THE International Monetary Fund (IMF) has hailed the government's commitment in the Policy Support Instrument (PSI) agreement but pointed out the need to address the country's widening gap in balance of trade in which imports overwhelmingly outpace exports.
"Tanzania's large current account deficit and related vulnerabilities call for readiness to adjust policies in the event of external shocks with a view to preserving macro-economic stability and keeping the programme on track," said IMF Resident Representative Thomas Baunsegard, in Dar es Salaam.
Mr Baunsegard made the remarks at the signing ceremony of a 57 million US dollars (approx 91.3bn/-) during which he said that Tanzania, has since 2008 been having a PSI deal with the fund. The function was also attended by the Minister for Finance and Economic Affairs, Dr William Mgimwa.
According to the Bank of Tanzania (BoT) monthly economic review for November 2011, the country's current account has recorded a deficit of 3,761.1 million US dollars (about 6.02tri/-). Some 228 million US dollars (approx 365.5bn/-) was approved by IMF board of directors last July under Standby Credit Facility meant to provide a cushion against any shocks that may affect the economy as the global recession eases gradually.
Dr Mgimwa said the country's debt is sustainable as it falls within PSI's ceiling of the 1.75 billion US dollars in the past three years. "Our local debt is not more than one per cent of Gross Domestic Product and in general the national debt is serviceable," Dr Mgimwa noted.
"PSI is a gentlemen's agreement which gives us guidelines on key macroeconomic fundamentals such as national debt size, inflation, balance of trade and revenue collection," Dr Mgimwa said while stressing that the government is targeting single digit inflation by next June.
The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programmes that, once approved by the IMF's executive board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies.
Tanzania is one of a few African countries which in 2008 signed the PSI with IMF which was an important gesture of graduating from a group of least developed countries seeking annual intervention from the Bretton Wood institution.
The country has since embarked on getting sovereign credit rating as it seeks to float a Euro Bond through which investors can buy a stake and help fund expensive infrastructure projects.
IMF executive board approved the 228 million US dollars SCF to cushion the country's economy against shocks likely to be caused by falling commodity prices, foreign tourist arrivals as Europe battles one of the worst recession since 1930s Great Depression. "This funding is not a direct concessional loan to Tanzania because it acts as an insurance cover to protect the economy against shocks and falls within the PSI," said Mr Baunsegard.