OUTLINE OVERVIEW OVERVIEW GDP GROWTH GDP GROWTH THE GLOBAL FINANCIAL AND ECONOMIC CRISIS THE GLOBAL FINANCIAL AND ECONOMIC CRISIS PRICE MOVEMENTS PRICE MOVEMENTS GOVERNMENT FINANCE GOVERNMENT FINANCE –Revenue –Expenditure –Foreign Resources NATIONAL DEBT DEVELOPMENTS NATIONAL DEBT DEVELOPMENTS –External Debt –Domestic Debt

OUTLINE (Contd 1 ) MONEY AND CREDIT DEVELOPMENTS MONEY AND CREDIT DEVELOPMENTS –Money Supply –Credit to the Private Sector –Interest Rates Developments –Exchange Rates THE SECOND GENERATION FINANCIAL SECTOR REFORM THE SECOND GENERATION FINANCIAL SECTOR REFORM EXTERNAL SECTOR PERFORMANCE EXTERNAL SECTOR PERFORMANCE –Exports –Imports –Balance of Payments

OUTLINE (Contd 2 ) PRIVATE SECTOR DEVELOPMENT PRIVATE SECTOR DEVELOPMENT –Investments –Foreign Direct Investment

OVERVIEW Strong economic performance Strong economic performance –Despite the impact of the global financial/economic crisis GDP growth GDP growth –7.4% in 2008 –7.1% in 2007 Projected to grow at 5.0% in 2009 Projected to grow at 5.0% in 2009 –Impact of the global financial/economic crisis –Prolonged drought

OVERVIEW (Contd) –High growth registered in Communications (20.5%) Communications (20.5%) Financial intermediation (11.9%) Financial intermediation (11.9%) Construction (10.5%) Construction (10.5%) –Substantial slowdown registered in Mining and Quarrying Mining and Quarrying –10.7% (2007) –2.5% (2008) Electricity and gas Electricity and gas –10.9% (2007) –5.4% (2008)

Trends in selected macroeconomic indicators Real GDP Growth - % Inflation - annual average - % Exchange Rate (Tshs/USD) – annual average Exchange Rate (Tshs/USD) – end of period Merchandise Exports (mil. US$) - FOB Merchandise Imports (mil. US$) - FOB ,679.11,743.32, Export/Import ratio (Goods) - % Current Account Balance (% of GDP) Investment/GDP ratio ( % of GDP) Foreign Direct Investment ( mil. USD) Foreign Reserves (months of imports) /012001/022002/032003/042004/052005/062006/072007/082007/09 Govt. Domestic Revenue (% GDPmp) Total Govt. Expenditure (% GDPmp) Fiscal Bal. (before grants) % GDPmp Fiscal Bal.(after grants) - % GDPmp Average Deposit rate - % Average Lending rate - % Domestic debt/Total public debt External Debt/Total Public Debt Total Public Debt/GDP External debt services/Exports Domestic debt servi./domestic revenue

ECONOMIC ACTIVITY Agriculture, Hunting and Forestry Crops Cash Crops Cash Crops Food Crops Food Crops Livestock Hunting and Forestry Fishing Industry and construction Mining and quarrying Manufacturing Electricity, gas Water supply Construction Services Trade and repairs Hotels and restaurants Transport Communications Financial intermediation Real estate/ business services Public administration Education Health Other social/personal services Gross Value Added before adjustments less FISIM Gross Value Added at current basic prices add Taxes on products GDP at market prices

Trends in GDP Performance:

GLOBAL ECONOMIC RECESSION AND THE MEDIUM TERM OUTLOOK The global economy pulling out the recession The global economy pulling out the recession (October 2009 WEO) –Stabilization uneven –Recovery to be slow –Financial conditions improving, more than expected, owing mainly to Government intervention in: Public capital injection Public capital injection Easing monetary policy stance Easing monetary policy stance Fiscal stimulus packages Fiscal stimulus packages

