Indicators of Convergence

  • Posted on: 30 November 2010
  • Updated on: 30 November 2010
  • By: radmin

Indicators of Convergence

At its 26th ordinary session held in Algiers in September 2002, the Assembly of Governors of the Association of African Central Banks (AACB) adopted the African Monetary Co-operation Programme (AMCP). The implementation of this Programme is expected to lead to the establishment of a single monetary zone with a common currency and a common Central Bank at the continental level, by the year 2021. In this regard, the following framework for macro-economic convergence was adopted:

  • Harmonization of macroeconomic and statistical concepts;
  • Observance of the underlisted convergence criteria by the year 2015:

Primary criteria:

  • Overall budget deficit (excluding grants) / GDP ratio < 3%;
  • Inflation rate < 3%;
  • Reduction of Central Bank financing of budget deficit;
  • External reserves 6 months of goods and services imports.

Secondary criteria:

  • Elimination of domestic arrears and non-accumulation of new arrears;
  • Tax revenue / GDP ratio 20%;
  • Salary mass / total tax revenue ratio 35%;
  • Maintaining of real exchange rate stability by each country;
  • Public investments / tax revenue ratio 20%;
  • Maintenance of positive real interest rate.

The African Monetary Cooperation Program (AMCP) Convergence Criteria

The available statistics indicate that Tanzania is converging towards the statistical benchmarks under the AMCP. The convincingly performing indicators include Inflation, the external reserve position (performed above the AMCP criteria), the Central Bank financing of the budget deficit, public investment to tax revenue ration , and domestic arrears. The achievements are in line with the recently recorded robust macroeconomic performance of the Tanzanian economy as reflected in real GDP growth, which grew by 6.8 percent in 2005 and price stability.

Tanzania is implementing exchange rate and interest rate policies that are in conformity with the internationally and AMCP recommended standpoints. The rates are both market determined. The real interest rate recorded negative rates of less than one and is expected to improve to realize positive rates as financial sector continues to strengthen. Exchange rate is freely floating with least interventions from the Central Bank to iron out unusual trends.

The Bank of Tanzania monetary policy stance is consistent with the objective of maintaining at “zero” level, the Central Bank financing of the budget deficit, intended to enforce disciplinary in government spending and encourage government to borrow from the private sector, but without crowding out other sectors of the economy.

Central Banks: