JAMES MGAYA – Art in Tanzania internship
Political changes may change the regime of ruling due to new philosophies in leadership, ruling parties, country policies, laws and rules, diplomacy, and democratic changes. Financial development is all about improving and expanding financial services and resources to boost economic growth.
Democracy is one of the significant forces that lead governments to undertake reforms to enhance financial development, as in the period of SAP’s (structural adjustment programs) attempt to correct economic imbalances to improve the efficiency of developing in transitional economies, thereby setting the stage for further development. This institutional improvement (i.e., democratisation) stimulates financial development. We all agree that in the era of the late President Benjamin Mkapa, his improvement in institutional quality was associated with increases in economic growth, at least in the short run. During this era, many investors were attracted, leading to the rapid establishment of new companies, NGOs, financial institutions, and governmental institutions like the TRA.
Democratic transitions are typically preceded by low financial development. Much work has been done to explore the relationship between institutional improvement, especially in political liberalisation, and economic growth, which is followed by a short-run boost in financial development and greater volatility of financial development.
How do democratic processes improve institutional quality and influence financial development?
By facilitating property rights protection, contract enforcement, and encouraging investment, President Samia Suluhu, who insists on institutional improvement, could serve as one channel in which trade openness could boost financial development and growth. Although there are positive feedback and interaction effects between economic and political liberalisation, institutional reform under an open economic environment could boost investment and economic growth.
The financial sector development is integral to economic growth as it can reduce the cost of acquiring information, conducting transactions, and facilitating savings mobilisation. The financial sector can enhance resource allocation and increase aggregate savings by providing these services. Credit provided to the private sector seems to follow a path with increased influence associated with a decreased income level and seems essential for convergence and a country’s economic growth.
How Political Climates Affect the Financial Development?
- A change in government often means a shift in ideology for the country’s citizens, which usually means a different approach to monetary or fiscal policy, both of which, especially the former, are significant drivers of a currency’s value. The hope is that a new leader might make changes that boost a country’s economic growth potential or improve its financial outlook. Bureaucracy and interference in the financial service industry by the government and pricing regulations are mechanisms for financial and taxation for tax rates and incentives.
Conclusion
Financial development generates a good portion of its revenue. For an economy to remain stable, it needs a healthy financial sector and an open economic condition for more capital projects and investments. When this occurs, the financial sector benefits due to economic growth. Political factors play a significant role in determining the factors that can impact financial development and long-term profitability in a particular country or market. This allows for success in a dynamic financial industry by diversifying the systematic risks of political environments in Tanzania. Still, financial developments expose itself to different types of political environment and political system risks.
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