GLOBAL ECONOMIC RECESSION AND THE MEDIUM TERM OUTLOOK (Contd) Global economic forecasts Global economic forecasts –To contract in 2009 by 1.4% –Expand in 2010 by 2.5% –Growth in emerging Asian economies revised upwards to 5.5% in 2009 rising to 7.0% by 2010

GLOBAL ECONOMIC RECESSION AND THE MEDIUM TERM OUTLOOK (Contd) Tanzania like all other countries affected by the Global financial/economic crisis, albeit to a lesser extent Tanzania like all other countries affected by the Global financial/economic crisis, albeit to a lesser extent –GDP Growth expected to slow down to 5.0% in 2009 –GDP growth expected to pick up in the medium- term Mitigating measures Mitigating measures –Rescue package Ensure food security Ensure food security Protect employment Protect employment Support critical social programmes Support critical social programmes Protect potential investment Protect potential investment –Kilimo Kwanza

GLOBAL ECONOMIC RECESSION AND THE MEDIUM TERM OUTLOOK (Contd) Mitigating measures Mitigating measures –Through Compensation to losses Compensation to losses –Coffee, cotton etc. Guarantees for exporters and SMEs Guarantees for exporters and SMEs Expanded fertilizer subsidy Expanded fertilizer subsidy –Operational guidelines on condition of access, procedures of evaluations, eligibility etc. put in place

INFLATION TRENDS Inflation has remained high Inflation has remained high –Lower food production (bad weather) –Food shortages in neighbouring countries Cross-border trade Cross-border trade –Headline inflation at 12.7% in October 2009, having risen from 11.6 in September 2009 Food inflation at 18.1 % in October 2009 from 13.4% in September 2009 Food inflation at 18.1 % in October 2009 from 13.4% in September 2009 Non-food inflation declined from 9.0% to 4.4% during the same period Non-food inflation declined from 9.0% to 4.4% during the same period –Decline in fuel prices trade

Overview of the World Economic Outlook Projections Actual April Projections October Projections Difference from April 2009 WEO Projections World output Advanced economies United States United States Euro area Euro area Japan Japan United Kingdom United Kingdom Other advanced economies Other advanced economies Newly industrialized Asian economies Emerging and developing economies Africa Sub-Sahara Sub-Sahara Developing Asia China India Middle East

INFLATION TRENDS Inflation under 5.0% since 2001 Inflation under 5.0% since 2001 –Hovering around 4.0% until mid-2004 when it started inching up, reaching 6.5% in March 2006 Food shortages Food shortages –Drought –Cross-border trade Petroleum prices Petroleum prices –Expected harvests to improve food supplies Inflation expected to decline Inflation expected to decline

Monthly Inflation Trend

18 Government Finance Revenues – –Revenue collection for 2008/09 was 10% below the target mainly on the account of the impact of GFC. – –Total domestic revenue was 15.9% of GDP compared to 16.0% in 2007/08 – –The government borrowed 1.2 percent of GDP (Tsh billion) from domestic sources to fix the gap. – –Revenue collection has increased in absolute terms by 18.1% in the period under review – –Monthly average collection has doubled from Tshs billion in 2005/06 to billion in 2008/09

Government Finance. Revenues (contd) – –The Fiscal Performance during July – Sept. 2009/10 also characterized by a shortfall in revenue collection Domestic revenue =Tshs 1,107.2 billion, equivalent to 87.4% of the target for the period compared to 96% last year Total grant for the period under review was Tshs 494 billion, equivalent to 60% of the target. 19

Government Finance Expenditure – –Total expenditure in 2008/09 was 25.3% of GDP compared to 22.9% in 2007/ % of the total estimate for the period – – Dev. expenditure was 14.0% below budget estimates while recurrent expenditure was broadly in line with budget estimates – –Expenditure during the first quarter of 2009/10 was 88.4% of the target compared to 81% – – Recurrent and dev. expenditures in the same period was 86 and 94 % of the estimate respectively, higher compared to 85 and 73% percent respectively in year 2007/08 20

