News Brief No. 01/94

News Brief: IMF Completes Review under Tanzania's PRGF Arrangement and Approves US$26 Million Disbursement

September 24, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Tanzania's arrangement under the Poverty Reduction and Growth Facility (PRGF)¹. As a result, Tanzania will be able to draw up to SDR 20 million (about US$26 million) under the arrangement immediately.

Tanzania's three-year PRGF arrangement was approved on March 31, 2000 Press Release 00/25), for SDR 135 million (about US$174 million). So far, Tanzania has drawn SDR 60 million (about US$77 million) under the arrangement.

After the Executive Board's discussion on Tanzania, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"Tanzania's implementation of macroeconomic policies continues to be strong. Real GDP grew by 4.9 percent in 2000 and inflation declined further to 5.1 percent at end-June 2001. The overall balance of payments position strengthened in 2000, mainly on account of a sharp increase in exports (especially gold), a slight decrease in imports, and lower service-related payments. As a result, gross official reserves of the BoT rose to the equivalent of about five months of imports of goods and nonfactor services. Tanzania's good performance has encouraged the international community to provide a steady flow of highly concessional assistance and debt relief.

"The tax reforms of recent years and especially the structural reforms in the petroleum sector are starting to bear fruit, and contributed to the strong revenue performance in 2000/2001. The completion of an audit of all previous years' budgetary arrears—a performance criterion under the PRGF arrangement scheduled for end-March 2001 was completed by end-June, and the full implementation of the new budgetary information and management system at the start of the new fiscal year in July 2001 is expected to assist the authorities in avoiding new arrears; in view of this expectation, the Board of the IMF granted a waiver for the non-observance of this structural performance criterion.

"The authorities are to be commended for the continuing increase in expenditures for the priority sectors identified in Tanzania's Poverty Reduction Strategy Paper. Reflecting this increase, the budget for 2001/02 envisages a widening of the deficit. However, the deficit will be fully financed by grants and other concessional foreign assistance and debt relief. The government's intention to start publishing quarterly budget execution reports is a positive development. In addition, it will be important to improve information on local government finances, thus increasing transparency and strengthening the targeting and monitoring of priority sector expenditures.

"Continuing progress in trade liberalization will be essential for improving the efficiency of Tanzania's economy and the investment climate.

"Ongoing improvements in governance will be critical for higher investment and growth in Tanzania. In this regard, the imminent publication of a progress report on the implementation of the national anticorruption strategy will be an important step," Mr. Sugisaki said.

¹ On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was replaced by the Poverty Reduction and Growth Facility (PRGF), ant its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Tanzania's full PRSP was endorsed by the Boards of the World Bank and the IMF on November 30 and December 1, 2000. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½ year grace period on principal payments.