14 December 2017

Tanzania: IMF Applauds Tanzania Economy, Identifies Challenges

THE International Monetary Fund (IMF) has revealed that the Tanzania economy has grown strongly by 6.8 per cent in the first half of 2017.

A statement released by the IMF's official, Mr Mauricio Villafuerte said a team from IMF visited Tanzania from November 30 to December 12, 2017 and held discussions on the seventh review under the Policy Support Instrument (PSI) programme that was approved on July 16, 2014 and on the macroeconomic policies and structural reforms that could underpin a successor arrangement.

According to Mr Villafuerte the preliminary data for the first half of 2017 released by the authorities has indicated that the economy grew at strong points. However, the IMF team explained that while good harvest is set to help support growth, other macroeconomic indicators lower-than-anticipated government spending and tax revenue collections, weak private sector credit growth and rising nonperforming loans suggest that there are downward pressures on growth.

The team noted that the National Bureau of Statistics (NBS) is engaged in rebasing the GDP statistics, an exercise that is required of all East African Community (EAC) countries. "In this context, the NBS will revisit its source data and compilation methodology, and the team looks forward to the revised data, which should help provide a clearer picture of economic growth," reads part of the statement.

It added: "The good harvest earlier this year has improved significantly the availability of food, lowered food price inflation, and driven down the headline inflation rate to 4.4 per cent in November, below the monetary authorities' medium-term target of 5 per cent".

Mr Villafuerte said developments, broadly stable commodity prices, and a prudent monetary policy stance, are expected to keep inflation within the authorities' target range. He added that the macroeconomic performance under the programme has been broadly satisfactory.

The overall fiscal deficit on a cash basis was lower than programmed at 1.5 per cent of GDP as delays in securing financing for projects held back development spending. At the same time, however, domestic payment arrears continued to increase.

Tax revenue collections in the 2016/17 budget year was slightly below the programme target, notwithstanding substantially lowerthan- expected VAT refunds which were delayed by the comprehensive audit of refund claims," said Mr Villafuerte in a statement.

On international reserves, Mr Villafuerte said it has been strengthened beyond the programme target to over five months of import cover in the context of a sharp fall in Tanzania's external current account deficit.

However, in banking sector, the IMF team revealed that the ratio of nonperforming loans to total loans has increased markedly to 12.5 per cent in September. The statement states that the whole banking system remains well-capitalised, mitigating systemic risks, but there has been a sizable reduction in capitalisation ratios in some small and mid-sized banks.

"Their high nonperforming loans have prompted banks to curtail lending and private sector credit growth has continued to be very low even as the Bank of Tanzania has lowered minimum reserve requirements, its discount rate and stepped up liquidity injection operations," reads the statement.

The IMF team emphasised on budget credibility, importance of realistic revenue projections, addressing financial sector vulnerabilities and welcomed the BoT efforts to resolve some unviable banks as some of measures that need to be taken to address various identified challenges.

"The team acknowledged that Tanzania has come a long way in the last two decades. At the same time, Tanzania faces significant challenges to meet its medium-term development objectives," reads the statement. The team met with Minister for Finance and Planning, Dr Philip Mpango, BoT Governor, Prof Benno Ndulu, and other senior officials of the government and the Bank of Tanzania.


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