Banking and Finance
Bank of Tanzania (BOT):
The Bank of Tanzania (BoT)
bears the responsibility of establishing conducive monetary conditions
that will generate low and stable inflation over time. According to
the Bank of Tanzania Act, 1995 section 5 (3), "The primary objective
of the Bank shall be to formulate and implement monetary policy, directed
to the economic objective of maintaining price stability, conducive
to a balanced and sustainable growth of the national economy of Tanzania".
It is also responsible for supervising, controlling and enhancing disclosure
and stability of the banking sector. Other activities include participation
in the inter-bank foreign exchange market, being an agent for the auctioning
of government securities, and administration of the national balance
of payments.
Fiscal Policy:
The objective of Tanzania fiscal policy
is to ensure maximum collection of taxes to cover budgetary expenditure
while at the same time establishing and maintaining a fiscal regime
that will not only attract and mobilize investments but also make business
practice attractive in Tanzania. Since reforming fiscal management system
through the establishment of Tanzania Revenue Authority (TRA) in 1995,
tax collection has steadily increased surpassing projected annual estimates.
During the financial year 1999/2000 revenue collection reached TShs
777.6bn or 11.3 percent of the revised GDP, compared with the revised
target of TShs 768.7bn. Revenue collection under the period was also
higher by TShs 88.3bn or 12.8 percent, compared with TShs 689.3bn collected
in 1998/99.
Commercial Banks:
In an effort to liberalize the banking
sector, the Banking and Financial Institution Act, 1991 was introduced
to provide the legal framework for banking operations in Tanzania. As
a result of the Act, the entry of new banks has enhanced financial competition
resulting into some improvement of the quality and quantity of the financial
services offered. Currently there are 17 commercial banks operating
in Tanzania, with 178 branches. As at December 30, 2000, total assets
of the banking system excluding BoT reached TShs 2.460 trillion, while
deposits reached TShs 1.031 trillion.
Insurance Industry:
Since the liberalization of the
insurance industry through the Insurance Act. No. 18 of 1996 several
international insurance companies have been established in Tanzania.
The sector, which was previously monopolized by the state owned company,
The National Insurance Corporation (NIC), has attracted several foreign
and local owned companies. Currently there are 10 insurance companies
and 32 insurance brokers. Nine insurance companies are based in Dar
es Salaam; a few of them have established branches in Arusha and Mwanza.
The general administration of the insurance industry is under the Insurance
Supervisory Department in the Ministry of Finance.
Other Financial Institutions:
Several venture capitals
have been established which offer substantial equity injection to potential
business establishments. Some of the venture capital funds include FEDHA
Fund, Commonwealth Development Corporation (CDC) etc.
Interest Rates:
The liberalization of the financial
sector and the establishment of open markets in foreign exchange and
government paper have extended the scope for the implementation of active
monetary policy. The Central Bank completely liberalized interest rates
with effect from 1993. With the launching of regular Treasury Bills
auctions in August 1993, it has been possible for the Bank of Tanzania
(BoT) to peg its discount rate to bond yields, so the general interest
rate are structured.
During the year which ended in June 2000, the average
interest rate on 3-month deposits increased from 7.7% in June 1999 to
8.0% in June 2000. Also there was a slight increase in interest rates
for the 6-month and 12-month fixed deposit during the same period. The
commercial banks lending rates decreased only slightly from 21.8% in
June 1999 to 19.5% in June 2000. In general the spread between deposit
and lending rates remained large. The Central Bank has made considerable
progress in monitoring the interest rate structure that the banks effectively
apply by compiling and reporting weighted-average lending rates.
Foreign Exchange:
Foreign-exchange restrictions have
been eliminated to allow a conducive environment for attracting potential
investors and simplifying international transactions. The Liberalization
of external trade and payments was effected when the Foreign Exchange
Act, 1992 was enacted to provide an enabling environment for efficient
allocation of foreign exchange resources and for market determined exchange
rates. Along these lines, the Interbank Foreign Exchange Market (IFEM)
was introduced in 1993. In an effort to demonstrate the Government’s
commitment towards free flow of currency; profits, dividends and capital
can be readily repatriated.
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