A Rule-Based Medium-Term Fiscal Policy Framework for Tanzania
November 1, 2009
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Summary
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.
Subject: Budget planning and preparation, Expenditure, Fiscal policy, Fiscal rules, Public debt
Keywords: annual budget, debt ceiling, debt sustainability, expenditure policy, present value, real GDP, WP
Pages:
29
Volume:
2009
DOI:
Issue:
244
Series:
Working Paper No. 2009/244
Stock No:
WPIEA2009244
ISBN:
9781451873917
ISSN:
1018-5941
