21 January 2013

Tanzania: IMF - Inflation to Drop to Single Digit in June

THE headline inflation is envisaged to drop to below 10 per cent at the end of June, this year, International Monetary Fund (IMF) has predicted.

The prediction was based on the ongoing structural reforms in the fiscal area that will play a crucial role toward medium-term fiscal adjustment. "(Thus) a slight reduction in the growth of monetary aggregates is expected to bring inflation below 10 per cent by end Junem 2013," IMF said over the week when answering the country's letter of intent.

The structural challenges include the energy sector that is envisaged to be tackled to remain consistent with the current fiscal frameworks. "The authorities have indicated that their strategy to tackle challenges in the energy sector is consistent with the current fiscal framework," the Breton-Woods institution said.

Though the institution acknowledged on its Country Report that the inflation has gradually declined, though it has not yet "reached the authorities' single-digit objective."

"Nevertheless, inflation remains significantly higher than in Kenya and Uganda, where disinflation policies were more pronounced and undertaken earlier," IMF said referring to last December's inflation of 12.1 per cent.

At the beginning of last year, Kenya's inflation rate was 18.9 per cent and Uganda 25.68 per cent, while Tanzania stood at 19.8 per cent but pronounced actions lowered the former states rates faster than the latter.

Statistics show that at the end of last December, Nairobi and Kampala reduced the inflation rates to 3.2 per cent and 5.5 per cent respectively compared to 12.1 per cent of Dar es Salaam.

Dr Jehovanness Aikael, Senior Lecturer (economics) of the University of Dar es Salaam said given the current falling rate, Tanzania would achieve a remarkable single-digit rate in the next two to three months.

The dropping rate has no concern at all, it is actually authentic É it could be a concern if the rate dropped like Kenya and Uganda that is too fast to be realistic," Dr Aikael said. The Mzumbe University's Dar es Salaam Business School Senior Lecturer (economics), Dr Honest Ngowi said "the decline is good but rather at a snail's pace É (though) I see it to be the same dream as that of 2012 when the single currency project could not see the light of the day."

However, the government said it looked seriously on the inflation issues as the prices of staple foods are expected to continue declining in the coming months. Other factors that ease inflationary pressure in the coming months are reduction in the production costs due to stability in power supply, continued stability in the world market oil prices and stabilization of the shilling against US dollar observed since last January.

According to the letter of intent to IMF sent last week and signed by Minister of Finance and BoT Governor: "Based on these factors, headline inflation is expected to continue easing, reaching a single digit level by June 2013." The government though failed to project a figure.

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