This paper examines the fiscal dominance hypothesis in Tanzania by exploring the relationship between the monetary base and the government debt using monthly data from 2003:1 to 2019:12. Results from formal statistical tests indicate no evidence of a long-run relationship between the variables. Structural vector autoregressive model is thus estimated to analyse the short-run dynamics. The findings point to a positive and statistically significant impact of government debt on monetary base. The findings identifies political phenomenon that before the fourth phase government (2003-2005), monetary policy witnessed relatively intensive fiscal dominance as compared to the fourth phase (2005- 2015) and fifth phase government (2015-2019). However, in comparison with the fourth phase government, findings suggest that during the first four years of the fifth phase government, monetary policy encountered a relatively high fiscal influence, partly attributed to implementation of huge development projects and reduction in foreign financing in the government budget. The identified fiscal dominance for the sample period, implies a subordinated monetary policy, compromising on Bank of Tanzania’s primary objective of price stability.
Suma Philbert Mwankemwa (Sun,) studied this question.