Challenges in the Era of Globalization - iaabd

Challenges in the Era of Globalization
Edited by Emmanuel Obuah
The effects of the world financial crisis on Tanzania’s economy: A reflection from macroeconomic
indicators
Abstract
M.D. Baisi, baisi@udbs,udsm.ac.tz
University of Dar es Salaam Business School, University of Dar es Salaam,Tanzania.
M.L. Mhina
Moshi University College of Cooperatives and Business Studies, Moshi, Tanzania.
This research used macroeconomic indicators to evaluate how Tanzania’s economy was affected by the recent world
economic crisis. Secondary data from the Bank of Tanzania, the National Bureau of Statistics and other sources was
analysed and tested using ANOVA and Brown-Forsythe and Welch F tests.
Except for value of loans, exports and government debt which did not indicate signs of being affected, all other
indicators tested (financial instruments, FDIs, Interest and exchange rates, employment levels and foreign reserves)
indicated signs of being affected by the world financial crisis. However, although affected, the monthly percentage
growths did not indicate abrupt changes which might be a sign of economic stability. The study recommends for the
governments to enter into global/regional unified and enforceable economic pacts, a push for enhanced IMF and
world bank roles in managing world economic stability, need for strengthening financial sector regulations to
manage negative side of highly increasing “financial engineering” and the need for governments to invest in indepth
study on financial crises to establish the best ways to build effective economic ‘shock absorbers”.
Introduction
Towards the end of the third quarter of 2007, the world found itself in another financial crisis after the
1997/98 Eastern Asia crisis. The western economies started to shrink following the collapse of key
corporates in the financial sector specifically arising from the increased default rates in sub-prime
mortgages particularly in the United States of America (USA) and the United Kingdom (UK). The
collapse of the credit system ignited a cyclical effect that led to a declining propensity to consume
(spend), declining sales, production cuts and eventually the economic crisis. This study reviewed and
analyzed the effect of this crisis on Tanzania’s economy as reflected in the key macroeconomic
indicators.
Was Tanzania hit by the world financial crisis?
When the world financial crisis was withering the world economies, some of our political leaders and
even financial and economic professionals expressed mixed feelings on its possible impact to our
economy. The Bank of Tanzania (BOT) governor commented on the stability of the “financial market”
and the possible indirect impact of the crisis in the press release issued by BOT in October 2008, the tone
of which was interpreted differently by Tanzanians. To many, it sounded as if Tanzania was safe from the
effects of this crisis. The public questioned the accuracy of the BOT governors’ data and whether the
BOT meant that Tanzania would not be hit by this financial crisis. “How can we survive the crisis in this
“economically networked world” was the ringing bell in many Tanzanians’ minds. It is on this basis that
we developed an interest to review and analyze this crisis’ effect on our economy, as reflected by
macroeconomic indicators.
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