THE government should focus on raising finance to the private sector to stimulate growth as the Bank of Tanzania relaxes its tight monetary control to increase money supply in the economy, financial experts have said.
The experts said that the increased money supply would be more meaningful if the government would focus on increasing credit facilities to the private sector instead of directing the windfall to consumption.
"The government should increase credit facilitation to the private sector through microfinance institutions for small and medium entrepreneurs and through other arrangements for big investors," Prof Haji Semboja of the University of Dar es Salaam told the 'Business Standard' in an interview.
He said local big investors should be enabled to undertake major strategic development projects under public private partnership arrangement to boost the economy.
"This can be done in the fast growing sectors such as mining and energy," he said. Dr Honest Ngowi of Mzumbe University's Dar es Salaam Business School said he believed the government and the central bank had calculated well before relaxing the monetary controls to ensure it brings in positive impacts to the economy.
He also said the government should consider increasing credits facilities to the private sector in the list of its priorities. If the increased money supply will lead to increased credits to the private sector, that will be good as it will stimulate the economy.
If it is for consumption only then it will fuel inflation. The Bank of Tanzania said in its latest monthly economic review that money supply had gone up in July compared to June this year, maintaining the upward trend since last year.
It said the annual growth of extended broad money supply (M3) was 17.6 per cent in July 2013 up from 15.6 per cent recorded in June 2013 and 12.8 per cent recorded in the corresponding period in 2012. The increase was explained by a sizable increase in net government borrowing from the banking system, the bank says.
During the period under review, there was a significant increase in net credit to the government by the banking system to the tune of 1,240bn/- in the year ending July 2013, compared to a repayment of 22.9bn/- recorded in the corresponding period in 2012.
The Bank of Tanzania, Director of Economic Policy and Research, Dr Joe Massawe, said it implied that the monetary policy had a positive impact to the economy as money supply increases when inflation is declining and the economy is steadily growing. "It is impacting the economy very positively. We have increased supply when the inflation is declining and the economy is growing," he said.
"Here money supply increases and the economy growth increases too... the efficiency of the economy keeps on improving as the increased money supply is used to generate growth," he said. Dr Massawe said it was expected that with the economy maintaining a robust growth more money would be needed to buy the output of the economy.
Dr Johaveness Aikaeli of the University of Dar es Salaam also supported the Bank of Tanzania's monetary policy saying it led to positive impact to the economy. He said with the current monetary policy, money supply increase financed increased output of the growing economy.
"There are only two things here. Either it (increased money supply) finances output or inflation. In our case, it is financing output as the economy is growing." He said the growth of the economy was not in statistics only as some skeptics would believe because the growth could be seen with increased economic activities. "The growth is not abstract. It is happening and is seen.
You can see the increased level of economic activities in construction, for instance," he said. The Bank of Tanzania's monetary policy for 2013/14 seeks to achieve annual growth of average reserve money not exceeding 14 per cent, annual growth of M3 of 15 per cent and annual growth of private sector credit of 19.6 per cent.
The policy supports the broader macroeconomic policy objectives of the government and focuses on setting monetary targets which are consistent with the objective of maintaining low and stable inflation, while continuing to enhance access to banking services for the unbanked and the under banked.