The Impact of Private External Debt on Monetary Policy in Tanzania (2010-2020).

Nyonzo, Francis S. (2021) The Impact of Private External Debt on Monetary Policy in Tanzania (2010-2020). Masters thesis, The Open University of Tanzania.

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Abstract

The study aimed to investigate the imported shocks from Private External Debt and how they affect the efficiency of monetary policy. The study used the deliberate sample by collecting monthly data from 2010 to 2020 from Bank of Tanzania’s website, reports and publications, which made 132 observations. Because of the cointegration that was found in the variables, the study employed the Vector Error Correction Model (VECM) to capture short term and long-term effects. The model has shown that the Private External Debt imports external shocks through exchange rates, Exchange rates affect Inflation rates and thus affecting the power of the Central Bank in controlling inflation. The study suggests that the country should use fiscal means to finance its activities because the domestic debt increases the amount of Private External Debt and also the number of cross border loans are to be limited. Discount rates are to be well managed to limit the amount of the shocks, which are imported from the financial integration and globalisation because the discount rates have also been shown to affect the Private External Debt Keywords: Monetary Policy, Macroeconomic Shocks, Imported Shocks, Exchange Rates.

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