Tanzania started with its currency linked to those of Kenya and Uganda (the other members of the East African Community), but then went its own way, with its own form of central planning, before embarking on a long (and tortuous) process of structural reform and stabilisation, including a long and difficult move towards indirect monetary instruments, with a continuing focus on growth as well as price stability.
|Years||Targets and attainment||Classification|
|1974-81||exchange rate fixed to USD, with devaluation January 1974 producing return to previous parity vs USD and maintaining 1:1 parities with Kenyan and Ugandan currencies; central bank relies mainly on overall and selective credit controls (with annual national credit plans, which are widely missed in practice) and moral suasion, while interest rates are rarely changed; banking system concentrated and state-owned; central bank and single main commercial bank are important sources of finance to government and SOEs; large SOE sector, some central planning including controls on some prices and imports; late 1975 peg switched from USD to SDR, with significant devaluation, in line with Kenya and Uganda; mid-1970s controls on prices extended, import controls tightened, leading to parallel consumer goods and forex markets with rising spreads; 1977 break-up of East African Community; 1978-9 military conflict with Uganda damages Tanzanian economy; 1979 currency devalued and peg switched (and no longer rigidly maintained) to undisclosed bespoke currency basket, ending 1:1 parities with Kenya and Uganda; statistical database poor||augmented exchange rate fix AERF|
|1982-2017||1982 further devaluation with change to basket weights; tighter controls plus attempt to suppress black markets, but soaring parallel market premium; sharper devaluation mid-1983 (not enough to reverse long-term rise in real effective rate); high but variable fiscal and SOE deficits reflected in monetary growth; larger devaluation mid-1984; statistical weaknesses compounded by fire at central bank HQ 1984; 1985 further depreciation, 1986 very large depreciation within reform and stabilisation package, with further adjustments in the same direction through 1987 to 1989, but fiscal and monetary tightening and structural reforms difficult and delayed, while depreciation, although large in nominal terms, is sometimes too small to eliminate earlier overvaluation; interest rates by now mostly positive in real terms; 1990 after total real effective depreciation of close to 80% exchange rate policy switches to keeping constant real exchange rate via monthly adjustments based on inflation differentials, plus periodic larger adjustments; by 1991 Nyirabu Commission report and increasing problems at commercial banks (growing non-performing loans to marketing boards, cooperatives and SOEs) lead to start of major financial sector reform, including interest rate liberalisation, opening up to competition from foreign as well as domestic private sectors, and efforts to reduce size and automaticity of central bank rediscounting; 1992 forex bureaux authorised, exchange rate management aims to reduce spread between official and market-determined bureaux/parallel rates; 1993 full interest rate deregulation, regular forex auctions which determine official exchange rate, and regular treasury bill auctions whose yields determine central bank rediscount rate, while reserve ratio becomes important policy instrument; 1994 forex auctions replaced by interbank market, central bank’s legal status revised; 1994-5 renewed fiscal control issues, emergence of banking system weaknesses (notably insolvency of dominant commercial bank) which obstruct move towards indirect monetary instruments; from 1996 more successful fiscal and monetary stabilisation, with adoption of reserve money programming, pursued with varying success; as of early 2000s monetary policy objectives are price stability and growth, treasury bill auctions remain main monetary instrument supported by repos with commercial banks, inflation is low and growth strong, but bank lending remains weak and contributes little to growth; from mid-2000s interest rates become more volatile and aid inflows complicate liquidity management and monetary policy; 2014 intention to move to more forward-looking policy framework with improved transmission mechanism, but little progress made in moving from focus on monetary aggregates towards focus on interest rates; statistical database considerably improved by end of period||loosely structured discretion LSD|
Selected IMF references: RED 1974 pp33-4, 61, 63; SR 1974 p16; RED 1975 pp35-7; RED 1976 p43; SR 1976 pp6-7; RED 1979 pp30-1, 36, 51; RED 1982 pp44, 49-50, 67; SR 1982 pp6-7, 19; RED 1983 pp1-2; SR 1983 pp21-2; RED 1984 p55; SR 1984 pp4-5, 7; RED 1987 p52; SR 1987 pp10, 17-18; SR 1988 pp4-12, 19-21; SR 1990 pp4-9, 21-2; RED 1991 pp22-3, 28-9; SR 1991 pp4-12; SR 1992 pp2-12, 19; RED 1994 pp22-8, 36; SR 1995 pp5-8, 10, 13-15; SISA 1996 pp2-6, 11; SR 1997 pp6-7, 15-17; RED 1999 pp29-31, 37-8; SISA 2002 pp26-48; SR 2002 pp12-13; SR 2004 pp14; SR 2007 pp16-18; SR 2014 p12; SI – Macrofinancial Issues 2016 pp30-5, 40-2; SR 2016 pp4, 7, 19-20.
Other references: Adam et al (2016); Bank of Tanzania (n.d.).
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