13 January 2018

Tanzania: Dar Economy On Right Track, Inflation Moderate - IMF Report

Photo: Alidamji/Wikipedia
Dar es Salaam city skyline.

AS inflation remains moderate, Tanzania's macroeconomic performance is thriving, a new report by the International Monetary Fund (IMF), has revealed.

According to the report, most quantitative targets were met as international reserves continue to substantially increase. On January 10, 2018, the Executive Board of IMF completed the seventh and last review of Tanzania's economic performance under a programme supported by the Policy Support Instrument (PSI).

The PSI for Tanzania was approved by the Board on July 16, 2014. The programme was subsequently extended to January 15, 2018. Tanzania's programme under the PSI is aimed at maintaining macroeconomic stability and promoting a more inclusive growth.

It supports the authorities' objectives on reforms to strengthen public finance management, improve efficiency and transparency of public spending and move to an interest rate-based monetary policy framework. 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.

According to a statement released on Thursday by the IMF Communications Department, Tanzania's recent economic performance has been mixed and the outlook is subject to emerging risks.

Although GDP data point to continued strong growth, other high frequency data suggest a weakening of economic activity. Tax revenue collections are lower than expected and credit growth has stagnated reflecting in part banks' rising non-performing loans (NPLs).

However, the report insists, inflation remains moderate and international reserves have increased substantially. "There are downside risks to economic growth in the short term stemming from slow budget implementation, a challenging business environment and private sector concerns about authorities' enforcement of rules," the report says.

Programme performance under the PSI, according to the report, has been broadly satisfactory and most quantitative targets for June and September 2017 were met.

The report suggests that macroeconomic policies need to be closely coordinated. After recording a small fiscal surplus in July-September against a programmed deficit, the government is planning to step up budget implementation, particularly in development spending.

It also suggests that the monetary policy stance and liquidity forecasting and management will need to be closely coordinated with fiscal developments.

The Bretton Woods institution says that strong growth and job creation are needed to address high poverty and a large underemployed youth population and that infrastructure gaps and the business climate have also become increasingly challenging and require response.

"Sustained reforms will be needed to achieve a strong private sector-led growth envisioned by the government's development plan. Budget credibility and implementation need to be improved and arrears prevented," the report insists.

The IMF report further insists that additional domestic revenue needs to be mobilised through tax policy and administration reforms, while improving the functioning of the VAT refunds system.


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