National Debt As at end-September 2009 the National debt stock at US$ 9,330.9 million, – –80.1% is external debt – –19.9% is domestic. Out of the total external debt, USD 5,932.8 million or 79.4 percent is disbursed outstanding debt (DOD) and the remaining amount of USD 1,541.4 is interest arrears. Government is the largest borrower, owing 69.6% of the total external debt followed by the private sector (20.3%) and public corporations (10.1%) External payments for the quarter amounted to USD 26.8 million, equivalent to 1.9% of export of goods and services. 21

Money and Credit Developments During the year ending September 2009 – –M2 grew at an annual rate of 19.9% compared to 29.4% Sept – –M3 grew by 19.5%, compared to 21.2% Sept Contributing factors: – –Slowdown in the growth rate of credit to the private sector – –Deceleration of the stock of reserve money (M0) from 42.4% Sept 2008 to 22.3% – –The decision to raise central government deposits from 10% to 20% in January

Annual Growth Rates of Monetary Aggregates 23

Money and Credit Developments (contd) During the year ending September 2009 – –Growth rate of commercial bank credit to the private sector increased by 26.6%, compared to 31.8% for the period ended Sept – –No significant change in the composition of credit to various activities – –Personal loans continued to dominate with 20.4% of the total loan; followed by trade (18.7%) and agric (11.7%). 24

Money and Credit Developments During the year ending September 2009 – –Overall time deposit rate improved slightly to an average of 6.63% from 6.59% in Sept – – Negotiated deposit rates decreased to 9.27% from an average of 10.27% in Sept 2008 – –Savings deposit rates have generally stabilized at around 2.7% – –On the other hand: Overall lending rate averaged 14.90%, the same rate as it was in Sept 2008 – –Negotiated lending rate increased slightly to 13.81% from 12.91% in Sept 2008 – –Short term (up to one year) lending rate decreased to 13.98% from 14.04% in Sept 2008

Second Generation Financial Sector Reform Tanzania’s financial sector is undergoing comprehensive reforms under the joint World Bank-IMF Financial Sector Assessment Program (FSAP) The recent assessment of the program has shown substantial progress in the development and stability of the financial sector and liquidity management – –The banking system is generally well capitalized and sound, notwithstanding a modest increase in non-performing loans in the wake of the GFC 26

Second Generation Financial Sector Reform The Government continues with implementation of various activities under the Second Generation Financial Sector Reform program As part of these reforms, the Government is transforming the Tanzania Investment Bank (TIB) into a Development Finance Institution (DFI) The Mortgage Financing Act and the Unit Title Act were passed by parliament in November 2008 Processes are ongoing to secure funding for the establishment of a mortgage liquidity facility whose objective is to expand access to affordable housing 27

External Trade Performance Exports – –Export earnings (Goods and services) increased by 3.2%, from USD million in Sept 2008 to USD 4,606.6 million in Sept – –The increase was attributed to: The increase in the value of tradition exports specifically coffee, tobacco and cloves. Improved export performance in manufactured goods, horticultural products, fish and fish products – –Services receipts decreased by 2.6% mainly caused by 18% decline in transportation receipts resulting from GFC. – –Travel (including tourism) which accounts for about 60% of services receipts recorded a marginal increase of 0.9%. 28

Tanzania’s Exports by Major Category (mil. USD) Product 2008 Sept 2009 % change Aug.Sept. Sept.08 - Sept. 09 Aug Sept. 09 Traditional exports, Coffee, value Coffee, value (8.1) (8.1) Volume Volume Unit Price Unit Price 2, , , , , , (31.7) (31.7) (11.29) (11.29) 2, , , , (14.84) (14.84) Cotton, value Cotton, value (42.8) (42.8) (2.87) (2.87) Volume Volume (32.5) (32.5) Unit Price Unit Price 1, , , , , , (15.4) (15.4) (1.48) (1.48) 1, , , , (5.39) (5.39) Sisal, value Sisal, value (64.01) (64.01) Volume Volume (78.88) (78.88) Unit Price Unit Price , , , ,

