Bank of Tanzania

Bank of Tanzania (BoT)

=Overview=

In December 1965, the Tanzania National Assembly passed the Bank of Tanzania (BoT) Act that led to the establishment of the Central Bank of Tanzania—the BoT, which was launched by President Julius Nyerere in June 1966. Following the 1967 Arusha Declaration, the Banks’ Policy was set to support Tanzania’s national agenda regarding the control of the use of foreign exchange in the country. In 1978, the BoT Act was amended due to the occurring economic crisis, empowering the Central Bank to inspect and supervise other financial institutions.

Currently, the Bank focuses on containing inflation to retain price stability. This mandate is reflected in the Bank of Tanzania Act (1995) and it is also backed up by the Bank of Tanzania Act (2006).

=Functions=

In its Monetary Policy, the BoT considers its main functions as to:


 * Steadily and in an acceptable way increase the markets’ money supply


 * Insure interest rates are at least above the inflation level


 * Have in place foreign currency reserves that allow the Bank to smoothen out short-term fluctuations in the foreign exchange market and serve as a backup in times of crisis


 * Encourage well-functioning financial markets as well as protect and develop well-managed banking institutions


 * Have a relatively stable exchange rate for the national currency


 * Expand domestic credit without overly pressuring production recourses and in consistency with the Banks’ Money Supply objectives.

=Management in Oil and Gas Industry=

The involvement of the Central Bank in the oil and gas industry is stipulated in two policy documents, namely the National Natural Gas Policy of Tanzania and the Local Content Policy of Tanzania for Oil and Gas Industry. In the Gas Policy of 2013, the BoT’s responsibility in the oil and gas industry is to “establish monetary conditions able to contain a potentially rising inflation fuelled by the natural gas industry”. The Policy establishes three main functions that the BoT should fulfil:


 * Ensuring that natural gas activities do not cause negative impacts on both monetary policy and macro-economic stability


 * Advising the Government on the impact of the natural gas sub-sector, as it evolves, on the national economy, and


 * Managing and administering the Natural Gas Revenue Fund established in the Policy.

The Local Content Policy identifies the BoT as one of the key institutions in the implementation of the policy. The Policy assigns two functions to the Bank of Tanzania: Monetary function and local content function. Specifically, it states that the central bank will establish monetary conditions conducive to price stability over time as the oil and gas industry may fuel inflation in the country if favourable conditions are not timely put in place; moreover, the BoT is responsible for releasing and monitoring expenditure of requested for and approved funds for the local content purpose.

=Different Views=

The Development Partners Group (DPG) in Tanzania suggests that the management of the Natural Gas Revenue Fund should be conducted in a transparent and accountable manner, including how the money will be used to benefit local communities. The former Revenue Watch Institute (RWI)—now the Natural Resource Governance Institute (NRGI)— and the Vale Columbia Centre on Sustainable International Investment (VCC) note in their analysis of sovereign wealth funds (gas revenue funds) that the operational manager (in this case the BoT) should be subjected to strict legislation over the use and investment of the Fund’s assets. They suggest that responsibilities should be clearly devided between the ultimate authority over the Fund, the Fund manager, the operational manager and different departments under the operational manager. The RWI suggests risk limitation by putting in place a maximum percentage that the operational manager can invest in assets such as real estate and infrastructure. Investment abroad of the Fund’s assets is recommended so to use the Fund itself as a saving option, and the investment returns for spending. Furthermore, it is recommended that external independent bodies, in the case of Tanzania, Parliament or the Controller and Auditor General (CAG), are given a formal role of overseeing the Fund.

=BoT’s Structure= The Board of Directors is the Bank’s highest decision-making body, which is responsible for determining its policies, approving its budget and allocating its operations’ profits. The Board consists of a Governor (Chairperson), three Deputy Governors, four non-executive Directors, representatives of the Mininstry of Finance and Principal Secretary to the Treasury of the Revolutionary Government of Zanzibar and Secretary to the Board. The Governor determines one of the three deputies to serve as Deputy Chairperson.

=References=