11 January 2017

Tanzania: IMF Hails Dar Over Economic Feat

Photo: The Citizen
President John Magufuli and Deputy Director of the International Monetary Fund, Tao Zhang.

THE Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Tanzania's economic performance, noting that Tanzania's macroeconomic performance remains strong.

The review also indicates that economic growth was robust during the first half of 2016 and is projected to remain at about 7 per cent this fiscal year.

"Inflation came down below the authorities' target of 5 per cent and is expected to remain close to the target, while the external current account deficit was revised down on account of lower imports of capital goods" noted the review report.

The review is under the programme supported by a three-year Policy Support Instrument (PSI). In completing the review, the Board also granted waivers for the non-observance of the end-June 2016 assessment criteria on the overall fiscal deficit and the non-accumulation of domestic expenditure arrears on the grounds that the slippages were minor.

The PSI for Tanzania was approved by the Board on July 16, 2014. The review, nevertheless, noted that there were risks that could adversely affect economic growth going forward. The risks arise from the currently tight stance of macroeconomic policies, the slow pace of credit growth that may become protracted, slow implementation of public investment, and private sector uncertainty about the government's new economic strategies.

The review further indicates that programme performance was broadly satisfactory and most assessment criteria for June 2016 and all indicative targets for September 2016 were met. According to the review, while progress in structural reforms identified under the programme has been generally slow, the authorities have recently stepped up efforts to advance them. These include measures taken to strengthen public

financial and debt management, modernise the monetary policy framework, and improve monitoring of parastatal enterprises. The IMF, therefore, recommended for addressing of current tight macroeconomic conditions by loosening the short-term policy stance, in line with programme targets.

"After recording a small fiscal surplus in July-September, the government is committed to stepping up budget implementation, particularly in public investment, including by mobilising external financing. Monetary policy should be eased to address the tight liquidity situation and support credit to the private sector.

The Bank of Tanzania's steps in this regard are appropriate, but will need to be fine-tuned when the planned fiscal spending materialises," reads part of the review. It further noted that the increase in international reserves recorded since the beginning of the fiscal year is a welcome step to gradually rebuild buffers.

The authorities are implementing an ambitious development and reform agenda over the medium term, as described in their recently-released second Five-Year Development Plan.

The strong drive against corruption and tax evasion has led to higher fiscal revenues, which, if sustained, will provide a good foundation for the envisaged scaling up of infrastructure investment, starting with the 2016/17 budget" explained the review. IMF also recommended for full involvement of all stakeholders in policy design and implementation, including importantly the private sector.

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 programs 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 The Executive Board takes decisions without a meeting when it is agreed by the Board that a proposal can be considered without convening formal discussions.

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