Tanzania’s Exports by Major Category (mil. USD) Product 2008 Sept 2009 % change Aug.Sept. Sept.08 - Sept. 09 Aug Sept. 09 Traditional exports, (contd) Tea, value Tea, value (45.0) (45.0) (10.61) (10.61) (20.21) (20.21) Volume Volume (51.3) (51.3) (17.91) (17.91) (27.72) (27.72) Unit Price Unit Price 1, , , , , , , , , , Tobacco, value Tobacco, value (15.31) (15.31) Volume Volume (3.58) (3.58) Unit Price Unit Price 4, , , , , , (41.3) (41.3) (12.17) (12.17) 2, , , , Cashewnuts, value Cashewnuts, value (7.75) (7.75) Volume Volume (11.06) (11.06) Unit Price Unit Price Cloves, value Cloves, value Volume Volume Unit Price Unit Price 4, , , , , , (23.6) (23.6) , , , , (12.54) (12.54) Sub Total Sub Total (9.1) (9.1)

Name 2008 Sept 2009 % change % Change Aug.Sept. Sept.08 - Sept. 09 Aug Sept. 09 Non-traditional exports Minerals Minerals , , (7.75) (7.75) Gold Gold (4.44) (4.44) Diamond Diamond (75.7) (75.7) (67.48) (67.48) (26.75) (26.75) Other minerals Other minerals (66.5) (66.5) (16.69) (16.69) (63.22) (63.22) Manufactured goods (33.7) (33.7) Fish and Fish Products (25.9) (25.9) (65.02) (65.02) (0.58) (0.58) Horticultural Products (41.7) (41.7) (83.63) (83.63) Re-Exports Other Exports Sub Total , , , , Grand Total , , , , Tanzania’s Exports by Major Category (mil. USD)

Share of Goods Export Earnings for the Year ending September

Imports – –Imports of goods declined by 7.8% during the period ending September 2009 Decrease in imports of intermediate goods particularly oil – –Imports volume of oil during the period increased by 31.9 BUT the value of oil imports declined by 24.2% Decline in oil prices in the world market – –The world market price of oil declined by 45.4% from USD million per ton to USD million per ton as a result of the global economy recession. – – Service payments rose by 9.1 percent to USD 1,687.3 million 33

ItemSeptember2009 Year ending September % Change % Change AugustSept.2008p2009p Goods Account % Export Export % Import Import % Service Account net % Receipts Receipts % Payments Payments % Goods and Services (net) % Export of goods and services Export of goods and services % Import of goods and services Import of goods and services % Income Account (net) % Receipts Receipts % Payments Payments % Current transfer (net) % Inflows Inflows % 0/w General Government 0/w General Government % Outflows Outflows % Current Account Balance % Current Account Balance (US Dollars million)

Shares of Imports for the Year Ending September

Balance of Payments The overall balance of payment recorded a surplus of USD million up from a deficit of USD million recorded in the preceding year. – –Mainly attributed to the reduction in the current account deficit as a result of an increase in exports of goods and services coupled with a decline in the imports bill. Gross reserve position stood at USD 3,560.3 million as at end September 2009 – –This level of reserve was enough to cover about 5.7 months of imports of goods and services 36

Private Sector Development The cost of doing business in Tanzania – –Increased from 124th country out of 181 countries in 2007 to 131st out of 183 countries in 2008 (World Bank Doing Business Report of 2010 In 2008, TIC approved 871 projects – –o/w 621 were new and 250 were either rehabilitation or expansions – –Of the approved projects 450 were owned by local, 208 were foreign 213 were Joint Ventures 37