in terms of who pays and who does not.

Choosing an Epistemic Stance

Elisante Gabriel

Abstract: This paper discusses issues connected with methodological choices. There is a need to be clear about the stance at which the knowledge is generated from. The existence of various domains for mapping knowledge and the concept of “methodological sophistication” will also be addressed. The connection of what we claim to know (ontology) and how do we claim to know (epistemology) will be addressed in this paper. Some mapping tools will be used to make understanding easier. It should be understood that making a choice of a certain epistemic stance is not the end of the journey. The critical aspect is to justify why we make a particular choice and exclude others. There is no practical justification of belonging to more than one domain, neither should we fight once we belong to different domains. At the end, the title of a research project, which I am expecting to do, will be given, followed by an indicative bibliography.

Micro Finance Institutions (MFIs) Practices and Povery Alleviation in Tanzania

Sylvia Shayo Temu

Abstract: Tanzania’s Poverty Reduction Strategy (PRS) focuses among other efforts at reducing income poverty, improving human capabilities, survival and social well being and containing extreme vulnerability among the poor. In this context access of households and firms to physical and financial resources is extremely crucial. For the majority of Tanzanians who are poor, without access to formal financial institutions, access to micro finance services is a viable alternative in an attempt to reduce poverty. Micro finance institutions (MFIs) offer the poor, the possibility of managing scarce resources more efficiently and taking advantage of investment opportunities for economic returns. Access to finance services may contribute to increased income generation and thus achievement of higher standards of living at household levels while at enterprise levels it can facilitate the pursuit of income and firms growth. The operations of MFIs need therefore to have greater outreach particulars where the poor are concentrated, i.e. in the rural settings. At the same time services ought to be sustainable in order to have impact on poverty alleviation.

Fiscal Adjustment in IMF-Supported Adjustment Programmes: The Tanzanian Experience

Rose Aiko

Abstract: Fiscal adjustment is an essential element of macro-economic stability and economic growth. Given that economic growth is the most powerful weapon in the fight for higher living standards, poor growth performance in African countries, has been a challenge to economists, policy makers and international development institutions.

Sub-Saharan Africa’s performance in the 1980s and 1990s was disappointing with much of the region unable to break away from paths of negative or low per capita income growth, high inflation and fiscal deficits, and balance of payments difficulties. In the face of excessive fiscal deficits, balance of payment crises, rapid monetary expansion, high inflation and lack of credit to the private sector, the imperative was to embark on adjustment programmes supported by the World Bank and IMF with fiscal reforms aimed at achieving sustainable external balance and macroeconomic stability through restraining aggregate demand, promoting supply and improving economic efficiency. Some countries were able to make progress as fiscal reforms gained ground, liberalization efforts marked progress, and numerous countries took steps to eliminate credit controls, and to adopt indirect instruments of monetary policy.

Fiscal adjustments have however become the subject of criticism in recent years, especially in low income countries, because they involves trade-offs between stability and growth, or stability and social expenditures, which are often not adequately articulated or quantified and involve distributional issues that are politically sensitive.

The key issues raised are: (1) To what extent have the W.B./IMF-supported programmes helped in achieving a more sustainable fiscal adjustment? (2) How did the negotiations of adjustment take account of constraints on implementation, explore alternatives and assess the social impacts of the key measures? (3) To what extent have the adjustment programmes contributed to building institutional capacity and fostering ownership? (4) How were trade-offs considered i.e. how important were efforts to sharply reallocate the budget toward protecting the most vulnerable groups? (5) How effective has Bank-Fund collaboration been in addressing public expenditure policy and management and social safety net issues? (6) Do Fund-supported programmes show improvements overtime to take account of lessons learnt?

Social Impact of Improved Rural Roads: A Case Study from Tanzania

Paul Manda

Abstract: This paper evaluates the social impact of the improved rural roads. Data is taken from a social impact assessment study carried out in the year 2001 along the improved (upgraded from earth to engineered gravel) Msata-Bagamoyo road in Coast Region, Tanzania.  Data collection techniques employed were rapid rural appraisal of social services; in-depth interviews with a sample of households and secondary data. Results of the assessment reveal that the improvement of the road increased agricultural production, commercialization of agriculture and improved the timely availability of agricultural inputs to farmers. It has led to greater accessibility of markets, reduced transportation costs and enhanced food security. Other challenges are increases in sexually transmitted diseases including HIV infections. The major conclusion drawn is that peasant farmers are rational economic beings and that rural roads play a significant role in the transformation of the agricultural sector in Tanzania.

Money, Output and Price Level in Nigeria: A Test of the Monetary Neutrality Proposition

Meshach J. Aziakpono

Abstract: This paper presents and tests a model to determine either or both how anticipated or unanticipated money affects real output and inflation in Nigeria. The Barro two –step estimation procedure was explored. Also, the effects of devaluation and business cycles in the industrialized countries on output fluctuation in Nigeria were pursued. The evidence reveals that while anticipated money affects real output, the unanticipated money did not. Thus, the tests contract the policy ineffectiveness proposition. Also, cyclical movements in the output of industrialized countries negatively affect real output with spread effect; and devaluation exhibits a delayed positive impact on output performance, with greater effect on inflation.

What Matters in Enterprise’s Access to Microcredit?

Gabriel S. Umoh

Abstract: This paper investigates factors, external and internal to enterprises, which affect their participation in credit market. Using data from 35 firms and 20 credit institutions collected through structured questionnaire, results reveal that more firms obtain loan from informal sources, and many do not apply for loan from formal institutions due to inadequate collateral, difficult processing procedures and high interest rate. Prohibit analysis indicates that income and educational level of firm owners and value of initial capital reduce the likelihood of firm’s demand for credit. Credit institutions lending policies account for 81% (adjusted R² = 0.81) of the amount of loan advanced by institutions.

Accounting Systems for New Public Sector Undertakings Management: A Case Study

Bonu, N. S.

Abstract: This paper traces the existing Accounting Systems in a selected Public Sector Undertakings (PSU), in Botswana and examines how far the systems are suitable for the New Public Sector Undertakings Management (NPSUM). It concludes that the current accounting systems such as financial accounting, cost accounting and reporting systems are not suitable for the effective and efficient management. It is suggested to adopt an Integrated Accounting System (IAS), which is to be developed to suit the needs of a specific PSU as each PSU is different in nature and a blanket system of accounting should not be applied.