Washington, DC — The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Tanzania's performance under the Policy Support Instrument (PSI) and approved a precautionary 18-month arrangement under the Standby Credit Facility (SCF) for SDR 149.175 million (about US$224.9 million).
The precautionary SCF Arrangement is designed to provide Tanzania a financial cushion to withstand deterioration in external demand and access to global market financing. As the country is not facing any immediate balance of payment needs, the program will form part of an overall strategy to stave off any adverse effects that Tanzania could be facing as a result of the uncertainties in the global economy.
The PSI for Tanzania was approved by the Executive Board on June 4, 2010 (see Press Release No. 10/ 227). All December 2011 and March 2012 quantitative assessment criteria and indicative targets were met, other than the March 2012 indicative target on the floor on net international reserves. All five structural benchmarks for the period through end-June 2012 were implemented.
Following the Executive Board's decision on Tanzania, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:
"The Tanzanian economy grew steadily in 2011 despite severe power shortages that were induced by regional droughts. At the same time, higher food and energy prices pushed inflation up to 20 percent. The authorities are to be commended for taking prudent policy measures to contain domestic demand and inflationary pressures. To this end, the monetary stance was tightened to moderate credit and broad money growth, and the fiscal position was strengthened by improved revenue performance and tight expenditure controls. The construction of a new externally-financed gas pipeline is intended to address the vulnerabilities of the hydro dependant power sector and secure a durable supply of low-cost electricity in the medium term.
"The budget for 2012/13 is appropriately targeted at further reducing the deficit, which is essential for rebuilding fiscal buffers and strengthening debt sustainability. Although the growth outlook remains positive, the volatile global economy poses risks to revenue collection.
To preserve the fiscal adjustment path and avoid a build-up of arrears, any revenue shortfalls would need to be offset by cutbacks in recurrent and non-priority capital expenditures, while safeguarding critical social and development spending.
"The sustained tightening of monetary policy in 2012/13 is aimed at supporting disinflation toward the authorities' single-digit objective.
In order to better manage liquidity and strengthen its anti-inflationary capacity, the Bank of Tanzania intends to move to more active use of interest rates as a policy instrument. The flexible exchange rate regime will ease the burden on monetary policy and help maintain adequate international reserves.
"While Tanzania does not face an immediate balance of payments need, the newly approved Standby Credit Facility (SCF) provides a comfortable buffer against external shocks. The authorities intend to treat the SCF as precautionary and will only draw the Fund resources should external demand deteriorate or access to international financial markets become more limited," Mr. Shinohara added.